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In some markets--many of them in California--the home price rebound has pushed prices above their EHP level, which should be a caution sign for investors seeking to make money in a quick re-sale, according to the latest HomeVestor/Local Market Monitor Best Market Ratings for investors.

Investors Cautioned On Hottest Markets

In some markets–many of them in California–the home price rebound has pushed prices above their Equilibrium Home Price level relative to local income, which should be a caution sign for investors seeking to make money in a quick re-sale, according to the latest HomeVestor/Local Market Monitor Best Market Ratings for investors.

Citing new quarterly data compiled by HomeVestors (known as the “We Buy Ugly Houses®” company) and national real estate forecaster, Local Market Monitor, Hicks said that in the top 100 housing markets in the U.S., only one-Providence, Rhode Island–is categorized as “dangerous” for investors. The HomeVestor/Local Market Monitor Best Market Ratings, issued quarterly, concentrate on factors that affect the demand for housing and therefore affect home prices. The potential for price increases is the investment opportunity, the potential for price decreases or stagnation is the investment risk.

“Five of the 11 markets where the price run-up has driven the EHP into positive territory are in California, with the Los Angeles-Long Beach-Glendale market leading the pack. Average home prices now running 19 per cent above the EHP for that market,” said Ingo Winzer, president and founder of Local Market Monitor. The EHP, or Equilibrium Home Price is a measure of how much a market is over-priced or underpriced relative to local income.

“Markets with a positive EHP can still provide strong rental returns for investors,” Winzer said, “since most of those markets have strong population and job growth which provides upward pressure on rents.

“The San Jose market is a good example,” he continued. “Although the EHP is six percent, strong population growth provides a good source of renters, making it a ‘low risk’ market according to our data.”

Winzer also thinks the sharply higher prices in some markets will be difficult to sustain. “They’re more the result of a short-term shortage of inventory rather than a long-term recovery of demand,” he noted.

Investors should weigh the data carefully according to their risk preferences before making a decision about investing in a market,” said HomeVestors co-president Ken Channell. “For those who can handle more risk, markets ranked as ‘speculative’ in our data could provide more upside potential.”

Despite the record-setting increases in home prices this year, there is still plenty of room in most markets for prices to move even higher, and that’s good news for investors in single family homes according to David Hicks, co-president of HomeVestors of America

“Even though housing prices in Providence are still 12 percent below their EHP level, the weak jobs market and relatively high unemployment depresses demand for rental properties,” said Ingo Winzer,

Of the top 100 markets, there are 13 ranked as “speculative,” all of them in Northeast or the Midwest. “Most of these markets have higher than average unemployment rates, but have other factors such as home prices well below the EHP, strong rents or continued population growth that make them particularly attractive investments,” Hicks said.

“What we have learned over the last 16 years with our HomeVestors® franchisees buying more than 50,000 houses allows us to analyze individual neighborhoods for sales trends and rental rates,” Channell said. “This information can help investors determine a purchase price for a property that may allow them to build equity over the long term while generating rental income immediately.”

The quarterly data categorizes all U.S. markets according to different investor risk preferences including Dangerous, Speculative, Medium Risk and Low Risk. California leads the nation in the number of markets ranked “low risk” with 14. Texas is next with 12 markets ranked as low risk and Florida is third with 11.

But, Winzer cautions “Not all low risk markets are equal. When you factor in job growth and unemployment, it’s clear that some markets like Texas have better long-term potential than a market like Florida.”

Markets can be ranked as “low risk,” “medium risk,” “speculative” and “dangerous” depending on their numerical score of minus-ten to plus-ten based on population, job growth, unemployment, home price changes, the market’s equilibrium home price and the 12-month home price forecast.

