The most striking feature in markets in the Midwest is that home prices in most of them are still below the level where local incomes say they should be. For an investor, this means two things. First, you can still find bargains in these markets. Second, demand for housing—at least until recently—has not been very strong.
The lack of a rebound in this area of the country after 2008 is largely due to the types of local economic growth that prevailed before that. The recession came on top of a slow decline in manufacturing that had already sapped economic and population growth in much of the region.
And the availability of an educated but low-cost labor force had encouraged the growth of big financial operations in Des Moines, Minneapolis, Omaha, Sioux Falls and Green Bay.
Manufacturing still has a large role in Fayetteville (Walmart suppliers), Davenport, Peoria (Caterpillar), Rockford, Gary, Fort Wayne, South Bend, Wichita, Milwaukee and Green Bay – which makes these markets a bit riskier to invest in. And the markets with a large finance sector are also riskier because computers are doing more and more of the work.
Despite these structural problems, growth is now returning to many Midwest markets – especially those that function as regional centers – because of the expansion of jobs in the healthcare and business services sectors. As elsewhere in the country, these services are becoming more concentrated in large urban centers, creating opportunities for investors in rental housing.
An unusual feature for investors to contend with is that many Midwest markets have an agricultural past, with manufacturing later laid on top of that. As land was readily available during their growth, they tend to be spread out. This both produces low home…