You’re deep in research, trying to decide which market is best suited for your investment dollars. It seems like everyone has a “top 5 markets” list. Truth is, they all hold some level of validity, provided they come with data to back them up. We can’t tell you what market is right for you because everyone’s investment criteria is going to be different. What we can tell you is why we’ve selected these five markets for multifamily real estate as ones to seriously consider in 2022 based on a specific set of trends that point to long-term opportunity (not just the market of the year).

The key metrics and corresponding trends that we analyzed were YoY% (year-over-year percent change) in single-family home prices, net migration rates, net absorption rates, and the percentage change in six-figure jobs. In this blog, you’ll learn how those numbers affect investment decision-making and why we chose those metrics.

Let’s dive in.

The Metrics

Source: https://www.corelogic.com/intelligence/u-s-home-price-insights/

YoY% Change in Single-Family Home Prices (2020-2021)

We looked at the increase in single-family home prices from 2020-2021. This increase can serve as an indicator that people are being priced out of home ownership and nudged toward the rental market, therefore creating a higher demand for multifamily properties. The image below from CoreLogic shows the average percentage change from state-to-state in the last year, with the highest changes in dark blue.

Net Migration Rate (2015-2019)

This metric is multifaceted. First, it takes into consideration both people leaving an area, as well as those moving in. Many studies only focus on the inbound migration, therefore not taking into consideration the entire picture. Overall net migration is important to gain an understanding of the desire for people to remain in an area long term. If people want to stay, they will need a roof over their heads and that’s where we, as investors, come in. The second part of this metric is the five-year span. Remember, it is important to think about the big picture, not just what’s happening in the short-term. Trends change over time, which means it is smart to look beyond the immediate scope of view for market trends.

Source: Yardi Matrix National Analysis of Demographic Shifts

Net Absorption Rate (January-May 2021)
Absorption rate is a metric used by developers to determine the rate at which units are being rented or purchased after being built. Understanding this rate helps investors and developers determine supply and demand in a particular market. Without getting into too much detail, an absorption rate over 1 means that the demand for housing is higher than the supply. If the rate is less than 1, the supply exceeds the demand. For developers and even investors, this is an important factor to consider to determine the need for housing in a particular location. Unfortunately, we didn’t have a full year’s worth of data so we used the best data available which was the average seen throughout the first half of 2021.

Percentage Change in Six-Figure Jobs (2015–2020)

When deciding which city to invest in, we look for areas that have good median incomes and solid job opportunities. A consistent increase in the amount of six-figure jobs is an indicator that an area has a population with solid income and good jobs . This shows promise to investors that there will be tenants who will pay their rent and potentially future growth due to more workers deciding to relocate for those better paying jobs.

Taking these factors into consideration, we’ve narrowed down our top 5 recommended metro areas to seriously consider if you’re investing, whether passively or actively, in apartment buildings this year.

The Markets

#1: Phoenix, AZ

With over 5 million residents, Phoenix is one of the most rapidly growing metropolitan cities in the Southwest. You’ll probably notice that this city is on the top of almost every top multifamily market investment list. It’s no mystery why when you look at the data; It had the highest net migration rate over the last five years in the country and has seen significant high salary job growth of over 200%. Renters and vacationers are drawn to the warm year-round climate, nightlife, jobs, and entertainment that Phoenix offers. Although it has become increasingly expensive to invest in this area, the trends indicate that it is still a solid choice for investing due to the supply vs demand of housing, the number of people still moving there, and solid median income of potential renters. If you want to do a deeper dive into Phoenix market, check out this report from Colliers on the 2022 commercial real estate outlook for Phoenix.

Here’s Phoenix by the numbers:

Net Migration (2015 - 2019): 53,138
2021 Absorption Rate: 1.6%
% Change in Single Family Home Prices (2020-2021): 31%
Six Figure Job Growth (2015 - 2020): 217%

#2: Las Vegas, NV

When people think about Las Vegas, the hustle and bustle of the LV strip typically comes to mind. However, there is so much more to Las Vegas beyond the casinos. With plenty of surrounding suburbs and growing communities, there are many reasons people are relocating to this Southwest metropolitan. Jobs are abundant in Las Vegas, the weather is warm, and there are no income taxes, just to name a few. According to local station KNTV, the city also saw an influx of tech companies and workers flock to this desert metro during the pandemic last year because of the favorable regulatory environment and affordable real estate options. All of the signals point to a great opportunity to make a solid return as a multifamily investor by benefitting from these positive trends.