Low Risk

Score range: 6 to 10

Medium Risk

Score range: 3 to 5

Speculative

Score range: 1 to 2

Dangerous

Score range: -10 to 0

Abilene, TX 6 Akron, OH 4 Albany, NY 2 Anniston-Oxford, AL -1
Ann Arbor, MI 8 Albuquerque, NM 4 Albany, GA 1 Atlantic City, NJ -3
Atlanta, GA 6 Allentown, PA 2 Alexandria, LA 1 Bangor, ME -1
Austin, TX 8 Amarillo, TX 3 Altoona, PA 1 Dalton, GA 0
Bakersfield, CA 6 Anchorage, AK 5 Augusta, GA 2 Decatur, IL -4
Baton Rouge, LA 6 Appleton, WI 4 Beaumont, TX 1 Huntington, OH 0
Billings, MT 8 Asheville, NC 3 Binghamton, NY 1 Lima, OH -1
Bismarck, ND 10 Athens, GA 4 Bloomington-Normal, IL 2 Johnstown, PA -1
Boise, ID 8 Auburn, AL 5 Bloomington, IN 2 Kingston, NY -2
Boston, MA 6 Baltimore, MD 3 Bridgeport, CT 2 Mansfield, OH -5
Boulder, CO 6 Barnstable Town, MA 3 Buffalo-NiagaraFalls, NY 1 Norwich, CT -2
Burlington, VT 6 Battle Creek, MI 3 Camden, NJ 2 Providence, RI 0
Fort Myers, FL 6 Bellingham, WA 3 Charleston, WV 2 Racine, WI -1
Charleston, SC Bend, OR 3 Charlottesville, VA 2 Rockford, IL 0
Cheyenne, W Y 6 Birmingham, AL 3 Cleveland, OH 2 Rocky Mount, NC -5
Columbus, OH 6 Blacksburg, VA 4 Dothan, AL 2 Saginaw, MI -1
Corpus Christi, TX 7 Bowling Green, KY 3 Dover, DE 2 Shreveport, LA -1
Dallas, TX 7 Bremerton, WA 3 Duluth, MN 2 Springfield, OH 0
Daytona Beach, FL 6 Brownsville, TX 3 Gary, IN 2 Vineland, NJ 0
Des Moines, IA 6 Canton, OH 3 Glens Falls, NY 1
Denver, CO 6 Cedar Rapids, IA 5 Grand Junction, CO 2
Destin, FL 6 Champaign-Urbana, IL 4 Gulfport-Biloxi, MS 1
Durham, NC 6 Charlotte, NC 4 Hagerstown, MD 2
East Lansing, MI 6 Chattanooga, TN 3 Hartford, CT 2
Fargo, ND 6 Chicago, IL 3 Hickory, NC 2
Fayetteville, AR 8 Chico, CA 3 Huntsville, AL 2
Flagstaff, AZ 7 Cincinnati, OH 5 Johnson City, TN 1
Ft. Worth, TX 7 Clarksville, TN 4 Joplin, MO 1
Ft. Lauderdale, FL 8 College Station, TX 5 Kingsport, TN 2
Gainesville, FL 6 Colorado Springs, CO 4 Lake County, IL 2
Gainesville, GA 6 Columbia, MO 5 Marietta, WV 2
Grand Rapids, MI 6 Columbia, SC 3 Medford, OR 2
Grand Forks, ND 7 Columbus, GA 3 Milwaukee, WI 2
Holland, MI 6 Davenport, IA 4 Montgomery, AL 2
Thibodaux, LA 6 Dayton, OH 4 Muncie, IN 2
Houston, TX 7 Decatur, AL 3 Myrtle Beach, SC 1
Ithaca, NY 7 Detroit, MI 3 Newark, NJ 2
Jonesboro, AR 6 Dubuque, IA 5 New Haven, CT 2
Killeen-Ft. Hood, TX 6 Eau Claire, WI 4 New York-Jersey City NY 2
Knoxville, TN 6 Edison, NJ 3 Benton Harbor, MI 1
Lafayette, LA 8 El Paso, TX 4 Poughkeepsie, NY 2
Lake Charles, LA 6 Elkhart, IN 5 Portland, ME 2
Lexington, KY 6 Erie, PA 3 Pueblo, CO 2
Laredo, TX 6 Eugene, OR 5 Sheboygan, WI 2
Lubbock, TX 6 Evansville, KY 3 South Bend, IN 2
