Real State

The 8 Worst and Best Housing Markets in The US (2023 Edition)

What’s the best housing market for real estate investing? If this were 2022, we’d say cities like Boise, Austin, or Phoenix, but things have changed, and many of last year’s top real estate markets look like this year’s losers. So which cities are the ones worth investing in over the next year? Which will see population, job, and home price growth? And which markets can you expect to sink even lower as interest rates rise and the threat of a recession looms?

We’ve got a few housing market experts around to help you navigate the plethora of property markets in the United States. James Dainard, master house flipper on the west coast, has a surprising prediction on an often underrated east coast city. Jamil Damji, one of the nation’s largest wholesalers, is bearish on what was once a hot market and bullish on a “unicorn” city between two cultural capitals. Kathy Fettke, the Golden State’s home builder and investor, picks a fight with a familiar character and has her eyes set on another sunshine state.

And, of course, we also get Dave Meyer‘s take on where the data says will be the worst and best real estate market to invest in during 2023. So place your bets, get your MLS search ready, and prepare to see which markets will come out on top over the next year. If you’re thinking of buying or selling, these picks may completely change your plans!

Dave:
Hey, everyone. Welcome to On The Market. My name’s Dave Meyer. I’ll be your host today, joined today by Kathy Fettke, James Dainard and Jamil Damji. How are all of you?

Kathy:
We are all sick, woo-hoo. It was a great party.

Dave:
Every single one of us is sick. I think we’re going to have a lot of muting of microphones.

Jamil:
I might have to take responsibility for it.

Dave:
It was Jamil’s fault apparently, but I wasn’t even at the party and I’m sick too, so I don’t know.

Jamil:
Well, that’s because we mailed it to you.

Kathy:
Oh, yeah.

Dave:
Well, thank you. I appreciate that. I really appreciate you in including me. It’s very thoughtful. Well, I actually wasn’t at the party, but I did get to do something very fun, which was I was in Madrid, Spain and I got to meet in person the entire team that edits this podcast, they all live in Madrid. I don’t even know if you guys know that.
But I went to go hang out with them and they’re extremely cool, fun people. They took me on a 10-hour tour of the inside of many bars in Madrid and I just wanted to give a shout out to Joel, Eliezer, Alexander and Anna, who are an incredibly talented team. It was a pleasure to meet them and I had a lot of fun with them. Very talented, passionate people who make this show possible. That was really cool for me and I just wanted to tell you guys about it.

Jamil:
Amazing. I had no idea that they were in Spain, but now we have to make a trip out there and go hang out.

Kathy:
Sounds like we have to.

James:
Are they sick of our voices yet?

Dave:
No. They were making fun of me the whole time. They’re like, “I feel like I have to put a frame around your face. That’s what I’m used to seeing you like. It’s weird seeing you.” No, they would love that. We should do that next time. Kathy, next time you’re in Portugal, just pop over to Madrid. It’s not far.

Kathy:
April.

Dave:
All right.

Jamil:
Did anyone say to you that you’re taller than they expected?

Dave:
No, probably said shorter knowing me.

Jamil:
I always get, “Oh, you’re thinner than I expected you to be.” I don’t know how to take that. I’m like …

Dave:
Well, they were probably already thinking you’re very thin and muscular, so even thinner.

Jamil:
I get, “You’re thinner than I thought,” and, “Your beard doesn’t look as terrible in person as it does on video.”

Dave:
What?

Kathy:
Nobody says that to you.

Dave:
Who thinks your beard looks terrible?

Jamil:
I have no idea, man. The Internet is fun.

James:
Well, let me see. I can’t even grow a beard.

Jamil:
That’s what happens when you’re one of the America’s best investors and you’re only 12, James.

Dave:
That’s like one of the BiggerPockets podcast headlines like, 150,000 units by 12 years old, featuring James Dainard.

James:
Profit and puberty.

Dave:
That could be your BP book pitch, James.

James:
I think I’m going to write that down.

Dave:
All right, well let’s get to today’s episode. As we wind down the year, we wanted to recap and sort of go back to actually one of the first shows we did, which we were picking best markets, worst markets. And so today, we’re going to talk about our predictions for the best and worst markets for 2023.
But before we do, Rocket Mortgage, one of the biggest mortgage companies in the country, just came out with their rankings of the top five markets for 2022. I want to throw these out there and see what you guys think about these before we get into our predictions for next year.
They said the number five was Charlotte, North Carolina. Did any of you pick them last year? I feel like someone might have.

Kathy:
I did.

Jamil:
Oh, you did?

Kathy:
Didn’t I?

Jamil:
Why do I feel like-

Dave:
No, Jamil. You had Austin in Denver. I remember that specifically.

Jamil:
Austin and Denver, that’s right.

Dave:
Because the final was just you against yourself.

Jamil:
Yeah. Charlotte?

Dave:
It’s Charlotte. Do you invest there, Kathy?

Kathy:
Yeah.

Dave:
How did it do this year?

Kathy:
Well, it got very expensive this year, so it became difficult to buy this year. But if you bought before this year, you did great.

Dave:
Nice. Then number four, we have at Nashville, which is sort of, I feel like perennially on everyone’s list of top markets. Then we had Raleigh, number three. Tampa, which I said, but got voted out early for number two, and Austin for number one, which I was kind of confused by. I think that’s actually what won in our competition last year. But would you guys think Austin was the best performing market this year?

