When it comes to purchasing a home, there are many factors to consider, including the cost of living, crime rates, climate change, local issues, and property taxes. Analyzing these elements can result in substantial savings. Whether you are saving up to buy a house, waiting for mortgage rates to decrease, or preparing for a big move soon, conducting market research now can help you make well-informed investment choices later.
‘While the market cannot be predicted with absolute certainty, current trends offer valuable
insights,’ stated Yawar Charlie, estates director at Aaron Kirman Group of Christie’s International Real Estate and a member of CNBC’s “Listing Impossible.” The financial website, GOBankingRates, reached out to experts who pinpointed states to steer clear of when purchasing property in the next five years based on present patterns.
Cost of Living Index
Before discussing the least favorable places for investing in multifamily properties, it is essential to grasp a few key concepts. The first concept to understand is the Cost-of-Living Index. This index provides a comprehensive comparison of basic expenses like food, housing, transportation, and healthcare across all states.
The Cost-of-Living Index is calculated by establishing a baseline for comparison. In the United States, this baseline is the average cost of living, set at 100. States are then evaluated in relation to this baseline. For instance, a state with a Cost-of-Living Index of 200 is twice as expensive as the national average, while a state with an index of 50 has expenses around half of the national average.
Rent Potential
The second crucial concept is rent potential, which includes historical rental trends influenced by three key factors:
Occupancy Levels: This indicates the percentage of units in a property that are rented or
occupied, with the vacancy rate as the opposite.
Average Monthly Rent: This figure represents the average rent prices across the state.
Percentage of Renters: This measures the ratio of renters within the overall state
population.
Economic Score
This evaluation considers several important factors such as overall economic development, annual job growth rates, and the financial stability of the state. It also evaluates the strength of the housing market, assessing its resilience and performance.
It goes beyond basic economic indicators to analyze the depth and diversity of the economic landscape in each state.
California
California boasts breathtaking landscapes, a lively culture, and nearly perfect weather, but
affordability is a major concern. ‘Observing trends as a real estate agent in Los Angeles, I have noticed signs that certain states may become less appealing to homebuyers in the next five years,’ remarked Charlie. ‘The high cost of living is not the sole issue; the state also grapples with obstacles like wildfires and droughts, making homeownership more challenging and pricier,’ he elaborated. ‘Moreover, the tech boom in regions like the Bay Area has significantly inflated housing prices, prompting many to seek out more cost-effective states.’ Rachel Stringer, a Realtor at Raleigh Realty, added, ‘Demand continues to exceed supply, resulting in limited inventory. This scarcity of supply, combined with sluggish wage growth, raises concerns about long-term affordability. As expenses rise quicker than incomes, keeping up with mortgage payments could become progressively difficult.’
Florida
Florida is a sunny haven for numerous retirees, but a single severe storm can transform it into a nightmare. ‘The state’s geographical position makes it highly susceptible to hurricanes and rising sea levels due to climate change,’ noted Stringer. ‘Key considerations include reconstruction costs, interruptions, and escalating insurance premiums because of storm damage. Coastal properties may face significant devaluation if rising sea levels render them uninhabitable.’
Illinois
Famous for its bustling cities and vast farmlands, Illinois serves as a major hub for manufacturing food, chemicals, rubber products, and more. Nevertheless, Charlie highlighted substantial challenges the state is confronting. ‘Illinois, particularly Chicago, is grappling with severe financial issues,’ he stated. ‘The state boasts some of the highest property taxes nationwide, and Chicago is plagued by high crime rates and financial deficits, leading to cuts in essential services and increased taxes. These financial burdens make it hard for residents to justify remaining when they could find a safer and financially more secure environment elsewhere.’
Louisiana
Louisiana is well-known for its rich culture, tasty cuisine, and lively environment; however, Tony Mariotti of Ruby Home suggests being cautious about investing in real estate there. He mentioned that Louisiana is highly vulnerable to the effects of climate change like hurricanes and flooding, which can result in higher insurance costs and potential property damage. The state also faces challenges with limited job growth and economic diversity, making it less appealing for long-term investments. Issues with infrastructure further complicate property ownership in the state.
New Jersey
Another state on the East Coast to be wary of when it comes to purchasing property is New Jersey. Charlie pointed out that apart from the high property taxes, New Jersey is witnessing the departure of major corporations, impacting job opportunities. The state also carries some of the highest health insurance premiums nationwide, adding financial strain for residents. Moreover, congestion and traffic, particularly for commuters heading into New York City, can be a daily hassle.
New York
New York is notorious for being an expensive state with various issues beyond just the cost factor. Charlie highlighted that apart from the steep property taxes and living expenses in New York City, there are concerns regarding aging infrastructure. For example, the subway system is infamous for delays and malfunctions, making daily commutes a challenge. Additionally, the shift towards remote work due to the pandemic has reduced the necessity to reside in or near the city, prompting many to move to suburban or rural areas.
West Virginia
Famous for its coal industry, West Virginia is facing economic downturns as the industry dwindles, resulting in “economic devastation in many regions,” as Stringer mentioned. As jobs diminish, the population in small towns is decreasing, leading to reduced demand for housing. Homeowners may encounter difficulties in finding buyers willing to pay a fair price.