Las Vegas, NV 8 Fayetteville, NC 4 Springfield, MA 1
Merced, CA 6 Flint, MI 3 St. Louis, MO 2
Miami, FL 7 Florence, SC 5 Syracuse, NY 2
Minneapolis, MN 6 Florence, AL 6 Texarkana, TX-AR 2
Midland, TX 10 Ft. Collins, CO 7 Toledo, OH 1
Modesto, CA 6 Ft. Wayne, IN 6 Utica, NY 2
Morgantown, WV 6 Ft. Smith, AR 3 Wheeling, WV 2
Napa, CA 9 Fresno, CA 4 Williamsport, PA 2
Naples, FL 7 Greeley, CO 5 Winston-Salem, NC 1
Nashville, TN 6 Green Bay, WI 5 York, PA 2
New Orleans, LA 6 Greensboro, NC 3 Youngstown, OH 1
Oakland, CA 7 Greenville, NC 4
Ocala, FL 4 Greenville, SC 3
Odessa, TX 10 Harrisburg, PA 3
Ogden, UT 7 Hattiesburg, MS 4
Oklahoma City, OK 7 Honolulu, HI 5
Orlando, FL 7 Indianapolis, IN 5
Peabody, MA 6 Iowa City, IA 5
Pensacola, FL 7 Jackson, MI 3
Phoenix, AZ 8 Jackson, MS 3
Port St. Lucie, FL 6 Jackson, TN 5
Prescott, AZ 6 Jacksonville, FL 4
Provo, UT 7 Janesville, WI 3
Reno, NV 7 Kalamazoo, MI 4
Sacramento, CA 6 Kansas City, MO 3
Salt Lake City, UT 7 Kennewick, WA 4
San Antonio, TX 7 LaCrosse, WI 5
San Francisco, CA 8 Lafayette, IN 4
San Jose, CA 7 Lake Havasu City, AZ 3
San Luis Obispo, CA 9 Lakeland, FL 3
Santa Ana, CA 8 Lancaster, PA 4
Santa Cruz, CA 7 Las Cruces, NM 4
Santa Rosa, CA 7 Lincoln, NE 5
Sarasota, FL 7 Little Rock, AR 5
Seattle, WA 6 Longview, TX 5
Silver Spring, MD 6 Los Angeles, CA 5
Sioux City, SD 6 Louisville, KY 5
Springfield, MO 6 Lynchburg, VA 5
St. George, UT 6 Macon, GA 3
Stockton, CA 6 Madison, WI 5
Tuscaloosa, AL 6 Manchester, NH 3
Tucson, AZ 6 McAllen, TX 4
Tulsa, OK 6 Memphis, TN 3
Vallejo, CA 7 Missoula, MT 5
Waco, TX 6 Mobile, AL 3
Warren, MI 7 Monroe, LA 5
Washington DC 6 Muskegon, MI 4
West Palm Beach, FL 7 Nassau, NY 4
Winchester, VA 6 White Plains, NY 3
Olympia, WA 4
Omaha, NE 5
Oshkosh, WI 4
Oxnard, CA 5
Palm Bay, FL 5
Panama City, FL 3
Pascagoula, MS 5
Peoria, IL 3
Philadelphia, PA 4
Pittsburgh, PA 5
Portland, OR 4
Raleigh, NC 4
Rapid City, SD 5
Reading, PA 3
Redding, CA 4
Richmond, VA 3
Riverside, CA 3
Rochester, MN 5
Roanoke, VA 3
Rochester, NY 4
Salem, OR 4
St. Cloud, MN 4
Salisbury, MD 3
Salinas, CA 5
San Diego, CA 5
Santa Barbara, CA 5
Santa Fe, NM 4
Savannah, GA 4
Scranton, PA 3
Spokane, WA 3
Springfield, IL 5
St. Joseph, MO 3
State College, PA 5
Tacoma, WA 4
Tallahassee, FL 3
Tampa-St. Pete, FL 5
Terre Haute, IN 3
Topeka, KS 3
Trenton, NJ 3
Tyler, TX 3
Valdosta, GA 5
Norfolk, VA 3
Visalia, CA 4
Warner Robins, GA 3
Waterloo, IA 4
Wausau, WI 4
Wichita, KS 4
Wichita Falls, KS 5
Wilmington, DE 4
Wilmington, NC 3
Worcester, MA 3
Yakima, WA 3
Yuma, AZ 4

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