James:
I mean if you look at those first two quarters in all those tech markets, they jumped so high. It’s like they had room to pull back and it was still going to be good. I mean, Scottsdale was kind of like that too. It was like Scottsdale, Austin, Seattle, LA, San Fran. They just shot up.

Dave:
Well, that’s a good question, James. You’ve been pretty honest about pullbacks in Seattle in your market, are they still up considerably over pre-pandemic levels prices in Seattle?

James:
Oh yeah. We’re substantially up from pre. I mean we’re still 5% up on this year in Seattle, but we were up 25% to 30% and there’s first two quarters. I know there was one month alone I was seeing some cities appreciate at 25% in one month. It was crazy. I had to triple check the data. I was like, wait, what happened? The median home price jumped 25% in one?

Dave:
That’s like a crypto coin.

James:
Yeah. I mean we’re still at least 30% up from 2020 or 25% to 30% in certain neighborhoods for sure. And so there’s still rapid growth. It’s just sliding back with the affordability right now.

Kathy:
Yeah, I mean that was kind of my comment last year is that this is a leveling out of a crazy manic pandemic-induced buying spree of last year. And so with so many things, when we see layoffs, when we see home prices coming down, it’s really just comparing to an abnormal year. And so if you could keep that in mind and maybe just compare numbers to 2019, people who bought in markets that really went up and are now coming back down to earth, if they bought this year, they might be feeling a little pain. But if you bought before that, you’re fine.
If you hold it, you’re fine. It’s just anytime you have to sell, if you’re forced to sell when it’s not good timing to sell, then that can be painful. But if you can hold, usually those hot markets come back and they become hot again.

Jamil:
I feel like if you bought a house in the peak time of 2022, it’s kind of like one of those nights you got really drunk at a party and things didn’t turn out the way that they should have and you want to forget it. And so that’s basically what happened.

Dave:
Is this what happened at your party last weekend, Jamil?

Jamil:
Maybe.

Kathy:
I left in time.

Jamil:
Listen, we all have the same sickness, and how that happened …

Dave:
I don’t know how to follow that up.

Jamil:
I put on a good party though, guys.

Kathy:
That was a good party.

Jamil:
Let’s be real.

James:
You know what? Everyone should go to Jamil’s meetups and parties. They’re the most fun things for real estate I’ve been to. It’s like, it is a vibe that is nothing I’ve seen at a real estate conference before or meetup.

Kathy:
I’m signing up.

Jamil:
All right, well definitely check those out.

Dave:
Okay, well let’s take a break now because, Jamil, you threw me off. Let’s take a quick break and then we’ll come back and talk about our predictions for 2023.
All right, let’s jump into our predictions, but before I ask you which markets you actually picked, can we talk quickly about what criteria you all used? We’re going to do our worst markets first and when Kailyn and I assigned you these, we didn’t really give definition what worst means. I’m curious, Kathy, what did you interpret that as? What did you think? How did you choose the market you chose?

Kathy:
I had to really give it some thought because with real estate, you can get super confused. There’s so much data coming from so many different angles and everybody’s got an opinion and that’s a hundred X every year as more and more people get into the industry. It can be very confusing. I just had to stop and say, for what? The worst market for what?
For me, my buying box, basically what I have always looked for are areas that cash flow with the hope of appreciation because there’s something going on in that area, there’s growth. And so I don’t need it to go up in price dramatically right away. I just want it to over time so that I know that I’m getting cash flow and appreciation because the double whammy is what can really make you wealthy.
For me, the worst market I chose was Detroit. Now Detroit came up on some lists as a great market for 2023. Again, it just depends on your buy box. I’m sure there’s Detroit investors listening who are like, “If you invest the way I invest, you’ll do great in Detroit,” because there is a lot going on and apparently has had some of the highest millennial growth there. There’s a lot of revitalization happening downtown. Some of the things I look for are there.
The reason I choose it as the worst for me is that they’ve had a population decline over decades. Yeah, decades. Detroit has seen a 61% decrease in his population since the ’50s. It used to be really quite like a New York kind of city, very popular city, but people are leaving and they’re going to wear my favorite market. One of my best markets is warmer climates, the Florida area. No, I didn’t tell you where in Florida, but warm climates with landlord friendly laws. This fits the buy box for me.
If I’m looking for buy and hold, cash flow, appreciation and growth, I want to be in an area where there’s job growth, population growth, infrastructure growth, rent growth, all those things. We’re not seeing it. But the biggest reason that I wouldn’t invest in Detroit is that they have this law, and it is a tough law, and I know it well.
In May of 2017, the city of Detroit announced its intention to implement a citywide effort to enforce tougher rental ordinance rules on landlords. Landlord rules really matter. Basically, you can get massively fined depending on which way you look at it. For renters, this is great, it means that landlords have to take care of their properties and fix things. But if you’re not aware of that, you can get really stuck.
We’re trying to sell three Detroit properties in our former fund. My last single family rental fund, we’re down to three Detroit properties that we’re having a really tough time selling. We can’t get the tenants out because landlord laws are really not in our favor there. The city comes in and inspects and tells us all these things we have to fix. Those fixes are costing a lot, $40,000 to $50,000. These are properties we only owned five years and we fixed them five years ago. They’re older. If you’re buying an older property in Detroit, you just have to know that the city inspectors may charge you.
For me, this is not a best market for me, it’s a worst market for me. I do think if you go in and you can get a great deal and you completely renovate it and you’ve got the budget for it and the reserves, you could get great cash flow. I just don’t think that you’re ever really going to see that market appreciate the way I like it to do in other markets.