Here’s how Las Vegas’ numbers add up:

Net Migration (2015 - 2019): 26,470
2021 Absorption Rate: 0.65%
% Change in Single Family Home Prices (2020-2021): 24%
Six Figure Job Growth (2015 - 2020): 216%

#3: Austin, TX

Austin, TX goes by the slogan, “Keep Austin Weird,” drawing a growing crowd of millennials and creatives. Austin’s economy is one of the best performing metropolitan cities in the country boasting world-class food, music, and art scenes. People looking to relocate to a scene like Austin aren’t necessarily ready to place down roots, which means the rental market opportunity is abundant. The high net absorption rate of almost 2% coupled with the 2021 rent growth rate of almost 3% indicates that there is the opportunity for multifamily investors to capitalize on the low supply and high median incomes of potential tenants.

Austin’s numbers are here:

Net Migration (2015 - 2019): 27,240
2021 Absorption Rate: 1.75%
% Change in Single Family Home Prices (2020-2021): 16%
Six Figure Job Growth (2015 - 2020): 101%

#4: Orlando, FL

Located an hour from each Florida coast, Orlando offers a great variety of neighborhoods when it comes to multifamily investments. The job market is consistent and sustainable with an ever-evolving list of amusement parks, business centers, and restaurants. Orlando offers the appeal of Florida at an affordable price, giving renters an opportunity to comfortably relocate to the sunny state. Although Orlando may not be known as a tech hub, the city and surrounding suburbs are still seeing fairly high six figure job growth over the last 5 years and a serious supply issue indicated by the over 2% absorption rate, making it a market all multifamily investors should seriously consider in their 2022 market evaluations.

Check out Orlando’s data:

Net Migration (2015 - 2019): 27,067
2021 Absorption Rate: 2.17%
% Change in Single Family Home Prices (2020-2021): 17%
Six Figure Job Growth (2015 - 2020): 79%

#5: Tampa, FL

Tampa, FL is one of the hottest locations in Florida for investors right now, according to Zillow. With zero individual income tax, people are flocking to Tampa for the convenience of restaurants, shops, jobs, and of course, the sunny beach life. Don’t let the current high demand for properties discourage you from investing. It is getting more competitive because the long term trends indicate that there is solid migration to Tampa and in the short term, more people are being priced out of the once very affordable single family home market. That ultimately means those people will be turning to rentals. This data, along with the over 1% absorption rate and a solid increase in rent growth of almost 3.5%, indicate that there is a strong demand for multifamily housing in the area.

Here’s Tampa’s Data:

Net Migration (2015 - 2019): 27,328
2021 Absorption Rate: 1.6%
% Change in Single Family Home Prices (2020-2021): 29%
Six Figure Job Growth (2015 - 2020): -18%

There are many factors to consider when investing out of state including, but not limited to, the metrics we’ve discussed. Think “big picture” by taking into consideration the long-term opportunity when choosing your next investment location. Even if you’re a passive investor, it’s important to make sure you’re investing in a solid market where the data backs up the opportunity being offered by the investment team. Check out our blog, 5 Steps To Investing In Real Estate Out Of State if you’re new to out-of-state investing or want to make sure all of your bases are covered next time you branch out of your backyard.

Data sources referenced in this article:

https://www.corelogic.com/intelligence/u-s-home-price-insights
https://www.orlandorealtors.org/housingmarketnarrative
https://learn.roofstock.com/blog/austin-real-estate-market
https://www.stessa.com/blog/cities-with-high-paying-job-growth/
U.S. Census Bureau, 2015-2019 American Community Survey. For more information, see https://census.gov/acs.
Yardi Matrix National Analysis of Demographic Shifts

5 Real Estate Markets to Seriously Consider for Your 2022 Investments