This article appears in Real Estate Outlook 2018.
The nation’s biggest real estate markets are powerhouses in population and economic impact, but for a higher standard of living and lower housing costs, many people choose to live in secondary markets.
Secondary markets like Seattle, Washington, and Austin, Texas, took top spots over primary markets including New York City, Chicago and San Francisco in the 2018 Emerging Trends in Real Estate report. Los Angeles, Dallas/Fort Worth and Boston were the only primary markets to break the survey’s top 10 “markets to watch.”
The report was created by experts at PricewaterhouseCoopers and the Urban Land Institute. Other highly ranked areas were Salt Lake City, Utah; Raleigh/Durham, North Carolina; Fort Lauderdale, Florida; San Jose, California; and Nashville, Tennessee.
“A secondary market is an area that doesn’t represent one of the largest metropolitan areas in the U.S. Instead it may be either an up-and-coming suburb or just a smaller city that is experiencing significant growth. Some characteristics are job growth, more affordable housing than major markets, tax benefits and a better quality of life which may be achieved due to cost of living, local attractions and general way of life of its residents,” said real estate investment analyst Allison Bethell of FitSmallBusiness.com.
“The following characteristics are key ingredients for a rising secondary housing market: a big college population — because increasingly, graduates like to stay to pursue a career where they already have friends and romantic ties instead of relocating again — abundance of good-paying jobs particularly in technology and other high-growth sectors, and housing costs that are in line with local wages,” said Joe Melendez, chief executive officer of ValueInsured, a company that provides down payment protection for home buyers.
The millennials’ market
“Secondary market is a very interesting topic in housing, especially now in the new age of mobile technology and telecommuting,” Melendez said. “Even the most ambitious young people now do not feel the need to be in New York, Boston, L.A., San Francisco in order to launch a successful career. By avoiding those markets, they avoid the sky-high housing costs. Wages are increasing at a healthy pace, but not at the 7 to 15 percent annual home price increase you see at some of the top metros.
“Millennials’ ability to form their own communities organically and quickly has also contributed to the rise of new dynamic cities,” Melendez said.
On the rise
“With a rising cost of living, moving to a secondary market is a great way to maintain a quality lifestyle without breaking the bank,” said Evan Roberts, a real estate agent with Dependable Homebuyers in Baltimore, Maryland. “Many secondary markets, like Baltimore, have been improving over the past decade with more people moving to the city, more business (like Under Armour) planting roots, and more restaurants and bars opening to accommodate the demand of gentrification. By buying a home now you’re locking in a low price in a neighborhood that’s rising and will likely be less affordable in the future.”
Close to the action
Secondary-market cities are great bets when located near a growing major metro area, said Realtor and attorney Bruce Ailion of Atlanta’s RE/MAX Town and Country.
“They have a steady supply of rental tenants when located in a college town on the residential side. On the commercial side, each of these locations has an auto, medical, fast food and other franchise, doctors, lawyers, CPAs and other professionals. Secondary locations in secondary markets may offer rental yields 2 to 3 percent above what a similar business would have in the nearby metro area,” Ailion said.
“As a lifestyle location you are more likely to know your neighbors (and) retail shop owners, and typically there are lower taxes and less crime,” he said.