Dave:
All right. Detroit is our first worst city. I know the former CEO and founder of BiggerPockets, Josh Dorkin, would definitely agree with you. He made a reputation of hating on Detroit for many generations.

Kathy:
I used to love it. I used to invest there and our fund bought a bunch of properties there and they cash flowed the whole time during the fund. They were wonderful for cash flow. It’s just when you’re trying to get out or if the city comes in and tells you to do a bunch of work you weren’t expecting to do. You just have to have lots and lots and lots and lots of reserves for older properties.

Dave:
Kathy, it’s a great point. Two or three years ago, I did this data analysis to look at appreciation versus cash flow for markets and I plotted them out. Basically, what we saw was that before the pandemic, most markets were either really good appreciation or really good cash flow and there were a few that were both, but they were modest for both. The outliers for good cash flow like Detroit were also outliers for bad appreciation.
And so you saw the other thing too. An outlier for appreciation like Seattle was also an outlier for bad cash flow a lot of the time, just on average. Since the pandemic started, all that got thrown out of the window and everyone has just seen both. But I do think as we go into 2023, we’re going to start going back to that normal sort of bifurcation in the market where some markets are really good for cash flow but don’t appreciate really and vice versa. Some will continue to appreciate but aren’t going to be places where you can easily find rental properties that meet the 1% rule, for example.
And so, it sounds like you agree. Detroit might be good for cash flow, but appreciation probably not going anywhere.

Kathy:
Yeah, I think it’s really important to look at how performance was before 2020. I know a lot of these cities have really redefined themselves in the last decade, but if you take say 2015 to 2019 and really look at the cap rates and what was happening in those markets appreciation-wise, those were good solid years for real estate. That will be a better metric for where we’re headed in 2023, I think.

Dave:
All right, well there we got one. James, how did you approach this and what city did you pick?

James:
I picked kind of a different city. I spent a lot of time researching all these markets and I’m like, you know what? I’m going back to the market that I had the biggest regret of not buying in 2009. And so I picked San Diego, California. The reason I picked San Diego is, A, and this has nothing to do with what we’re going through now because it’s a different thing, but I remember in 2009, the sky-rise condos went down to under 400 grand. These things were like you’d be up killer views, brand new, and you could buy them for under half million dollars and they were trading for over a million before the mortgage industry exploded.
But the reason I picked San Diego is I do think, A, I think San Diego is the best city on the West Coast. It is where you want to live for sure, but the problem is the income is just not there and what people can afford in the job market. It’s a really good place to move to if you have money, but if not, you’re going to struggle with a lot of the pricing around there.
And so what we’ve seen with the interest rates rising is the rates, we’ve already seen it go from a medium home price down over 10%. There’s been a drop from about 950 down 850. We’ve seen something very interesting to watch for and these are the markets I’m most cautious in right now are the ones that’s hockey stick up in that first two quarters at a crazy rate. San Diego definitely hits that. In March, they were up 30% and they were one of the top three appreciating markets for that month. It has retracted back 20% from March and it’s continuing to slide right now.
I think a lot of the reason that they have retracted back is the math just doesn’t quite make sense. Also, rents have dropped 5% since March as well. I do think the rents are falling because more the remote work. Why wouldn’t you want a remote work in San Diego if you could? That’s where I would want a remote work. And so as the workforce is going back to where they’re supposed to be working, all these things are starting to bring it back.
During the pandemic, living in a quality place was a big concern for most people and San Diego’s one of the best you can be in. And so I think people are just starting to leave a little bit and it’s starting to let things down. But to put it in perspective, you have to save … In San Diego, the average home buyer needs to save up $160,000 to buy a house. With the income that they’re making, they need to save a minimum of $13,000 per year to it. It is going to take them almost 8 to 12 years to save up for that 20% deposit. That doesn’t even keep track with the pricing going up during that time. With a median home price of $905,000, the household income should be $166,000 to afford that comfortably.
The problem is the median household income there is $70,000 and a lot of the actual jobs that are in San Diego are big … There’s not as much, and I picked San Diego because there’s not as much big business as there is in Austin, Seattle, San Francisco where there’s these big anchor tech companies that yes, they might be going through a downturn right now and laying off some people but they’re going to come back and these are companies that are not going away whereas they have a much more limited pool. Military is a big deal.
Now I do think if we are going into more conflict that the military could grow and that there is going to be, that could expand in San Diego because it’s the biggest military base there is, but it still doesn’t get you to the income for affordability. With rates being as high as they are, it’s just going to pull everything back because just people are not making enough money to buy. We’re seeing that right now.
If the rates continue to go up, which I do believe they will for at least the first two quarters, you’re going to see homes dropping price. 43% of all homes in San Diegos have cut their price this year. That is a substantial amount. That means people are either overpricing or even if they are pricing right, they’re just not selling for people can’t afford them.
The major pool of that they can’t afford that, those big companies are slowing down, like Qualcomm is a huge business there. That is one of their anchor employers. Qualcomm has froze their hiring right now. They have not announced layoffs yet as far as I could tell, but that’s usually the first step. You freeze your hiring and then there’s layoffs coming.
They have not predicted the layoffs but they are expecting the company internally is expecting that their shipments are going to decline in the double digit percentage for next year. They’re predicting that they are going to do less business as a company which is going to start laying off the people that are going to absorb a lot of these more expensive properties. And so all those things that when you get in a mix, I just see this stuff coming down. It’s way too expensive, we’re missing like $70,000 on the median home price to get people to really be able to afford. Then there’s other things that are just indicating that it’s way better to rent versus to buy. The cost to rent ratio is 30.38. In a healthy market, it’s like you want to be below 21.
It is so far out of whack right now that I think that San Diego could fall an additional 10% from where it’s at right now. That doesn’t mean that I wouldn’t buy in San Diego, it’s actually on my cities to slate to buy in. I just think that there’s going to be more opportunities. I don’t want to have the same regret I had in 2009 because I do think quality of living and people want to live there in general and that’s always going to drive growth.
They are also on a long-term basis predicting that San Diego’s economy is going to grow, I think they said 31% in the next 10 years or 20 years. And so they’re predicting growth. But in the short term for 2023, I think it’s going to retract back and I think all these expensive West Coast markets are going to continue to retract back. The thing you have to be careful about with the investors is when you’re playing in expensive markets, the retraction can really hurt. And so that’s why I put this as the worst market that I would invest in.

