Location is key in real estate investing. How many times have you heard this slogan? Maybe a thousand times, and this is only because it is absolutely true. If we have to name only one single factor that determines the success or failure of your real estate investment property, 99.9% of real estate experts will go for location. Thus, when you choose the location of your next rental property purchase, you should be very careful to guarantee yourself demand by tenants, strong rental income, and positive cash flow. To help you in your real estate investment decisions, here is a list of the states across the US which are still recovering from the 2008 housing market crash.
Maybe you are surprised to hear that there are US real estate markets that are still struggling to go back to normal after the nation-wide housing market crash that happened nearly a decade ago. It is true that the national US housing market has recovered on the aggregate level, but it is also true that there are many places which for one reason or another have found it difficult to recover. Let’s have a look at the states which need to come back after the 2008 housing market crash so that you as a real estate investor know to avoid them in your next investment property purchases:
Nevada
The national housing market crash hit different states differently, and Nevada was definitely one of those which suffered most severely. Nevada was one of the states which faced the most significant property price appreciation rates prior to 2008, and as a result this state also experienced one of the largest price plummets during the real estate market crash. In some cities, such as Les Vegas, property prices fell by as much as 33%. In recent years home prices across Nevada have been appreciating at a rate above the national average, while incomes have not been able to catch up. This phenomenon has resulted in a very high price-to-income ratio, of about 3.36, which is about 50% higher than the historical average of 2.2 for the period 1950-2000. This means that real estate properties are highly unaffordable in places like Las Vegas and Reno, which slows down the recovery of Nevada from the 2008 housing market crash.
Related: The 8 Most Overvalued Housing Markets in the US
Oregon
The State of Oregon is another real estate market which is experiencing a housing bubble. Here too the price-to-income ratio is too high to allow people to live comfortably, which is preventing a complete recovery from the 2008 housing market crash across Oregon. While some real estate investors might think that’s the perfect condition to buy a rental property to cater to the needs of tenants who are not able to afford buying a home, this is not necessarily the case. Even if as a real estate investor you come from a state where incomes are higher so you can buy an investment property in Oregon, remember that you will have to charge high rent in order to make enough rental income to make your rental property profitable in terms of cash on cash return and cap rate. This high rent might turn out unaffordable for many tenants. Actually, the price-to-income ratio in cities across Oregon equals 4.9 in Eugene, 5.4 in Portland, 5.67 in Bend, 5.68 in Medford, and 5.8 in Corvallis, while the healthy level is considered to be around 3.5. So, it is best to avoid buying a rental property in Oregon in the next couple of years; otherwise, you might run the risk of having to deal with another, state-level housing market crash.
Colorado
After the 2008 housing market crash, property prices in Colorado have been skyrocketing. However, the same cannot be said about incomes, which are actually facing a decline in recent years. Affordability has emerged as a major issue in the State of Colorado, which is preventing any meaningful recovery from the housing market crash and threatening with another one. In Denver and Fort Collins the price-to-income ratio is about 5, while it has reached 6.6 in Boulder, or 100% higher than the historic average. Real estate experts are seriously warning against the possibility of a new housing market crash in places like Denver, where many new home developments have been planned, clearly leading to a real estate bubble.
Related: What is the difference between a housing bubble and inflation in US real estate?
Tennessee
When it comes to states where you should not buy a rental property because of slow recovery after the 2008 housing market crash, Tennessee is another one on the list. Here fix-and-flips are more frequent than actual home purchases, which is a potential sign of a housing bubble. Indeed, Memphis and Clarksville have reached the highest rates of fix-and-flips as percentage of all home sales. Another worrying sign in Tennessee is the recent spur in construction activities. For example, in Nashville the demand for housing is pushing for new home developments, which in turn creates a major threat of another real estate market bubble and even another housing market crash in the State of Tennessee. So, real estate investors should be careful when thinking about buying a rental property in this state. It is best to constrain from such a real estate investment decision, at least for the time being.
Related: Which cities are currently in a housing market bubble?
The impact of the 2008 housing market crash was different in different locations across the US real estate market. Some local housing markets suffered more, while others were relatively less hit. Some real estate markets have been recovering rather well, while others are still lagging behind. Some seem to be even heading for another housing bubble and housing market crash before they have fully come back from 2008. The great thing about real estate investing in the US is the diversity in housing markets. Because each local real estate market is so different from the next one, you can always find one where buying an investment property is a good idea at the moment. For the time being, just avoid the four states listed above, to be on the safe side as a real estate investor. When looking for the best investment property in one of the remaining 46 states, use Mashvisor’s property search engine and investment property calculator.