When the home bubble burst, mortgage sales collapsed, both loan origination and into the secondary market. The sleight hand in marketing mortgage backed securities was immediately exposed, challenging the price of homes and real demand. Then the recession ensued, causing demand to dry up and driving down the price of homes in many local markets. A great number of those markets reset back to pre-boom levels, while others recoiled to well below the levels that local economies and incomes could technically support. Most of these markets are off bottom, but have not returned to their “normal” state.
What does this mean?
These markets are under-priced and buyers will get an extra dividend over the next five years on the assumption the economy cooperates. One bonus is that population expansion and normal household creation is ahead of supply in most of these markets, as home and apartment construction has not ramped up sufficiently to compensate for the lack of new builds over the last four years.
Here are eight markets where the local economy is growing again and homes are seriously under-priced:
Oklahoma City, OK
Jobs are growing at a high 3 percent annual rate and unemployment is under 5 percent, all due to the energy boom. High population growth will put pressure on home prices for years. Underpriced 20 percent.
Houston, TX
Another energy buy with low unemployment and high job growth of 3.4 percent per year. Most Texas markets didn’t have a housing boom and bust this time, so they’re poised for long-term growth. Underpriced 18 percent.
Fort Worth, TX
A Texas market but the economic potential is more general than just energy. Jobs are growing at 2.6 percent and population in the last few years grew at twice the national average. Underpriced 23 percent.
Boise, ID
A market with a big boom and bust, but now on the mend due to the large high-tech sector. Unemployment is low, and home prices were already up 7 percent in the last year. Underpriced 23 percent.
Columbus, OH
Despite layoffs of government workers, the local economy is growing at a 2.3 percent annual rate because of new jobs in health care, retail, business services and the large finance sector. Unemployment is under 6 percent. Underpriced 27 percent.
Orlando, FL
This is the best bet in Florida, where every market is still overbuilt. Unemployment remains high at 8 percent, but the very large tourism sector is growing rapidly as the national economy recovers, with jobs up 4 percent in the past year. Underpriced 27 percent.
Bakersfield, CA
Most California markets aren’t underpriced, but this one is. It’s another energy buy but with greater challenges because of high unemployment at 12 percent and modest job growth at 1.5 percent. Home prices were up 4 percent in the last year because there’s little vacant housing. Underpriced 30 percent.
Las Vegas, NV
If you want to take a flier, this is it. The gambling capital of America was seriously overbuilt with investment properties, unemployment is 12 percent, and there has been no recovery in the giant tourism/gaming sector. I wouldn’t go near this market with a 10-foot pole, but I’m an analyst with brains, not an investor with guts. The returns could end up being very handsome. Underpriced 43 percent.