Dave:
Everyone loves leverage when you’re going up, and then when it goes down it hurts a lot.

James:
I mean it definitely hurts. Like what we were talking about before I got on the show, I finally sold a house that it took 150 days to sell and luckily I’m breaking even. I don’t even know how I’m breaking even. But we just sold the house for 450 grand, less than a house that we sold right around the corner when we bought that deal in the beginning of the year. And so you have to watch out for these slides and the slides are okay, you just have to prepare for them correctly.
But I do think San Diego’s going to have some issues. It’s just too expensive for what people make there. I do think people are always going to want to live there. Well, in addition to besides that expense, you have that California expense, the extra 13% income tax. There’s too many expenses going on that are eating up liquidity and that’s why I do think that it’s prone for a pretty big drop from here. I think another 10% is coming back.

Dave:
San Diego might be on your best markets for 2024 list?

James:
Yes. I actually think all those markets like Seattle. It’s Seattle, right? It’s a very similar … I like Seattle better than San Diego because there’s more jobs there. I like Austin better than San Diego because there’s more jobs and infrastructure there. But I do think all these cities that are having these massive retractions are great buying opportunities, especially after this second quarter. But you have to buy carefully. You can’t buy traditionally. If you’re buying traditionally, you’re going to get … I think you’re going to get burnt.
But as the markets keep free fall … I mean those are the markets that are going to have the most opportunity. The ones that are falling backwards are the ones that everyone just jumps out of. That’s where I really want to jump in. I probably will buy something in San Diego. I want to buy some short term rental stuff right down by the beach and PB. I know the condo market gets hammered and those are things that I’m looking for, is if I can buy it substantially below what it was worth, if I’m buying them 30%, 40% below that previous median home price, there’s runway for growth and equity gains in over a five-year period.
But like what Kathy said, it comes down to what is your strategy? My strategy isn’t high cash flow. I don’t like dealing with these small houses that can get you 10% to 15% returns because I don’t like those maintenance expenses. They can jeopardize my cash flow position. I like high growth markets because that’s where you make those big equity gains. Those equity gains have completely changed me as an investor and how I’ve been able to passively invest just based on those gains.

Dave:
All right. Well said. Actually when I was trying to think through this for best markets, I was thinking of doing a contrarian opinion and saying something like Austin, because I think it is going to go down 20% or 30%, but it has one of the best long-term growth potentials of any city in the country. And so maybe it is a great time to buy in Austin if to your point, James, you’re buying under market value and finding good value.
All right. Jamil, what about you? How’d you approach this?

Jamil:
Well, I loved everything that James and Kathy said. I agree that you have to look at it from the perspective of your investment strategy. We all know that I am a trader. I look at the real estate market in terms of how can I benefit, how can I get involved and where are my buyers? Where are my clients? Where are they looking to invest? Where are they running away from?
And so for the worst market of 2023, I’ve chosen Ventura County. Realtor.com predicts that it will drop in sales price by about 30%, 29.3%, 29.1% specifically is what their prediction is. That’s a significant amount of money. When you look at fix and flip, when you look at wholesale, when you look at opportunities for us to trade in property, if you’ve got declining market to that degree with all of the things that James was talking about, you’ve got the regular Southern California issues like the state tax, the migration in Ventura County is not, it’s flat, if anything.
And so how I look at a market like that, as I say, are my clients or are my buyers for fix and flip or are my wholesale buyers looking for opportunities in Ventura County right now? They’re not. For me, where we are not going to be investing marketing, where we are not going to be investing resources for boots on the ground to try to find some opportunities or to pick up opportunities for trade will be some of these higher value markets in southern California. But I do also agree that looking forward to 2024, as you had mentioned and as James had mentioned, there’s going to be a tremendous value, but you have to wait.
It’s a bad market for 2023, but coming off the tail end of that, if you can start buying in Q4 of 2023 and get them significantly below market, because at that point there’s going to be desperation, exhaustion. Sellers are going to be just, they’ll have had it. I feel if you can time your purchases right, you can make the worst market at 2023 your best market at 2024. And so I’ll be re-entering Ventura and some of those markets in Southern California towards the tail end of ’23.
But for now the worst market, Ventura County.

