The Best 5 Markets for 2020 Real Estate Appreciation: January 2021 Markets of the Month

2020 was an unusual year—in too many ways to count. And while I’m still working through the data to make sense of everything that happened last year, early indications suggest that 2020 was an unusual year for real estate markets as well.

The real estate market during 2020

During a pandemic where 10s of millions of Americans faced the immense challenge of unemployment, you might expect the housing market to suffer. But it didn’t. In fact, it did quite the opposite: Median home prices appreciated faster in 2020 than they have in more than a decade.

Why? These three primary reasons work in tandem to drive up prices.

Supply is down

There aren’t many properties being listed for sale. In December 2020, the number of properties on the market was 23% lower than it was in January of 2019.

I can’t say definitively why fewer homes are on the market, but it feels logical. Many people prefer to stay in their homes during a pandemic. In these times, the strain and uncertainty that comes with selling property and moving is unappealing.

Demand is up

Still, people want to buy houses! Even in a pandemic. Maybe even more in a pandemic. I’m sure we’ve all read our share of news stories about people living in apartments desperate to move out of the city. This seems to be true, particularly for renters.

Because of what we know about supply—less people selling—it’s safe to assume that the increase in demand is driven primary from renters who want to buy their first home.

Interest rates are extremely low

They’re driving demand, too, but I think interest rates deserve special attention. Low rates provide inexpensive access to debt, helping more people buy homes and thus bringing more buyers into the market.

Low rates also mean that buyers can bid a little bit more. I can easily imagine buyers in a competitive market choosing to bid $315,000 instead of $300,000 since the mortgage rates are so favorable. That will drive up housing prices.

Markets with positive rent and price growth

Because of these factors, many markets saw huge price appreciation in 2020. In that spirit, I’ve selected five markets with major year-over-year appreciation and decent rent growth.

Bakersfield, CA

So many Californians have bemoaned the lack good markets in the state. Well, I sure wouldn’t be complaining if I had invested in Bakersfield in 2020.

Property prices rose 16% last year, and the median home price in the city is still relatively affordable for California at $290,000. That means that if you wanted to do a house-hack, you could put as little as $10,000 down.

On top of that, rents in Bakersfield grew 7% in 2020—close to the top of the list. In fact, the highest rent growth we saw in 2020 was 8%, so Bakerfield’s numbers are pretty elite, considering the state of the economy.

Combine this all together and we have a rent-to-price (RTP) ratio of just 0.47%. That is about average in terms of projected cash flow, but if you’re playing the appreciation game, Bakersfield could get the job done.

Winston-Salem, NC

Winston Salem saw 18% price appreciation in 2020. It remains an affordable entry point for investors with a median sale price of $195,000 in December 2020. Even with a conventional loan and 20% down, an investor could own an average property in Winston-Salem for about $40k.

On top of that appreciation, Winston-Salem enjoyed 5% rent appreciation in 2020, which is in the upper echelon of rent growth for all US cities in 2020.

Combine those, and Winston-Salem has a RTP ratio of 0.67%—the best on this list. Remember, RTP is a proxy for cashflow. An RTP of 0.67% coupled with outstanding price appreciation makes for a very intriguing market.

Baton Rouge, LA

Baton Rouge is the most well-rounded city on this least. It offers good cash flow prospects—the city’s RTP is 0.61%—and 19% price appreciation.

The median sales price was $226,000. Baton Rouge also saw 3% rent growth in 2020. That may not sound that great, but the average rental appreciation across all US metro areas was just 2.1%, so 3% rental growth in 2020 is still really solid.

Spokane, WA

Spokane real estate enjoyed a great year. The city saw 20% price appreciation—just huge, particularly for a city of its size. Sometimes you see dramatic increases in smaller cities, but Spokane has a population of over 200,000 people. That makes its price improvements all the more impressive.

Spokane also experienced 7% rent growth in 2020, putting it near the top of the list for both rent and price growth.

The RTP in Spokane is just 0.47%. Not terrible, but on average the city is less likely to produce elite level cashflows.

Springfield, MA

I chose Springfield, MA, for a few reasons. First—I went to the basketball hall of fame in Springfield as a kid, and it was awesome, and I have very fond memories. Second (and probably more important to my fellow real estate investors): It experienced 22% price appreciation during 2020 – the highest on our list. Lastly, it’s in Massachusetts which, like California, often gets a bad rap from real estate investors.

That rock-solid appreciation alone should get your attention, but Springfield also had about-average rent growth at 2% and has an RTP of 0.59%—meaning it’s likely to deliver decent cashflow on top of that excellent appreciation.

It’s at this point in every article where I feel compelled to remind people that past performance is not an indication of future return. That said, looking at the returns generated in 2020 is useful! Prices went nuts in these cities in 2020.

As an investor, it’s your job to understand what is going on in these markets and decide for yourself if you think these trends will continue. My goal here is simply to point you in the direction of some interesting places to look.

Where did you invest in 2020?

Tell us below.

Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.