South Dakota Real Estate Market Trends & Analysis
The South Dakota real estate market is on the rise, and there are no signs the trend will come to an end anytime soon. Home values have increased across the state for nearly a decade, and the next year looks to be no exception. Industry experts and pundits both agree prices will continue to rise for the foreseeable future. The rise will be due primarily to a lack of available inventory and growing competition, but steps taken by the government to make buying a home more attractive will fuel the entire market for a long time. In addition to rising prices, the increased demand bodes well for local investors in the South Dakota real estate market.
Residents in South Dakota have found themselves the beneficiaries of one of the nation’s largest wage increases, which should stimulate more real estate activity than in recent history. That’s an important distinction to make, as demand has managed to persist in the face of appreciation. The resulting market indicators suggest South Dakota will be a great place to invest now and in the future.
The Top South Dakota Real Estate Markets
Median Home Value: $222,435
1-Year Appreciation Rate: +4.9%
Median Home Value (1-Year Forecast): +9.5%
Median Rent Price: $1,140
Price-To-Rent Ratio: 16.25
Average Days On Market: 62
Unemployment Rate: 3.5% (latest estimate by the Bureau Of Labor Statistics)
Population: 882,235 (latest estimate by the U.S. Census Bureau)
Median Household Income: $54,126 (latest estimate by the U.S. Census Bureau)
Percentage Of Vacant Homes: 11.81%
Foreclosure Rate: 1 in every 54,183 (0.1%)
South Dakota Median Home Prices
The median home value in South Dakota has enjoyed a relatively fast ascent over a short period of time. In the first quarter of 2012, when the Great Recession had taken its greatest toll on the South Dakota real estate market, the state's median home value dropped to somewhere in the neighborhood of $152,000. Since then, however, a series of substantial tailwinds drove up home values. Improvements in the economy, growing confidence, and a distinct lack of available housing all combined to increase South Dakota's median home value by as much as 47.3% over the span of eight years. The median home value jumped 4.9% in the last year alone and now stands at a very healthy $222,435.
For context, the median home value in the United States bottomed out around $161,000 in the first quarter of 2012. Since then, the median home value across the whole country has increased by 63.5% and is now upwards of $263,351. The difference between the South Dakota real estate market and the national housing market isn't necessarily an indictment on the state's performance but rather a testament to nationwide trends. Most notably, unemployment across the country has been cut in half, dropping from a peak of 14.7% in April to 6.7%.
While the South Dakota real estate market hasn't quite kept pace with national appreciation rates, it's not far behind. In the last year, the median home value in South Dakota increased by 4.9%. The U.S. real estate market saw prices increase by 7.5% over the same period of time.
Moving forward, home values in the South Dakota real estate market are expected to increase in the wake of indicators created by the Coronavirus pandemic. In particular, demand remains persistent in the face of a distinct lack of housing. Competition in the South Dakota housing market is likely to drive prices up, to the tune of a 9.5% increase over the next 12 months. Home values should continue to increase as long as inventory remains restricted, which looks to be the case as builders try to catch up for lost time during the pandemic. New builds in South Dakota are on the way, but it will take some time before the inventory hits the market; until then, prices will continue to rise.
South Dakota Foreclosure Trends & Statistics
The South Dakota real estate market boasts an incredibly low foreclosure rate. The latest data presented by RealtyTrac, a nationwide leader in foreclosure information, suggests a mere one in every 54,183 homes in South Dakota is distressed, or 0.1% of the inventory. To put things into perspective, the United States currently has a foreclosure rate of 0.7%, which means one in every 13,482 homes is either in a state of pre-foreclosure, up for auction, or bank-owned. When all is said and done, South Dakota has one of the country's lowest foreclosure rates.
The overwhelming majority of South Dakota's distressed inventory falls under the auction category, meaning it has already been repossessed by a lender who intends to recoup some of the losses by selling the subject property at an auction. In all, 85.7% of the state's distressed inventory is either up for auction or will be at some point soon; that number is down 14.3% from this time last year but up 20.0% month-over-month. The recent increase is likely the result of the pandemic and may be a sign of things to come. The remaining foreclosures are all bank-owned, which means the homes have been repossessed and failed to sell at auction; they are simply sitting in the stockpiles of institutional lenders.
South Dakota real estate investors should pay special considerations to local auctions, as attending them may increase their odds of landing a distressed property below market value. Focusing acquisition efforts in the areas with the highest distributions of distressed homes will help local investors land their next deal. With that in mind, here's a list of the South Dakota counties with the highest distributions of foreclosed homes:
Minnehaha: 1 in every 13,017 homes is distressed
Pennington: 1 in every 47,577 homes is distressed
While South Dakota is home to a relatively low foreclosure rate, it's not immune to the Coronavirus's impact on the real estate market. In fact, it's safe to assume foreclosure filings will increase for the foreseeable future. The longer the pandemic lingers, the more people will find themselves with financial hardships. As a result, an influx of foreclosure filings is expected shortly. The extent to which foreclosures are reported remains to be seen, but more are on the horizon. Therefore, well-positioned investors could find themselves with an opportunity to help distressed homeowners in their area.