Dave:
It makes sense. Kathy, what’s your read on this California hate over here with getting James and Jamil? But really we’re seeing a lot of population leaving California and it’s very expensive. I feel like people have been saying California’s going to nose dive for decades and it never happens. As a resident and a native, what do you think the future holds for California in the next few years?

Kathy:
I am a native of many generations. My grandmother was one of the first people to swim … She swam across the Golden Gate Bridge. She was an Olympic athlete and would swim around Alcatraz. I really have my roots in California, and this is a conversation that has been had probably for a century. It’s just always the case when you have highly desirable world class areas, it will never be cheap and there will never be a lack of people who can afford it. It’s just that they’re volatile. These are volatile markets.
But San Diego, I mean it truly is one of the best places in the world to live or to have a second home. There are more people that would buy there or own there than work there. Obviously if you are trying to do a buy and hold, again, it just depends on strategy. But it’s almost like if you can do a long term flip, meaning maybe you buy something, you rent it out for a year or two where it’s kind of covering its cost. It probably won’t, it will probably still be negative but then do the flip later so you kind of got in low …

Jamil:
If you can never get the tenant out.

Kathy:
Right, there is that.

Dave:
Valid point.

Kathy:
But it always has bounced back, and you will make a lot of money if you hold. That’s why so many Californians are loaded and are bringing their money to other places because they made their money in housing in many cases.
If you live in California, so what I think of California, I would love to leave California. But I love the weather. I love everything about it except the politics and the prices. But it would be hard for me to go anywhere else and I think a lot of people feel that way who live there.

Dave:
All right, well yeah. I wouldn’t bet against the California market long term. It always bounces back. Oh, and one thing I do want to say when you were talking about that, that could be a very good opportunity for a live-in flip for people who want to do that. You get to live in California and then flip it down the road. If you live in it for two out of five years, you pay no tax. Good opportunity.
For mine, I wanted to pick a city that we don’t talk about a lot also on the West Coast, but was one of the hottest markets over the last couple of years. I picked Reno, Nevada. Do you guys know anything about Reno?

Kathy:
Just sold off our two subdivisions there just in time, so yes.

Dave:
Oh good. Well it went crazy over the last couple of years, so hopefully you did well there.

Kathy:
Sold right before rates went up, so that was good.

Dave:
Ah, nice.

Jamil:
Congrats.

Kathy:
Thank you.

Dave:
Because to me, Reno is one of these cities that just popped due to remote work. It’s a beautiful place. There’s no income tax. It’s right near Lake Tahoe, it’s really nice. But when you look at the economic fundamentals, it doesn’t really support all the growth that we’ve seen. Similar to what James was saying about San Diego, you just see a really not a high enough income level to support the prices. You don’t really see, unlike Seattle or Austin that has exceptional job growth and tech companies moving there, don’t see that to the same degree in Reno.
This is what to me going to be an interesting experiment because I think it grew a lot similar to Boise. I think it’s sort of a similar thing where people who wanted to live somewhere with a great quality of life decided to move there, but will have to see if the economy can support it once people are either called back to the office or salaries don’t rise at the same rates that they have been or there’s layoffs we’re starting to see.
Unfortunately for Reno, I don’t think it’s going to be doing pretty well over the next couple of years. It’s already seen the days on market go up by about 250% over the course of this year. We’re at days on market over 60, which is in any market pretty high. And price drops are over 45%. That’s my pick.

Kathy:
Well, I could tell you why we invested there, why we bought land there and built a lot of houses there because Tesla moved its battery factory there and there was just … Google was moving up there because it’s only about four hours from San Francisco, but it’s in Nevada, no state income tax. It just seemed like this is going to keep growing.
But like San Diego, it just lags. It just lags. It’s so strange why you would think for those reasons companies would move to Nevada just to avoid taxes. But it’s still a four-hour drive. If there was a speed bullet train or something, maybe it would be a different story, I don’t know. But it’s always lagging.

Dave:
The income just hasn’t grown there in the way that it would need to just support some of these prices.

James:
Don’t they run out of water? Isn’t there a huge water issue in Reno too, like it’s dry almost? I just remember I went to Lake Tahoe, they were talking about it. The water’s low and they’re trying to figure out how to get more water in.

Kathy:
I think in general, that was California.

Dave:
And Nevada.

James:
Well, it’s also crazy too when you go to Lake Tahoe, that property values because part of it is in Nevada and they call that millionaires row on that side because that’s where all the mega mansions go. I get what Kathy was doing. They want to get out of that income tax and it’s like, so you have properties that are worth millions and millions of dollars on one side and then just kitty corner, they’re worth 45% less because there’s no income tax.

Jamil:
No, that’s interesting.

Dave:
All right, well we’ve talked about the downside. Again, I think that some of these markets could be great in the future. We’re just talking about 2023, not forever. Let’s move on to markets that we do think are going to outperform or do well in the next year. Kathy, on the other side, you didn’t like Detroit. What do you like for next year?

