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Are the Weakest Markets the Best Investments?

From the IRREIA at www.irreia.org – 032510

Obviously, the answer to this is not as simple as the question may make it appear.  However, I believe that there are some factors investors can look to identify weak markets with strong futures.

From a market perspective, the demographic, infrastructure and business features pointing toward growth for some the current weakest markets standouts as follow:

• Does the market have strong underlying minority growth factors?  Since 72% of new households in the next decade will be headed by minority, this is an important leading indicator.  This is driven by the fact that for African Americans renting is over 50% of the demographic and for Hispanics renting is over 55% of the demographic according to statistics published by the U.S. Census Bureau.
• Is the market a government center?  Government centers can generally be assumed to be recession resistant and in the long term stand to do well.  For example, the Washington, DC metropolitan area unemployment is less than 7%.  Another example is Oklahoma City, the state capital, is also under 7%.  Few metropolitan areas in the U.S. have fared as well during the downturn.
• Is the market an education center?  In the information age, centers of higher education are sources of business growth.  Athens, Georgia, home of the University of Georgia, was one of the last metropolitan areas noted as in recession by MSNBC and was one of the first three noted as in recovery by the same.
• Is the market a rail center or port city?  With the U.S. roadway systems future growth likely to be relatively limited and already straining under the load faced, rails (as Warren Buffet has recognized) are going to be growth drivers.  In the same way, globalization continues to drive import traffic.  The new dynamic here is the emergence of the major developing nations – China, India, Brazil, and others is driving commodity and high end U.S. exports outbound.  This is not surprising if you are aware that China imports from the United States have enjoyed double digit growth annually  for years.  I project this is a long term trend benefiting port cities and the rail system.  All combined, rail and port cities have a long term growth advantage.

In my estimation, these are major trend factors that will have immediate and long term impact.  As a result, the weakest markets with these underlying characteristics are likely investment opportunities.  Cities, I can immediately identify with these characteristics are:

• Jacksonville, Florida
• Wilmington, North Carolina
• Atlanta, Georgia
• Detroit, Michigan
• San Franciso/Oakland, California
• Los Angeles, California
• San Diego, California
• Seattle, Washington
• Miami, Florida
• Tampa, Florida

I believe smart investors focusing on these markets may have an advantage on price and returns.