Nice Price - Nice Investment?

The National Association of Home Builders/Wells Fargo Housing Opportunity Index recently published their updated list of the "most affordable" areas in the U.S. for buying a home. Not surprisingly - they found that a larger percentage of the population could afford to buy a home now than a year or two ago..

Here's their rank order of the most affordable metro areas:I have had questions from clients about whether this list is a good list of potential markets for real estate investing.

	Metro Area	2008 Median Home Price	Employment Growth 1998 to 2008	Est Population Change 2000 to 2007
1.	Indianapolis, Ind.	$103,000	4.9%	11.1%
2.	Warren, Mich.	$125,000	-7.3%	-5.4%
3.	Youngstown, Ohio	$73,000	-5.7%	-5.4%
4.	Detroit, Mich.,	$90,000	-10.0%	0.3%
5.	Grd Rapids, Mich.	$102.00	1.0%	4.9%
6.	Syracuse, N.Y.,	$88,000	2.9%	-0.7%
7.	Dayton, Ohio	$90,000	-7.5%	-1.5%
8.	Akron, Ohio	$90,000	5.1%	0.6%
9.	Cleveland, Ohio	$100,000	-4.6%	-2.4%
10.	Scranton, Pa.	$85,000	4.0%	-2.0%

Regardless of whether you're a "cash flow" or "appreciation" investor - you want to have a steady supply of employed tenants who merrily pay your rent. For a rough analysis of this - I added the Employment and Population data from the nice folks at the Bureau of Labor Statistics and the Census Bureau.

Interesting! I was surprised by the results for Indianapolis. It certainly stands out in terms of having positive job growth over the last decade - along with double digit population growth. Out of this list of 10 areas - it would be the first place where I'd do more investment investigation.

But how does Indianapolis stack up again other metro areas in the U.S.? Perhaps less "affordable" - but maybe a better investment from the perspective of employment and population demographics. Here's a few other metro areas for comparison:

Metro Area	2008 Median Home Price	Employment Growth 1998 to 2008	Est Population Change 2000 to 2007
Raleigh, NC	$218,000	29.8%	31.4%
Austin, TX	$176,000	29.0%	27.9%
Dallas/Fort Worth	$155,000	16.8%	19.1%
Atlanta, GA	$153,000	15.1%	24.3%
Las Vegas, NV	$178,000	50.3%	33.5%
Phoenix, AZ	$161,000	28.8%	28.5%
San Jose, CA	$605,000	-6.1%	3.9%

In comparing these markets to the Homebuilders list - Raleigh, Austin, Dallas/FW, and Atlanta have more sustained employment and population growth. I added data for the bad boys in Las Vegas and Phoenix for some contrast. Both of these metro areas have had great growth over the past decade - but housing supply (and speculation) grew faster than demand. As we slowly chew through excess inventory in these markets - it will be interesting to see if they start to show up on investors' radars again. (I'd start by looking at the nearer term employment and population trends - are they accelerating or decelerating?)

Then there's my hometown - Silicon Valley - San Jose, CA. I talk to folks all the time who want to invest here where they live. I was intrigued to see that our population is down over the past decade and our population growth is weak... we still have not fully recovered from the Dot Com Bust. But there's something to the Bay Area - our limited land supply, the gorgeous climate, the allure of innovation and venture capital that keeps the market here going. It's a tough place to invest - but a great place to live!

I think I'll continue living here - and investing outside California!