Home owners and real estate investors who are concerned about buying at the top of the 2021 Real Estate Bubble need be using data to enhance their decision-making. Questions like: “Is now the right time to buy?” and “What are the best places to buy?” are more easily answered with data on your side.
In this video Reventure Consulting shows you how to use two key metrics:
1) Value/Earnings Ratio
2) Rental Yield
To identify which markets are RISKY investments heading into the 2021-22 Housing Crash and which ones are more SECURE.
The best way to start is by going back to the last crash, where values declined precipitously from 2007 to 2012. Some markets lost 50% of their value. Others actually gained value. What was the key difference? Value / Earnings Ratio.
This metric is calculated by dividing the typical home price in a market (Source: Zillow) by the average annual earnings of the typical worker (Source: BLS). Back in 2007 the markets with the highest V/E Ratio – where prices outstripped local earnings the most – had the biggest crash.
The other metric to focus on in Rental Yield, which divides the average annual rent in the market by the typical home price (both data points from Zillow). Markets with low rental yields – Austin, Salt Lake City, San Jose, Denver, and San Francisco – will have a tougher time when the market crashes. Why? Investors aren’t earning cash flow in these markets, so they will likely be inclined to sell when the dip starts occurring. Especially if there is a Capital Gains Tax increase.
The markets that will likely perform the best in the crash? Low Value / Earnings, high Rental Yield markets – think Buffalo, Birmingham, El Paso, Rochester, Pittsburgh, Oklahoma City. These markets aren’t very sexy, but they weathered the previous crash well and have the best attributes to weather the next one.
Reventure Housing Bubble Series
Part 1: https://youtu.be/VZfFM3Hcnz4
Part 2: https://youtu.be/hVtbeoedQkI
Part 3: https://youtu.be/p9_LWEpw7og
Contact Us: https://reventureconsulting.com/contacts/
DISCLAIMER: This video content is intended only for informational, educational, and entertainment purposes. Your use of Reventure Consulting’s YouTube channel and your reliance on any information on the channel is solely at your own risk. Moreover, the use of the Internet (including, but not limited to, YouTube, E-Mail, and Instagram) for communications with Reventure Consulting, LLC does not establish a formal business relationship.
0:00 Best v. Worst Cities
2:56 We’re in a Bubble
4:47 Value / Earnings Ratio
6:18 Lessons from 2007
9:54 High Prices = Risky!
11:36 2007 v. 2021 V/E
14:07 Miami v. Salt Lake City
16:05 Woah, Buffalo!
18:12 Rental Yield
19:43 No CFADS in Austin
22:45 Capital Gains Tax Increase?
25:14 Markets to TARGET v. AVOID
27:20 The Importance of Data