Seasoned real estate investors know it is vitally important to understand what is going on within the local market. With real estate being all about location (what the best location is for an investor to buy at this current point in time), knowing local market dynamics will offer you the clarity you need to make a good investing decision.
Why to pay close attention to market dynamics
The National story versus local story: national real estate stories always give a picture of average market dynamics across the country. These reports are important to read as they will provide you with a snapshot of the national average. What seasoned investors know is they want a local real estate market with dynamics that are more impressive than the national average. For example if national average unemployment is 6%. A real estate market that only has 3, 4, or 5% unemployment is better.
Another powerful comparison is affordability rate. If nationally it takes 30% of your income to buy a house and a local market such as Atlanta requires 12%- that is a much stronger market.
Accelerating versus decelerating markets:
At any point in time there are local market forces putting upward or downward pressure on market dynamics. Case in point, a real estate market like Detroit, Michigan has had a declining population due to the auto industry moving out.
As this city was pretty much driven by 1 main industry, the departure of that industry caused large deceleration to the economy. The flip side is stories such as the Bakken region of North Dakota’s oil boom. This market is creating the lowest unemployment rate in the country, some of the largest salaries per capita in the country and a rapid growth to commercial, industry and job growth as well as population growth.
If you want a great tool to identify where there is great growth, watch where the D.O.T. (Department of Transportation) is building highways, widening interstates and building on and off ramps. They spend million researching the need for increase infrastructure and population growth is always the prime factor. This population growth tends to have great successful investing opportunities around them.
Sustainable versus non sustainable markets:
For the past few years in the U.S. we have lived in a different investing environment. After the economic collapse, many markets have had their scoreboards erased.
What I mean by that is the economic collapse hurt many real estate markets and coming out of these challenges many markets looked similar from an investor’s perspective. Real estate was cheap and you could buy property in pretty much any city U.S.A. and the numbers looked favorable. Now just a few years later these markets have a large variety of looks to them.
Some are over inflated and facing a housing bubble and market deceleration of their own while others are striving forward with strong market acceleration. Investors who identified the best most sustainable markets are winning big time with successful investing, while investors who simply bought in any city U.S.A. are now seeing their investments lose momentum.
Following local market dynamics definitely paints a picture and creates clarity as to where
your investments will be most sustainable. This is what seasoned investors do with every
one of their investments because as we know real estate is all about location.