Here are America’s Most Profitable Housing Markets: Cash In!



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Throwing down some hard-earned cash on blackjack or craps at the local casino is enough to make some folks break out into a cold sweat. But when it comes time to buy a home, the ante gets raised to truly nerve-racking levels: They’re making the biggest wager of their lives on what’ll likely be their largest investment. Ever.

Owning a home has long been considered the fastest and most predictable way to build wealth in the United States. And while home sale prices are at an all-time record (at a median of $262,000 as of June) not everyone is walking away with double-digit annual returns.

Picking a place where home prices will continue to surge in the long term is one part science, one part dogged research, and one part blind, dumb luck. Nothing is guaranteed. But if past is prologue, we’re here to help increase your odds of picking a winner: The realtor.com® data team found the markets where home sellers are walking away with the biggest returns.

We’re not talking about short-term flipping here. We’re focusing on those in it for the long haul.

Our analysis finds that the median annual return for home sales was 8% nationally over the last 12 months. Not too shabby, homeowners! But digging into the numbers reveals a disparity. Of the 100 largest metros, the annual return was high as 14%—and as low as 2%. That’s the difference between living retirement on the beach and not retiring at all.

“Owning can be a great way to build up overall net worth,” says Danielle Hale, chief economist for realtor.com. “If you’re looking to transition in a local market [to a bigger home], you have the home equity. If you’re looking to retire and move somewhere else, you have the money to do that.”

Many of the places with the highest returns are the nation’s fastest-growing cities, where highly paid techies are spurring bidding wars. But that isn’t always the case. A few of the places where home sellers walked away with the fattest profits are those that hit rock-bottom in the Great Recession. Savvy buyers who got in on the ground floor have seen their home appreciation soar.

“They walked into the room when everyone was running out,” Jonathan Miller, a national real estate appraiser at Miller Samuel in New York, says of these buyers. “They are now being compensated for their risk.”

To find the country’s most profitable housing markets, we looked at homes that sold over the past 12 months in the 100 largest metropolitan areas. (Metros include the main city and the suburbs surrounding it.)  Then we compared the most recent sale prices to their previous ones, going back as far as 2008. The profit was defined as the difference between the two sales.

Finally, we used those figures to create an average annualized return for each market, and limited our ranking to one metro per state.

Let’s roll the dice!

Most profitable markets

Tony Frenzel


1. Bridgeport, CT (Fairfield County, CT)

Average annualized return: 14%

Median home list price: $789,100

Bridgeport, CT

realtor.com


Fairfield County has spent decades esconced as the crown jewel of New York City‘s suburbs, a hot spot for wealthy home buyers looking to snag a mansion in luxe, high-status communities like Greenwich, CT, where median home prices are $1.9 million. But this county is more than just leafy, picture-perfect commuter towns; it also stretches into the perennially downtrodden city of Bridgeport. And ever since the financial recovery, properties at both ends of the economic spectrum have been doing very well.

First, the high end: Unlike in nearby Westchester County, NY, home buyers in Fairfield County don’t have to pay a mansion tax. And ever since last year’s tax law changes, which made deductions less generous, the county has been attracting even more interest among big-ticket purchasers.

That increased demand has more and more homeowners cashing in, to get their hands on those profits. It’s common for sellers here to use that windfall to upgrade to an even nicer home, says Leslie McElwreath, a real estate agent at Sotheby’s International Realty’s office in Greenwich.

But it isn’t just mansions driving the price increases. Even higher price appreciation can be found in way less affluent Bridgeport proper, says Miller, the real estate appraiser. The median price there is just $199,000. That’s lured in buyers, and that is now driving prices up.

“If you look at the high end of the county, housing prices haven’t risen as much since the financial crisis,” Miller says. “But areas hit hard by foreclosures in the region are now seeing large gains in property values.”

2. Detroit, MI

Average annualized return: 12%  Median home list price: $260,000

Detroit skyline

Cameron Davidson/Getty Images


The Great Recession dealt Detroit a near-knockout punch. The Motor City had struggled for decades with the loss of blue-collar, manufacturing jobs. Then the auto industry went into a tailspin, leading to widespread unemployment and a rash of foreclosures.

Locally based General Motors and Ford received a federal bailout to stay afloat. But in 2013, the city still filed for Chapter 9 bankruptcy. With so many folks looking to leave, the median home values in Detroit fell from $137,200 in March 2008 to $108,800 by March 2012, leaving many owners underwater on their mortgages.

But in recent years, the city has been on the upswing, as more folks move into its revitalized downtown. Younger buyers are finally flocking into the area to purchase condos in converted industrial buildings, like this one-bedroom condo/loft for $299,900.

Homeowners who rode out the bad times are starting to see the rewards. That’s especially true for those who bought at the bottom of the market.

“Detroit fell harder than most markets,” real estate appraiser Miller says. “[But its] rebound has been encouraging.”

3. Seattle, WA 

Average annualized return: 12%  Median home list price: $582,400

Seattle

Sujata Jana / EyeEm via Getty Images


Why did so many cities go nuts submitting bids for Amazon’s second global headquarters? Maybe it has something to do with the remarkable transformation the company has wrought in its home city of Seattle. All those lucrative tech jobs have attracted home buyers of means, who’ve sent real estate prices soaring. It’s turning average Joe and Jane homeowners into millionaires.

Competition is fierce. In the last year alone, nearly two-thirds of homes sold in Seattle have received multiple offers, according to a realtor.com analysis. That’s the highest incidence of bidding wars outside California.

Buyers are snapping up condos in downtown Seattle with good views of the skyline or Elliott Bay. But demand is equally as strong for family-friendly, single-family homes in suburbs like Bellevue, WA.

“More than 75% of my buyers are from Microsoft or Amazon,” says Jim Price, an adviser at Engel & Völkers in Seattle. “Lots of millennials here are making six figures and are ready to be first-time home buyers.”

4. San Jose, CA

Average annualized return: 12%  Median home list price: $1,240,300

San Jose

realtor.com


The number of deep-pocketed techies and venture capitalists in the heart of Silicon Valley seems to be limitless. Combine that with the meager supply of available homes, and even wee vacant lots can go for over $1 million.

Silicon Valley home buyers from companies like Apple, which is likely to become the world’s first company worth more than $1 trillion, are turning former middle-class neighborhoods into mansion-lined boulevards. Buyers are consistently tearing down the more reasonably sized homes on their lots to put up larger ones.

This happened in Los Altos, CA, where the median home price is now above $6 million.The most expensive home for sale in Los Altos is a 21,000-square-foot mansion priced at $55 million. Those who don’t have quite so much spare cash can consider this two-bedroom 1,500 square-foot condo, currently the cheapest abode on the market, at $1.6 million.

And home sellers looking to unload their property in a hurry don’t have to worry. Not only do 80% of home sales in San Jose result in a bidding war, many of these buyers are willing to pay in all cash.

5. Palm Bay, FL

Average annualized return: 12%  Median home list price: $270,000