What Are The Best MSAs For Real Estate Investment in 2023?

What are the best MSAs (Metropolitan Statistical Areas) to invest in real estate right now? Is it Austin, TX? Tampa, FL? Detroit, MI? 

In this article, I'll display what the current market data tells us.

I used Job Growth, Median Rent Growth, Median Income Growth, and Median Price Growth at the MSA level to "rank" MSAs. Scroll below to read the top markets according to this analysis, along with explanations, data disclaimers and shortcomings.

Who Am I?

My name is Austin Wolff, and I'm a Professional Real Estate Data Scientist that analyzes the best markets and locations for real estate investment. My analyses have previously been read by multiple billion-dollar firms. As of right now, the only data I use for analyses is public and provided by the US Government.

The Top MSAs For Real Estate Investment in 2023

In order to curate a list of top MSAs, we must decide how to rank the MSAs. Should we rank by price growth? Rent growth? Population growth?

My theory is that job growth is the most important driver of overall growth for a given market (population, income, rent, and price growth). I have not yet objectively proven this, but to me, this makes common sense.

Therefore, the #1 dataset I've used is Job Growth.

The Job Growth Dataset

The Job Growth dataset is provided by the Bureau of Labor Statistics (BLS) [1]. The specific dataset I look at is actual employment numbers (the total number of people employed), not the employment rate (which is essentially the total number of people employed divided by the total number of people in the labor force).

The BLS provides monthly updates to this data, and is one of the most "recent" datasets we can get. For example, the employment numbers are essentially always 2 months behind (January's numbers will be released in March, February's numbers will be released in April).

For this analysis, I only care about Job Growth in the past year (2022). This gives me a pretty good idea about the trajectory of jobs added into a market in near-real time.

As an example, look at the graph below:

On the left, the total/absolute number of employed persons is graphed. 

On the right, the percent of growth is graphed. For example, in February 2022, the Dallas-Fort Worth MSA experienced a little more than 0.6% job growth in one month alone. This percentage growth gives us a better measure of how fast a job market is growing over time. 

The orange dotted line in the right graph also tells us if growth is speeding up or slowing down. We can see the growth is slowing down (the orange line is going down) as it appears there was less growth from July to August. This isn’t necessarily a bad thing, but just another fact to keep in mind. The dark black line is the average percent growth, month-to-month.

I took the trend of job growth (left graph, orange line) and the average percentage of growth (right graph, black line), and combined them to rank all MSAs by job growth alone.

Ranking MSAs Based on Job Growth Only

Here were the top 10 results:

1. Dallas-Fort Worth-Arlington, TX

2. Atlantic City-Hammonton, NJ

3. Charleston-North Charleston, SC

4. Houston-The Woodlands-Sugar Land, TX

5. Portland-South Portland, ME

6. McAllen-Edinburg-Mission, TX

7. Charlotte-Concord-Gastonia, NC-SC

8. Raleigh-Cary, NC

9. Boston-Cambridge-Newton, MA-NH

10. New York-Newark-Jersey City, NY-NJ-PA

But we’re not done yet. Extremely high or extremely low job growth rates do not tell the entire story. What about rent growth? Or price appreciation? How does that data change our list?

Rent, Income, and Price Growth Data

I pulled the Median Rent, Income and Price growth data from the US Census' ACS 1-Year survey at the MSA level [2]. I only analyzed trends from 2016 to the most recent year of data the Census has: 2021.

Below are examples of MSA Median Rent Growth data.

As with Job Growth, I included absolute growth and percentage growth into the analysis. Let’s see what happens when we include rent growth into our ranking.

Adding In Rent Growth

By accounting for job growth and rent growth, this becomes our new top 10 list:

1. Dallas-Fort Worth-Arlington, TX

2. Charleston-North Charleston, SC

3. Charlotte-Concord-Gastonia, NC-SC

4. Nashville-Davidson--Murfreesboro--Franklin, TN

5. Boston-Cambridge-Newton, MA-NH

6. Atlanta-Sandy Springs-Alpharetta, GA

7. Reno, NV

8. Raleigh-Cary, NC

9. Phoenix-Mesa-Chandler, AZ

10. The Villages, FL

Okay, but what about the impact of income growth on an area? The more income grows over time, the more you can realistically keep raising rents. 

If incomes don’t grow, there will be a market “ceiling” on the amount of rent you can realistically charge. In addition, if incomes grow, it is realistic to assume prices may also rise as well. So let’s see the impact of adding income growth.

Adding In Income Growth

If we take job growth, rent growth, and income growth into account, this becomes our new top 10 list:

1. Dallas-Fort Worth-Arlington, TX

2. Charleston-North Charleston, SC

3. Charlotte-Concord-Gastonia, NC-SC

4. Athens-Clarke County, GA

5. Reno, NV

6. Phoenix-Mesa-Chandler, AZ

7. Nashville-Davidson--Murfreesboro--Franklin, TN

8. Seattle-Tacoma-Bellevue, WA

9. Boston-Cambridge-Newton, MA-NH

10. Atlanta-Sandy Springs-Alpharetta, GA

But we're still not done. Let's now add in the final dataset, price growth.

Finally, The Top 10 Metropolitan Statistical Areas

Remember, these MSAs are ranked based on job growth (highest importance), median rent growth, median income growth, and median price growth (lowest importance), that way we can sort the markets that have a little of everything (but with the most emphasis on job growth).

Here they are:

10. Atlanta-Sandy Springs-Alpharetta, GA

Median Price: $300,000

Median Rent: $1,194

Rent-to-Price Ratio: 0.40%

Median Income: $77,589

...

9. Bend, OR

Median Price: $543,900

Median Rent: $1,353

Rent-to-Price Ratio: 0.25%

Median Income: $79,796

...