Kathy:
Well, as you know, like I said, we always look at job growth, population growth and infrastructure growth combined with affordability. I want to be in markets that cash flow today and so you can hold these properties. They don’t have to cash flow a lot. This is a long-term play but cover their costs so that you’re really able to hold these as they appreciate.
Tampa really fits that for me. Tampa has completely redefined itself in the last decade. In fact just in 2021, there were nine companies that relocated their headquarters. There’s an article that says tech company relocations to Tampa Bay soar in 2021. 94 new companies were added to St. Pete’s pipeline. Lots of job growth and that’s really important to us.
Now with that comes population growth. In Tampa, it was 1.3% up last year. This is the important thing looking forward, it’s projected to grow 3.3% annually. The growth has just started. More than 128,000 new residents are forecast to move to the metro area. How on earth by next year, by 2024, there’s not enough housing for all those people.
We’re still buying houses in the one $150,000-$200,000 range just about 45 minutes outside of Tampa. I don’t like to be too far away from a major metro, but if it’s still driving distance and there’s still offices and jobs nearby. Just on the outskirts and out of flood zones and out of the hurricane zones, kind of more inland of Tampa, we are really finding amazing deals. I think if you could still get a house for $200,000, $300,000 in an area that’s growing like that, to me that’s a steal.
Median rent is $2,300 per month for a three-bedroom home. There’s a lot of markets where it might be a two-bedroom apartment or something. But according to Zumper, $2,300 for a three-bedroom home, that’s pretty good. Rents have increased by 16% last year, and 48% of households in Tampa rent rather than own. I think we can all agree that Florida in general is business friendly and landlord friendly. It meets all the things that I want. I’m not worried at all about buying in Tampa today.
Oh my gosh, for the properties that I own in the Tampa area, I get calls propped and texts probably every other day of people trying to buy those homes. There’s still a lot of activity.

Jamil:
That’s my fault.

Dave:
It’s Jamil, he’s calling you.

Kathy:
I know. I keep offering twice what it’s worth and no one’s taking it.

Dave:
All right. Well, I love Tampa too. That’s a very good pick. I mean I think there’s a lot of … Florida, it just seems to be this split city, split state. Some markets seem to be overheated right now, but markets like Tampa just seem to still have really strong fundamentals. We’ll have to keep an eye on that one.

Kathy:
I’ll just say one more thing and then add to it that the iBuyers are kind of backing off, so you have a little bit more opportunity to get in today and we’re finally starting to see the foreclosure sales kind of hit. There’s more opportunity there than there was, but all the same dynamics of growth that we like.

Dave:
Nice. All right. James, what about you? What do you like for next year?

James:
What I like for next year is … It’s funny when I was researching all this. There were a lot of the predicted markets that are going to perform really well in 2023. It’s all based off math equations. When I was looking at all these lists, I’m like, okay, I get it. It’s a very low price point. The median income is up. There’s low inventory, so they’re predicting growth. That totally makes sense.
But for me as an investor, I also like to buy stuff where people want to live. And so I picked Raleigh, North Carolina, which I know did really good this last year. The reason being is it is ranked on numerous lists as the best places to live in the United States. It was ranked number six recently and it has a ton of growth behind it. It had a 3.4% GDP growth in 2022 and the economics behind, it’s Riley and Durham County but there’s growth going on there. The population is increasing because people want to live in quality places but still keep their capital.
A lot of our friends, I know a substantial amount of people in the last 12 months that make good money, they have good careers and they reload out of California. The reason they did is because they were sick of giving away that 13%. They were sick of paying too much money for housing and they’re going to areas like this.
If you look at how affordable this is for the quality of living, so this is the sixth rank city of places to live that you can have a great life to live in. The median home price is $410,000, which did grow by 16% last year and that is my concern. It did have a lot of rapid growth. But the household income is $98,000. So people can afford to … They can move there, have a great life and still live comfortably.
Everybody that I’ve known, and I also go off of what are people saying. People have been reloading to Raleigh, North Carolina, Charlotte, and they love it. They love everything about it. That is a buzz, and as we go into a recession and things are costing more, people are going to look for area. They just want to enjoy life and live somewhere that they can raise their kids, and this is one of those hot places.
The other thing I liked is there is going to be an inventory problem, I believe. Since 2010 until now, they built 50% less houses than they did from 2000 to 2010. If you have growth going on there because the population is growing, just like Kathy said like it’s growing at a rapid rate, it has historically grown around 1.5%. It’s been growing near 3% the last three years. And so it has the buzz. This is where people are moving, there’s a lack of inventory and people can afford things.
Another interesting stat I saw and I was like, wow, this is pretty, it kind of blew my mind. 23% of people don’t have mortgages there. That’s how affordable it is. That totally caught me off guard. And so when you’re looking at a quality place to live, they have good income. The median home price is still very, very affordable. The schools are great. Charlotte, the big city next to it is growing rapidly. Those are all good things for long-term gains on a property, in addition to people want to live there.
The only thing that I did see that is a little concerning is the cost of rent. That’s something that I’m really looking at now in all my metrics when I’m looking at things. Is it way cheaper to live in a rental? It went from being around 16% to 17% to 19.65%. The gap is getting close on whether you could rent or buy, but that’s still below that 21-point threshold that they talk about.
There’s still a little bit more room, it still makes more sense to own than it does to rent. And so those are things that I think are really healthy for growth for 2023. People want to live there, they can afford it and it’s still cheaper or a better situation to buy. I think that it has a lot of room to grow.
Another thing I saw actually, the markets I’ve been watching are these hockey stick markets. Raleigh has jumped dramatically, but it only came down 5% instead of that 10% to 20% that we’ve seen in some of these tech markets. It didn’t quite grow at the same rate as San Diego, Seattle, Austin, it grew about half the rate. And so it’s kind of a more leveled out market, so there’s less of a hockey stick going on there.
But I’m going to really dig into this market. I like all the stuff I read on it. I know I like everything I hear about people, and I really do love markets where people want to live. Raleigh is one of them.

