If you are an investor or looking to become one, it’s hard to beat income-generating properties.  As investments, they are as safe as it gets, and historically produce almost awe-inspiring results.

With that said, not all real estate markets are alike.

Some areas are prone to booms and busts (the “busts” almost always still show healthy returns over time).  Others grow consistently, in a relatively linear fashion.  Still others can’t make up their mind.  At times, they’ll go through booms and busts.  At others, they’ll more resemble a linear, “boring” market.

With 2018 all done, we were curious how the linear, cyclical, and hybrid markets did this past year.

Here’s a look.

First off, which areas are linear, cyclical, or hybrid?

Before getting into the weeds, it’s important to define which areas are linear markets, and which are cyclical and hybrid markets.

We used K-means clustering to divide markets into groups.

Using K-means clustering (K-means is a method analysts use to group things or individuals), here’s a look at the cyclical, hybrid, and linear markets since 2001.

In blue are the cyclical markets.  In red are the linear markets.  In orange are the hybrid markets.  Outside of Texas, most of the South, Midwest, and Rust Belt contain linear markets.

The cyclical markets cover the Pacific Coast, the Mountain West, a good portion of Texas, and some of the northeastern areas.

The hybrid markets include much of California, Arizona, and Florida.

It is interesting to put some analytics and visuals to concepts we all know well.

Which Group Won in 2018?

With this background in mind, which group saw the strongest price appreciation in 2018?

Keep the previous chart in mind, because the next chart shows the performance of the markets in 2018.

Even with the two side-by-side, it’s tough to see who won.

A better view of which type of markets won in 2018 follows.  Interestingly, the hybrid market won in 2018.  The median home price growth rate in hybrid markets was 9.0% in 2018.

Coming in second are the cyclical markets at 6.5%.  Cyclical markets experienced some slowing to end the year.

Bringing up the rear were linear markets.  Linear markets grew by 5.0% in 2018.  Still healthy, but not booming, which coincidentally is why these markets are referred to as linear markets.

Conclusion

In looking at the performance of linear, cyclical, and hybrid markets, the category that had the best performance in 2018 was the hybrid market.  During 2018, the hybrid market saw median home price appreciation of 9.0%.  This surpassed the cyclical (6.5%) and linear markets (5.0%).

 

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