For history buffs, the northeast is a gold mine. When it comes to real estate investing, these 11 states offer a combination of old and new housing in some highly desirable markets.
Low unemployment and growing population numbers in this region are encouraging indicators for investors looking for investment potential. For June, the Bureau of Labor Statistics reported an unemployment rate of 3.6 percent for the northeast region, down from 3.7 percent for the previous three-month period. The most recently measured population numbers in 2017 show more than 56 million living in the region with more than 21 million households and a 62 percent homeownership rate.
Like other regions of the country, the Northeast is going through an adjustment period where competition is resulting in a standoff between buyers and sellers.
“Prices are rising because we haven’t had a correction in 10 years,” said Gregory Heym, Executive Vice President and Chief Economist for Terra Holdings, LLC. “There’s been no recession to bring them down.”
Gregory J. Heym, Executive Vice President and Chief Economist for Terra Holdings, LLC
“Overpricing is caused by oversupply and now we have buyers waiting because there’s no sense of urgency,” he said. “Sellers are not inclined to cut prices when the economy is so good, with how low unemployment rates are, how low interest rates are and how the stock market has been performing.”
Boston still desirable for investors
Home to almost 4.9 million people, the Boston metro area is the 10th largest metro in the nation and a very desirable market to live and work. Still, like other parts of the country, it is hurting for housing inventory – both existing and new.
The Federal Reserve Bank of Boston estimated in June that the number of housing units authorized by permits in the metro area fell by 12.9 percent from a year ago.
“In 2017 and 2018, and the first six months of this year, the number of single-family homes sold all across Massachusetts have fallen just slightly,” said Tim Warren, CEO of The Warren Group, who noted that inventory has been falling every month for the past five years – especially in the greater Boston area.
“Jobs in the city of Boston and Cambridge keep fueling demand for housing. Boston is a great employment market and a good housing market,” he added.
Tim Warren, CEO of The Warren Group
Unemployment in the Boston metro area was 2.9 percent in June, down from 3.4 percent in June 2018. The diversity of job opportunities ranges from life sciences to pharmaceutical companies, startups, as well as firms in medical research, law and financial services.
With all the universities and colleges in the area, there is a large student population that requires housing, as well as millennials, many of whom prefer rental housing over buying a home.
Rent for a three-bedroom single-family home in the Boston metro area was $2,591 in the first quarter, a 9 percent increase from last year, according to ATTOM Data Solutions.
Despite a slowing of appreciation and shortage of available inventory, homes are still selling and opportunities still exist for investors with either a fix and flip or buy and hold strategy.
Flips accounted for 6 percent of all home sales in the Boston metro area during the first quarter of 2019, up 41 percent from the previous quarter, but a 9 percent decline on an annual basis.
The highest number of properties with foreclosure filings in the metro area during the first quarter of 2019 were in Middlesex and Essex counties.
According to ATTOM, the median sales price for a home in Boston metro was $400,000 in the first quarter of 2019, up 1.3 percent from a year ago, and a 63 percent increase from the metro’s post-recession bottom of $245,267 reported in the first quarter of 2016.
Plenty left of the Big Apple
Despite a reported decline in population for the first time in more than 10 years, the 8.4 million people that comprise the population of the five boroughs of New York City are still more than double the total of the nation’s second largest city – Los Angeles.
With unemployment at 3.5 percent in June 2019, down from 4.1 percent a year ago, job growth in the metro area is not a problem either.
“Wall Street accounts for less than five percent of all the jobs in New York City. There are good-paying tech jobs, a booming health sector and sharp gains in hospitality. Film production has risen and so has biotech,” Heym said.
What is a problem, however, is the state of the residential real estate market.
“We’re not all multi-million dollar skyscrapers,” said Heym. “The majority of people in New York City are renters. About 75 percent of the people who live in Manhattan are renting.”
The boroughs of Brooklyn and Queens are seeing home sales starting to slow, while in the Bronx – similar to Manhattan – housing is mostly rentals. Staten Island, the most suburban of the five boroughs, has a robust economy that is helping out the real estate market there.
While the price point of entry into the Manhattan market might be prohibitive for many individual investors, the potential exists for those investors in certain designated markets in the other boroughs.