Tax Lien Investing
- Tax Lien or Deed: Tax Deed state (used to be Tax Lien state)
- Interest Rate: Appears not to do auctions anymore
South Dakota Real Estate Investing
The South Dakota real estate market has enjoyed nearly a decade's worth of growth. Since pulling itself out of the Great Recession in the first part of 2012, local real estate has been firing on all cylinders. Since then, rehabbers, flippers, and wholesalers have benefited from market conditions that favored their particular exit strategies. Appreciation rates alone leaned heavily in favor of investors who could get in at the right time. That said, the same rate of appreciation that has helped investors over the last eight years now appears to serve as an obstacle. All things considered, real estate in South Dakota is growing more expensive by the day, and profit margins for short-term exit strategies are getting smaller.
That isn't to say rehabbing and wholesaling aren't currently great exit strategies to consider moving forward (they very much are), but rather that there's a more enticing exit strategy emerging from the new market landscape: building a rental property portfolio. New market indicators created in the Coronavirus's wake appear to favor investors who approach real estate with longer investment horizons. Let's take a look at some of the new developments in the South Dakota real estate market, which make rental properties more attractive at the moment:
In response to the pandemic, the Fed announced it would keep interest rates low to spur more buying activity. In doing so, today's monthly average commitment rate on 30-year fixed-rate mortgages is 2.77%, lower than it has ever been. The move makes it cheaper than ever to borrow institutional money, which may simultaneously lower monthly payments for those who purchase rental properties and increase cash flow.
Inventory levels are constrained across the country, and the South Dakota real estate market is no exception. A distinct lack of available listings is part of the reason home values have increased so dramatically over the last eight years. The pandemic only compounded the issue when it prevented builders from doing their job. As a result, it is growing harder to buy a home, even for those who have the funds. Consequently, those who aren't able to buy will ultimately be relegated to the renter pool. Landlords will, therefore, find demand for their rental properties increasing for the foreseeable future, or at least until more inventory is brought to the market.
The same competition driving people to rent will mitigate the risk of vacancies and allow landlords to increase rental prices. The market created by the pandemic is essentially a perfect storm for rental property owners.
In the end, South Dakota real estate investors are awarded the luxury of perusing all of today's most popular exit strategies. However, the disruptive Coronavirus's new market fundamentals have favored rental property owners more so than any other type of investor.
South Dakota Housing Market Predictions
The South Dakota housing market has had a great run, much like the rest of the country. For the better part of a decade, in fact, real estate in South Dakota has exhibited many of the same characteristics as its national counterpart. Price increases, confidence in the market, and several other indicators are in line with national trends, but what does that mean moving forward? What can the South Dakota real estate investing community expect moving forward?
Millennials will look for cheaper secondary cities: The entire state of South Dakota is relatively affordable, compared to the national average. However, Millennials will seek cheaper alternatives to larger cities like Rapid City and Sioux Falls. Years of appreciation and less of a need to live close to work (thanks to growing work-from-home trends) should drive more people to consider smaller cities in the South Dakota real estate market.
Inventory will drive appreciation: Prices in the South Dakota real estate market have increased for eight consecutive years. While the driving force behind the latest bought of appreciation may be attributed to several factors, a distinct lack of inventory is perhaps the most prominent reason prices have risen so much. The Coronavirus has also prevented builders from adding to inventory, which only compounds the inventory shortage. As a result, expect prices to increase for the foreseeable future.
Competition will increase in suburban neighborhoods: The pandemic has seen a great deal of the workforce transition to a work-from-home approach. Consequently, fewer people are finding it necessary to live in the small, expensive confines of South Dakota's biggest cities. Instead of living in COVID-19 hot zones, people will most likely start to move to suburban neighborhoods, driving up both competition and prices.
Summary
The Coronavirus didn't spare the South Dakota real estate market in the first part of 2020. However, much like the rest of the country, real estate in South Dakota only experienced a temporary setback. The disruption onset by the pandemic allowed South Dakota to take one step back and two steps forward. Initiatives taken to help the market after the pandemic hit have worked well, and now South Dakota is perhaps better off after the global crisis than it was heading into it. In particular, demand remains strong in the face of strong appreciation. The activity heading into 2021 should buoy the market for the foreseeable future, and South Dakota is positioned to be a beneficiary.
Sources:
https://www.bls.gov/eag/eag.sd.htm
https://www.census.gov/quickfacts/SD
https://www.zillow.com/sd/home-values/
https://www.zillow.com/home-values/
https://www.realtytrac.com/statsandtrends/sd/
https://www.realtytrac.com/statsandtrends/foreclosuretrends/sd/
https://www.realtytrac.com/statsandtrends/
https://www.realtytrac.com/statsandtrends/foreclosuretrends/
https://www.bls.gov/charts/employment-situation/civilian-unemployment-rate.htm
http://www.freddiemac.com/pmms/pmms30.html