The real estate market has grown significantly year over year over the past decade. According to Statista, demand in the residential real estate market is surging and is predicted to grow at a compound annual growth rate of 4.99% from 2024 to 2029. However, as the market rises, so do home prices.
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If you’re looking to invest in a home this year, research is essential. GOBankingRates spoke with real estate expert Lauren Keen Aumond, co-founder of House Money and founder of Adulting Is Easy, to get insight into the current real estate market and which cities homebuyers should avoid.
Joshua Tree, California
“As someone who invests primarily in short-term rentals, I would encourage new hosts and vacation home buyers to stay away from saturated markets,” Ormond said, including Joshua Tree.
According to The Wall Street Journal, the average home price in 2020 was $217,007, but it more than doubled to $467,348 in 2022 as the pandemic drove people to move in. Now people are relocating and looking to sell in a market with plenty of inventory.
The average home price has fallen to $385,941, according to a report from February of this year, but the market is currently saturated. In addition to the mortgage, you also need to consider property taxes, insurance and maintenance costs.
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Orlando, Florida
Orlando is a top tourist destination thanks to attractions like Disney World, Universal Studios, SeaWorld and Legoland, but it is not considered a top housing market.
Supply and demand is an issue in Orlando, with few properties available. The lack of space has led to a flurry of bids, giving many investment firms the capital they need to buy multiple properties. “My opinion is that the more professional and well-funded players will have an advantage in these markets and will be hard pressed to compete for the time being,” Ormond said.
Other issues that may deter people from buying a home in Orlando include high homeowner insurance premiums due to flooding, which can lead to higher interest rates, higher property taxes and increased maintenance costs.
Despite rising prices, Orlando is still considered more affordable for buyers from states like California. Outside buyers who saw significant value in their last home sales can afford to offer sellers higher prices than buyers who live locally, potentially sparking another bidding war.
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Los Angeles
Zillow recently released a list of the top 10 cities with the worst housing shortages, and five of them are in California. Four cities made the list: San Francisco, San Jose, San Diego, Sacramento, and Los Angeles, with Los Angeles coming out on top with the worst housing shortage, which is estimated to currently be 337,000 homes.
Part of the housing shortage is that so few homes are being built, and developers blame inflation-fueled materials costs, rising wages across the state and complex regulations.
Another reason is rising interest rates, which are eating into developer profits and making building homes in Los Angeles less attractive than it once was.
San Francisco
Advances in technology have contributed to high-paying tech workers driving up home prices in San Francisco. The average home price in San Francisco is about $1.3 million, higher than the average home price in Los Angeles. The average mortgage payment is $7,843, according to HSH, and the average rent for an apartment is $3,287, according to RentCafe.
Surrounding areas like Sacramento and San Jose aren’t much cheaper either, making home buying unaffordable for non-techies.
Plus, because San Francisco is largely surrounded by water, there aren’t many places where additional housing can be built to meet demand and supply.
The Choice is Yours
While these cities are expensive, Ormond says the decision of where to buy a home is ultimately up to you. “When it comes to buying a home for yourself, you shouldn’t shy away from certain markets,” she says.
If your circumstances allow, you can live the life you want in the area you want, and you can afford it, buy a home and stay there for the long term. Quality of life is important, and even if you find a cheap place to live, it’s no good if you’re miserable.
“Short-term thinking and fluctuations shouldn’t affect the fundamental thinking behind buying a home,” Ormond said.
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This article originally appeared on GOBankingRates.com: Housing Market 2024: Remove These 4 Cities from Your Homebuying List