Dave:
Awesome. Yeah, I mean it’s anchored by very, very strong economy. Three of the largest research universities in the country, Duke, UNC, NC State are all in that area. When you have that kind of education level, you see a lot of companies moving there to take advantage of that workforce. So very, very strong economy there.
North Carolina has some weird rules about buying houses though where you have to like, what is it called? You have to pay some fee to take the house off the market. It’s putting earnest money down, but it goes hard immediately. Have you ever heard of this?

Jamil:
Option fee?

Dave:
Yeah, it’s like an option fee. Last year, they were like 20 grand before you even have an inspection. It’s crazy.

James:
Yeah, I was just talking to someone about that and they said, yeah, it’s like two earnest. There’s an earnest money and then there’s like a due diligence fee.

Jamil:
Yeah, it’s to curb wholesaling.

Dave:
Yeah. It’s crazy though because in a normal year, I talked to an agent down there because I was interested in buying in Durham. They were saying like in normal year, it’s like 500 bucks. So it’s like, all right. But last year with how competitive it got, it was like 20 or 25 grand. That was before you even got an inspector in there, before you even necessarily walk the property.
So if people were … I mean, that’s crazy. That’s why I just didn’t do it. But hopefully in this next year, it won’t be as competitive when you can do something like that.

James:
The buying conditions were so weird though. We used to write offers on homes. We write a five-day close, it’d be listed for 400 grand. We would write it up for let’s say $450,000, and we would write earnest money at $448,000 and release it to seller day after Mutual. We would write the weirdest terms we could do just to try to get that deal. They’re like, “Wait, what do you mean?” We’re like, “No, no, we’re going to give you all the money until we close for 2,000 bucks.”
We were trying everything just to lock a deal down. It was like, but I think that that will go away from what I hear from people that are buying there. It’s back down to 500 bucks. People aren’t throwing crazy numbers at it anymore.

Dave:
For sure it’s wild. But agree that it’s a very strong market. All right. Jamil, what do you got? What’s your favorite market for next year?

Jamil:
Well, again, looking at this from the perspective of a trader, so I’m looking for opportunities that are quick where my buyers can get in and do projects where they won’t get slammed and have a house sitting on the market for months and months and months where mortgage rates aren’t going to be a considerable situation. Now, looking at what we’ve seen, we are seeing across the United States in almost every market that prices are declining. However, there is a unicorn market right now that a lot of folks aren’t talking about where that’s not happening, and it is Hartford, Connecticut.
Hartford, Connecticut. Interesting, realtor.com is predicting that they will have a price appreciation in 2023 of 8.5%. Buyer demand is so strong there right now that they are still in multiple offers, situations on properties, and houses are selling 20% above list right now with mortgage rates where they are right now. That’s how strong the demand is. It’s crazy. It’s like everything that we were seeing leading up to this whole market shift, all the craziness in most of the markets across the United States, we’re seeing these multiple offer situations, it’s still happening in Hartford, Connecticut, which is crazy to me.
Beyond that, the median price over there is very low at 372, so it’s still relatively affordable. You’ve got strong migration. You’ve got New Yorkers moving there. You got people from Florida moving there. You got people from New England moving there. It’s got a lot of demand. And so people are moving there. There’s strong, strong, strong buyer demand. The mortgage rates didn’t affect it because we still have multiple offer situations.
Fix-and-flip is going to be very strong over there. Wholesaling will be very strong over there. We’re going to be doubling down our efforts as well as trying to establish more franchises in the area because I see heavy opportunity for wholesaling and fixing and flipping in this little unicorn submarket.

Dave:
This has to be the first time in BiggerPockets history anyone’s ever mentioned anywhere in Connecticut as a place to … I grew up not so far from here and just never even talk about Connecticut. But Hartford has been one, it’s a low price market. Just anecdotally, most of my friends who grew up in New York with me now moved to Connecticut, mostly to Stanford, Bridgeport, places close to the city.
But it’s a real thing. Hartford is kind of perfectly situated between Boston and New York. And so maybe you’re getting people from both of those higher price markets who just want somewhere in the northeast that’s a little bit less expensive.

Jamil:
They are. There’s jobs and industry there too because it’s the insurance capital of, I believe the world, the insurance capital of the world. Aetna’s got their headquarters there. Cigna’s got their headquarters there. We know that there’s strong opportunity in healthcare. There always will be. That’s one of the industries that we understand will always have a lot of demand and a lot of opportunity.
I think it’s one of these markets that we will look at in five years and say, who knew? Jamil did.

