All Forum Posts by: Nick Gerli

One of the interesting trends from 2020 was how affordable markets - those with cheaper rents - significantly outperformed expensive markets in terms of rent growth. 

Apartments owners in these affordable markets (red dots below) did well in 2020 despite the pandemic/recession. Owners in the expensive markets (blue dots) struggled.

Will this trend continue into the future? That's the million dollar question.

I'm optimistic about affordable markets for two reasons:

1) Pre-COVID, the expensive markets benefitted from an agglomeration of business/industry/offices that drew in apartment/housing demand. Post-COVID some of that business and industry is moving to cheaper, more affordable places, and the housing demand is going with it. 

2) Supply. The affordable markets go overlooked by institutional developers and home builders, so there's not as much new or renovated inventory. This likely puts upward pressure on rents. 

What are your thoughts?

Originally posted by @Chris Martin:

I had a Blink moment. So, check your data sources. I don't see the Raleigh market as one of the worst in the US, but for any dataset, you can usually munge the query to make whatever narrative you want. Source: St. Louis Fed reserve, home of some the best data... and free.

You will note that San Jose is not in the cellar dweller list, but has underperformed the other three (including Raleigh, a market I am familiar with) according to the Case Schiller datasets. 

Chris - why do you not trust the Zillow data?

Wouldn't the organization with instantaneous data on listings, listing prices, DOM, price cuts, price increases, views, and broker contacts for over 80 million homes have the best value projection models?

All great questions Kenton! One by one:

-This data tracks SFH + Condos. Excludes multifamily.

-It's based on Zillow's estimate for metro-level home value between the 40th-60th percentile in the market. The best way to think of it would be as "median".

-You bring up a good point about flips. I would have to do more digging to understand how Zillow would or would not adjust for that. 

Kyle - thank you for the insightful comment!

I think you hit the nail on the head with "relative appreciation". Extremely high rates of growth isn't necessarily good for a market - it can be destabilizing, and often lead to a crash. I would trust a place like Harrisburg to deliver incremental growth and sustain it's value in the long run over some other "hotter" markets.  

Thanks for the feedback Douglas!

OKC is a very interesting market to me. Based on my fundamental analysis it ranks very highly (affordable, growing, not much new supply). It's one that I expect to turn the corner on a market-wide level in coming years.

I hear your point on specific location, though. What areas of OKC do you like the most?

Everyone loves to talk about the markets that seeing crazy appreciation - the Boise's and Spokane's of the world - but what about the markets that are lagging the rest? 

The data below highlights 15 large markets with the worst appreciation over the last year. Data is sourced from Zillow and covers the "metro area" for each market. 

Quite an interesting array of markets on this worst performers list. Highlights:

-How about Texas? Dallas, Houston, and San Antonio dominating the bottom of the list. This comes as Texas just posted by far the highest levels of population growth of any state through mid-2020. Could oversupply be an issue?

-Chicago has been a market that has lagged the rest of the US in almost every relevant metric over the last 10 years: income growth, population growth, home price growth, etc. 

-Over half of this list is comprised of state capitals. Raleigh, Richmond, Harrisburg, Baton Rouge, Columbia, Jackson, Oklahoma City, and Des Moines. Could be coincidence...or maybe not?

-Low appreciation might not be the worst thing in the world. It could mean values in these markets are more stable through a downturn. Some of the cities are the ones that performed the best during the real estate crash from 2007-12. 

What are your thoughts? Are you invested or looking to invest in any of these markets? 

 I agree Brandon - the south side of Columbus is where most of the appreciation is occurring. When I conduct analysis on markets across the US there's usually a consistent theme: the affordable places within striking distance to the urban core outperform. 

 Marc - thank for the post! What you're finding aligns with what I'm finding. 

Out of curiosity - what metrics do you use to rank a neighborhood as A, B, C, etc.?

Originally posted by @Remington Lyman:

Originally posted by @Nick Gerli:

I'm curious what everyone thinks the best places to buy in Columbus right now are?

The areas that have experienced the most appreciation over the last decade are all concentrated near the Urban Core of the city, particularly north/south of Downtown.

Old Towne East (43205)
German Village (43206)
South Hilltop (43223)
Short North (43201)
Grandview (43212)
Linden (43211)

Old Towne East has had by far the highest appreciation, followed by German Village. Short North and Grandview have also had great growth, but I wonder whether they're starting to price people out. 

Any areas I missed here? What are your thoughts?

What do you mean by pricing people out? The demand in Columbus, Ohio is outpacing supply. Prices are naturally going to climb. If people want cheaper homes they are going to need to move to the suburbs.

That's a great question Remington!

Generally what I find in my research is that the highest-priced ZIP codes in a market - in this case it would be those in Dublin, Powell, Lewis Center, Upper Arlington, and Grandview - tend to underperform in appreciation. I suspect this is because they get too pricey for the average buyer in the region.

Thanks for the insightful comment, Jacob!

Quick question - if Zillow has access list price and price increase/reduction data, as well as on days on the market. Don't you think that would be enough to come up with reliable estimates on appreciation?