“We have these opportunity zones that were part of tax reform so that investors can get breaks for investing in these areas where incomes tend to be lower,” Heym said. “You save a lot in capital gains if you hold it for a while. There is incentive to put money into these areas.”
Potential aside, one major downside that might scare off some investors from buying existing rental buildings is rent control regulations that have been extended permanently.
“Investors may decide there isn’t enough return on investment because they might not get their money back because the amount they can charge in rent is limited,” Heym said. “There’s no incentive to upgrade a building because they can’t raise the rents.”
Still, the potential for investment in the boroughs has been strong during the first quarter of 2019.
A total of 2,100 properties were flipped in the first quarter, representing 7.5 percent of all home sales in the New York metro area, a 19 percent increase from the previous quarter and up 13 percent from a year ago. Of the five boroughs, Queens had the most flips followed by the Bronx in the first quarter.
The New York metro area reported 58,998 properties with foreclosure filings in 2018, for a rate of one in every 133 housing units with a foreclosure filing.
For the first quarter of this year, properties with foreclosure filings were highest in Kings County, followed by New York and Queens counties.
Homes in the metro area sold for a median price of $385,000 during the quarter, up 7.8 percent from the previous year, and a 23 percent increase from the metro’s post-recession bottom price of $312,500 reported in the first quarter of 2012.
Three-bedroom single-family homes rented for $2,535 in Kings, Bronx, Queens and Richmond counties for the quarter, a 2.1 percent rise from 2018.
Philadelphia in recovery mode
The City of Brotherly Love has many things going for it since the Great Recession, including continued population growth and an unemployment rate of 3.7 percent in June 2019.
“As for the economy, we’ve had a pretty decent recovery,” said Kevin C. Gillen, Senior Research Fellow at the Lindy Institute of Urban Innovation at Drexel University. “We tend to underperform the national trends. Our economic problems tend to be more structural than cyclical. We didn’t have the speculative investment, so it limited the downside when the contraction occurred.”
The city has had its highs and lows. For example, as of the 2010 national census, Gillen noted that the city gained population for the first time since 1960.
Kevin C. Gillen, Senior Research Fellow at the Lindy Institute of Urban Innovation at Drexel University
“We used to be known as a manufacturing center. Those jobs are long gone and took the population with them. Now we’ve moved to educational institutions, medical institutions and entertainment, a lot of hospitals and biotech research centers,” he explained.
Another problem is the housing stock – 50 percent of which was built before 1925. While the city may not have a substantial homeless issue, it is confronted with a 25 percent poverty rate – the highest of the large cities in the country.
Inventory of homes listed for sale remains at an all-time low, well below its historic level of 5,000 houses in any given month.
With its low cost of living and upward population trend, Gillen has seen a lot of private real estate investors coming from New York on weekend bus tours to either buy and hold rental properties or fix and flip them.
A total of 1,284 homes were flipped in the Philadelphia metro area during the first quarter, accounting for 9.1 percent of all home sales there, ATTOM reported.
The Philadelphia metro area reported 25,881 properties with foreclosure filings for 2018, a rate of one foreclosure filing for every 95 housing units. Middlesex County had the highest number of properties with foreclosure filings last year, followed by Plymouth and Essex counties.
In the first quarter of 2019, Middlesex County continued to lead the metro area in properties with foreclosure filings, followed by Plymouth and Essex counties.
The median sales price for a home in the Philadelphia metro area was $187,500 in the quarter, up 4.7 percent from the same quarter last year. That price is a 12 percent increase from the metro’s post-recession bottom price of $168,000 reported in the first quarter of 2012.
A three-bedroom single-family home in the metro area rents for $1,626 in 2019, a 2.5 percent rise in rent from last year, according to ATTOM.
A bright spot for investors looking to Philadelphia as a potential market to place their money is the city’s tax abatement program, although some low-income community groups and others are criticizing it due to the resulting gentrification of neighborhoods.
“According to the tax abatement program, any improvements to real estate that an investor makes in Philadelphia are not taxed for 10 years. That’s a huge tax break,” Gillen said. “It’s critical to make housing development feasible and to attract people to the city. But it’s been under political fire.”
