By Elizabeth Szep on October 4th, 2018
Price growth across U.S. metros is diverging. After years of synchronized movement during the Global Financial Crisis and into the later stages of recovery, U.S. metros are now responding to their own local and individual dynamics.
While all areas posted strong price growth five years ago, high-flying locales like the NYC Metro and Miami have begun to show a slowed pace of growth into 2018. Meanwhile, secondary markets, which have been favored by investors since 2016, are showing accelerated increases. Raleigh/Durham and Sacramento are among the top markets for price growth in the 12 months through midyear 2018.
The graphic above shows the distribution of year-over-year RCA CPPI growth for 33 U.S. metros since 2007. In 2008 and 2009 prices in all markets moved in tandem: down and fast. Into 2013 and 2014 prices across all markets recovered. Investing in real estate had been a sure bet wherever one went during this time because, after the low of the financial crisis, the only way left was up.
In the past several years, however, price growth has normalized and become less coordinated. At midyear 2018, the number of metros posting positive annual growth above 2% has dropped to about 80%, down from 2014 when all markets were positive. The majority of metros today, though, are still posting growth between 2% and 10% year-over-year. That growth is healthy and represents a much more normal pace than the recent past. By contrast, in 2015, the majority of metros were posting growth of over 10% year-over-year.
In the coming years local dynamics will play an increasingly important role in commercial real estate investment as each market responds to its own economy.