As real estate prices in major U.S. cities continue to soar, some young buyers and renters have decided to take their business elsewhere. They're investing in homes in such states as Ohio, Michigan and Wisconsin, experts say, in search of more affordable living and new places to plant down roots.
For decades, the part of the U.S. otherwise known as the Rust Belt has been synonymous with hard times for decades, ever since manufacturing bases like Detroit began to suffer the effects of de-industrialization. Plants closed down, jobs disappeared, and once-vibrant cities became symbols of decay.
In recent years, however, the revitalized Rust Belt economy has brought in younger workers, and made the area's real estate an attractive investment bet. The overwhelming driver of the millennial shift to the region is affordability. However, Constantine Valhouli, Director of Research for the real estate research and analytics firm NeighborhoodX, said that there's more to it than that.
Rather than just home ownership, "it is about having roots and contributing to the revival of a place that needs businesses that create jobs and create value," he said.
And slowly but surely, formerly blighted towns and cities are coming back to life, with the help of a younger class of real estate buyers. According to Paul Boomsma, president and CEO of Leading Real Estate Companies of the World (LeadingRE), the latest influx of buyers see cities as financial opportunities and places to build something new – especially with prices far below prevailing prices in big cities.
"Millennials are swiping up properties for next-to-nothing prices near downtown city areas that have completely revitalized," Boomsma said. LeadingRE member Haring Realty has listed a three-bedroom Victorian home in Mansfield, Ohio, with an asking price of $39,900.
Compared that to what Zillow data show is the median home value of nearly $700,000 in New York City and a whopping $1.3 million in San Francisco, and there's little wonder why aspiring home owners are flocking to the Rust Belt.
However, experts say there's more to consider than bargain prices.
"There is a community-mindedness with millennials that attracts them to the smaller Rust Belt towns," said Peter Haring, president of Haring Realty in Mansfield, Ohio.
"We are seeing an intense interest in participating in the revitalization of our towns and being a part of the community. It's palpable, and it's exciting," he added.
He cited an average price of $127,000 for a home in Mansfield, but that low price comes with some drawbacks, such as distance. The closest urban hubs, Cleveland and Columbus, are each an hour's drive away, and amenities are still lacking in many cases.
"For people working in those cities, they are sacrificing drive time," Haring said. "In some cases, they are sacrificing the convenience of nearby shopping and restaurants."
Of course, in 2018, it's no longer always necessary to live within driving distance of one's employer. Skyrocketing home prices in Silicon Valley and its neighboring cities have sent many of its workers far afield in search of affordable housing.
"More and more people are now working virtually, which means they do not need to be in their office and can work from almost anywhere," said Ralph DiBugnara, senior vice president at Residential Home Funding. "So why not find somewhere to live where your city dollars can go a lot further?"
Separately, a number of large companies are moving into these areas, creating new employment opportunities while revitalizing the area. One example is home appliance manufacturer Whirlpool, whose corporate headquarters are in Benton Harbor, Michigan.
"It helped revitalize surrounding areas with new lifestyle and cultural amenities," said LeadingRe's Boomsma. "This type of corporate commitment draws a young workforce, who are attracted by the lifestyle, paired with the relative affordability."
For those who don't want to commit to buying a home, the Rust Belt also has a robust rental market, according to Todd Stofflet, Managing Partner at the KIG CRE brokerage firm.
Millennials are creating demand for new apartments, which is a "a catalyst for retail, grocery and office development," he said. "As downtown populations experience a resurgence, so does the dining, entertainment and lifestyle of the area."
Although cheap prices are tempting, Daniela Andreevska, a marketing director at real estate data analytics company Mashvisor, cautioned buyers to learn the reasons behind those more attainable prices.
"One should keep in mind that many of the homes there are foreclosures or other types of distressed properties," she said. "You should analyze and inspect the property well in order to know how much exactly you will have to pay in repairs before buying it."
Clarification: Leading Real Estate Companies of the World's abbreviated name is LeadingRE.