Investment decisions are based on numerous factors including insights into which markets are expected to be volatile. Market volatility can represent opportunity, increasing rewards but also losses. In uncertain times lower volatility markets can offer a hedge against markets that experience broader swings in performance. Identifying the underlying factors that affect volatility can help investors make better decisions and determine the likelihood of repetition.
MMG Research crunched the numbers by analyzing historical rent and occupancy data to determine which markets were the most and least volatile. A few key themes emerged depending on whether a market was more volatile or less volatile. Markets with a large share of government jobs had a lower volatility score. Additionally, markets with diversified economies or a steadier share of new apartment development were also less volatile. Conversely, markets that experience reoccurring boom and bust cycles, have an over-reliance on one industry, or have stagnate population growth ranked as most volatile.
While the top 10 least volatile markets are dominated by government centers like DC and Baltimore and gateway markets like NYC and LA that are highly diversified economies, markets throughout the heart of the country also generally ranked as less volatile. A more measured amount of development and diverse economies generally prevent fundamentals from experiencing volatile swings in performance. Meanwhile markets like Phoenix, Las Vegas, and Charlotte all experienced issues with over-building during the last market cycle that dented occupancy rates for a prolonged stretch of time.
Today, Phoenix appears to be in a similar situation as the market is expected to deliver a near record number of units over the next 12 months just as demand has softened. Markets like Detroit and Memphis suffer from stagnate population growth and a decline in overall inflation adjusted rents which contributed to their higher volatility ranking. It is important to denote that the rankings were compiled by analyzing historical data. Past performance does not guarantee future results. Markets can and do evolve. But having knowledge of the past can help make better informed decisions about tomorrow.