8. Seattle-Tacoma-Bellevue, WA

Median Price: $638,400

Median Rent: $1,603

Rent-to-Price Ratio: 0.25%

Median Income: $101,721

...

7. Nashville-Davidson--Murfreesboro--Franklin, TN

Median Price: $344,900

Median Rent: $1,116

Rent-to-Price Ratio: 0.32%

Median Income: $72,725

...

6. Phoenix-Mesa-Chandler, AZ

Median Price: $374,100

Median Rent: $1,221

Rent-to-Price Ratio: 0.33%

Median Income: $75,731

...

5. Athens-Clarke County, GA

Median Price: $259,900

Median Rent: $881

Rent-to-Price Ratio: 0.34%

Median Income: $59,628

...

4. Reno, NV

Median Price: $457,500

Median Rent: $1,232

Rent-to-Price Ratio: 0.27%

Median Income: $76,182

...

3. Charlotte-Concord-Gastonia, NC-SC

Median Price: $286,600

Median Rent: $1,053

Rent-to-Price Ratio: 0.37%

Median Income: $71,041

...

2. Charleston-North Charleston, SC

Median Price: $315,400

Median Rent: $1,128

Rent-to-Price Ratio: 0.36%

Median Income: $72,719

...

1. Dallas-Fort Worth-Arlington, TX

Median Price: $294,900

Median Rent: $1,149

Rent-to-Price Ratio: 0.39%

Median Income: $75,975

...

When I got this list, I asked myself, "Why isn't Austin, TX on the top 10?" Well, it's technically #21 because Job Growth in 2022 was the most important factor in the ranking, and Austin, TX's month-to-month job growth in 2022 just wasn't as high as it has been in previous years.

This highlights the entire point of this ranking: to cut through the noise and hype of a particular market and just look at the numbers.

Now, some of these markets I'm priced out of. So next, I filtered out all MSAs with a Median Price greater than $350,000 (this removed many MSAs such as Phoenix, Seattle, Reno, Boston, and Los Angeles). I also filtered out all MSAs with a rent-to-price ratio less than 0.3%.

The Top MSAs With a Median Price Less Than $350,000

Here is the updated, filtered list of markets (top 20) that don't entirely price me out:

1. Dallas-Fort Worth-Arlington, TX

2. Charleston-North Charleston, SC

3. Charlotte-Concord-Gastonia, NC-SC

4. Athens-Clarke County, GA

5. Nashville-Davidson--Murfreesboro--Franklin, TN

6. Atlanta-Sandy Springs-Alpharetta, GA

7. Raleigh-Cary, NC

8. Orlando-Kissimmee-Sanford, FL

9. Tampa-St. Petersburg-Clearwater, FL

10. Knoxville, TN

11. Jacksonville, FL

12. Greenville-Anderson, SC

13. Port St. Lucie, FL

14. Sherman-Denison, TX

15. Cape Coral-Fort Myers, FL

16. Houston-The Woodlands-Sugar Land, TX

17. Fayetteville-Springdale-Rogers, AR

18. Punta Gorda, FL

19. McAllen-Edinburg-Mission, TX

20. Panama City, FL

You'll notice the top 3 MSAs have remained the same. For anyone looking to get started in real estate investing, these markets show enough promise while being affordable enough to get started.

Bonus

If you'd like to see the entire list of the original MSA rankings, I've left the full list in the comments below this post!

Data Disclaimers and Shortcomings

There are a few shortcomings with this data.

First, it is generally not standard to compare multiple time-series datasets that are measured across different time periods (job growth measured for the year of 2022 and census data measured between 2016-2021). Measuring job growth from 2016-2021 yields different results (although not extremely different, it was different enough that cities with very slow job growth in 2022 were still top-of-list due to incredibly high growth in 2019 or 2021).

Second, the weights used to rank importance of the datasets are completely subjective. One investor may think rent growth is more important than job growth, and another may think price growth is the most important metric (as opposed to me thinking it's the least important of the list). Changing the weights yields different results. 

Maybe in the future I'll build a free website that lets you choose your own weights... Let me know in the comments if this is something you'd like!

Third, the weights are multiplied by the dataset's trend's normalized coefficient. Perhaps there is a better way to measure growth over time with varying importance across different datasets. Suggestions are highly encouraged!

Here are the weights used to rank the MSAs. First, here are the weights I assigned to total/absolute growth:

"Jobs":0.75,

"Median Rent":0.5,

"Median Income":0.25,

"Median Price":0

You'll notice the weight for "Median Price" is 0. There are many markets with price appreciation but little else going for it. Remember, these weights are subjective, and fit my own personal investing thesis. While I still would like an increase in value, I personally desire decent cash flow at the moment while still in an appreciating market (i.e. not Detroit). So I don't want highly appreciating markets with no other job/rent growth skewing the rankings.

Below are the weights I assigned to percentage growth:

"Jobs":4,

"Median Rent":3,

"Median Income":2,

"Median Price":1

I do still care about price appreciation (however small compared to job growth), as you can tell by the 1 weight I assigned.

Note For The Near Future

This analysis is just at the MSA level, not the city level. There is still work to be done on analyzing the best cities for investment, and then the best local neighborhoods. If you’d like to read my next report on city analysis (and subsequently neighborhood analysis via census tracts), just follow this blog.

Conclusion

Thank you for reading this all the way to the bottom (you either have an incredible attention span or you just love real estate data as much as me). If you have any notes or feedback, please feel free to leave them in the comments or shoot me a private message here on BiggerPockets.

Sources

[1] Census Bureau, ACS 1-Year Survey (2016-2021)

[2] Bureau of Labor Statistics (Jan 2022 - Nov 2022)