Dave:
Yeah. Connecticut has underrated pizza. I don’t know if anyone knows that, but has better pizza than people give a credit for. It’s very important.

Kathy:
It’s where my husband was born.

Jamil:
Wow.

Kathy:
Yeah.

Dave:
What, in Hartford?

Kathy:
Mm-hmm.

Dave:
Wow. All right. Maybe Jamil and Rich will have to go on a tour. All right. Well for mine, I wanted to do something similar to Jamil, a little contrarian, some places that people haven’t heard of or aren’t talking about so much. For some reason, maybe not in 2023, but I’m long on the Midwest. I think similar to how the Southeast over the last couple years has seen, this big pop, the weather is great, but also it’s just more affordable than the West Coast and the Northeast.
I think the Midwest also has that going for it. Doesn’t have the weather, I’ll give you that. But the Midwest is by far the most affordable part of the country now because the Southeast has gotten so much more expensive. The city that I like in the Midwest the most is Madison, Wisconsin. Never been there, but just on paper, it has really good population growth. It estimated grew 1.5% just this year. Its unemployment rate is at about 2%, which is much lower than the national average. It’s a highly, highly educated workforce.
To James’s point, I’m just going based on affordability. People can afford to live there and it has a high scores for quality of life, and it is still growing. It is still consistently growing 8% to 10% year-over-year, and it’s been doing that for the last several years and it’s shown no signs of slowing down over the last couple of months. I think this market is still going to keep growing over the next year. I don’t think it’s a fluke. I think it’s an affordable market, high quality of life and affordable, which as James said, sort of some of the key indicators for long-term performance for buy and hold markets.
I tried to do something a little bit weird and a little bit different, but I think Madison’s going to be a winner.

James:
Brutal winters.

Dave:
Yes, definitely. Brutal winters.

Kathy:
I know what he said, quality of life. I was like, it depends on how much you love cold.

Dave:
It gets rated high for quality of life, people like it there. But I guess those are all like James said, it’s a math equation. They’re like, what was your score on air quality and what was … It’s those things. You probably need to look into a little bit of the methodology.

Jamil:
When you live in perpetual summer like me here in Phoenix, I don’t mind seasons.

James:
I’ve had too many seasons. I don’t want them anymore.

Dave:
I went to school in upstate New York and it is absolutely brutal. I did not like it. It’s not for me.

Kathy:
Why do you think Rich moved from East Coast to West Coast?

Dave:
Yeah, exactly. But I just think generally, I think the Midwest has gotten hit hard and there’s other cities in the Midwest also I think are Chicago I believe will rebound over the next couple of years. I mean, I think it’s doing fine right now, but we’ll start growing again just because it’s so much more affordable than other big cities. There’s still really good jobs in these markets.

James:
Cool city too. I love Chicago.

Dave:
Last time I was there, Jane’s family lives there, and I was there over the summer. Man, that city is basically holding down inflation for the entire country. We were going out and we went and bought beers and they’re like $3 for a beer. We’d go get a sandwich, it’d be like $5.50. And I was like, this place is holding it down. There’s stable prices in Chicago since 1990. They’re just doing us all a favor.

Kathy:
Chicago’s a lot of fun.

James:
I ate lunch yesterday when I was prepping, doing some work and eating, I got a sandwich and a soda and it was $33. I was like, it’s ridiculous. What is going on? Yeah. I mean, now Chicago might jump up my list if it’s really that cheap.

Dave:
Honestly, it is. It’s so cheap there, I mean, relatively speaking. Was your sandwich good at least?

James:
It was good. It was prime rib dip. It was pretty good.

Jamil:
Oh, he failed to mention it was a prime rib sandwich. It makes sense.

James:
Yeah. It’s a wagyu beef.

Jamil:
Yeah, when you have wagyu between bread, it is going to be 33 bucks.

James:
But that was a $20 meal before the pandemic. That was like a $19.94 with a $3 tip on there.

Dave:
All right, well thank you guys. It’s been a lot of fun. Let’s just sum this up. Kathy’s picks were worst performing market for next year will be Detroit, but best will be Tampa. James had San Diego as the worst performing market, and his best was …

James:
Raleigh.

Dave:
Raleigh. There we go. Jamil picking Hartford for his best one, bringing a new state onto the map. He had Ventura County, California as his worst performing. For me, I think Reno’s going to take a hit, but Madison, Wisconsin is my dark horse for next year.
All right, well thank you all everyone. We would love to hear on the forums, we just put on the BiggerPockets forums a question to ask you what all you think the best and worst performing markets of 2023 are going to be. So if you want to interact with us or talk to other listeners about market potential for next year, make sure to visit the BiggerPockets forums. Just go to biggerpockets.com/forums and you’ll find it there.
Jamil, James, Kathy, thank you so much for being here. We appreciate you. We appreciate you all for listening, and we’ll see you next time for On The Market.
On The Market is created by me, Dave Meyer and Kailyn Bennett. Produced by Kailyn Bennett, editing by Joel Esparza and Onyx Media. Research by Pooja Jindal, and a big thanks to the entire BiggerPockets team.
The content on the show, On The Market, are opinions only. All listeners should independently verify data points, opinions, and investment strategies.

 

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

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