Rust Belt Real Estate

Pittsburgh - The Gateway to America's Urban Frontier. If your looking for an investment opportunity, then check out the real estate in Rust Belt cities:

Don't mistake preserving home equity and stability with reaping future home gains. The Northeast and Hawaii are already far above the national home-price average.

You might find better overall value and growth opportunities in lower-priced places such as Austin, Dallas, McAllen and San Antonio in Texas; Jackson, Miss.; and Pittsburgh, according to the Center for Economic and Policy Research, a Washington-based organization that regularly rates 100 areas for the prospects of building home equity.

The center says you may be able to reap $60,000 to $90,000 in home-equity appreciation over the next four years in the above-mentioned cities. It also favors Buffalo, Rochester and Syracuse in New York.

Lumping Pittsburgh or Syracuse in with Austin and Dallas makes for strange bedfellows. What gives? I have a two-part answer.

First, I'd speculate that Pittsburgh, Buffalo, Rochester, and Syracuse produce an excess of human capital. As Edward Glaeser suggests, real estate prices are indicator of talent density. In Pittsburgh's case, that narrative works well. There is a glut of brains, which is why wages are depressed.

Second, out-migration from these Rust Belt cities is relatively low. We would expect tough times to fuel an exodus like the one going on right now in Ireland:

Irish properties have suffered some of the most extreme price drops as a result of the credit crunch, following one of the biggest housing booms in history.

Alongside property price falls, unemployment is on the up and recession is hammering on the door, suggesting 2009 will be the toughest year in a quarter of a century.

All of this makes starting a new life elsewhere a tempting proposition for many skilled workers and young professionals.

The Central Statistics Office (CSO) has reported that emigration is at its highest level for nearly 20 years, with 45,300 workers leaving the country in the year to April 2008. The majority of these (11,300) have left for Australia and New Zealand.

Of course, the Rust Belt cohort didn't experience a housing bubble. But the collapse in real estate prices has had the ironic effect of decreasing geographic mobility. If I can't sell my house for enough money to afford to move, I'm stuck. But that's not going on in Buffalo or Syracuse, where residents could unload their houses and head to job rich Texas.

Instead, the pattern of hanging around holds sway. The Irish are still accustomed to moving in order to weather the economic storm. In many Rust Belt cities, the tendency now is to ride it out. To put it succinctly: Real estate appreciation in Dallas is the result of robust in-migration. In Rochester, prices go up namely because of anemic out-migration. The population purge is over and now we'll have to wait and see which shrinking cities begin to attract healthy numbers of newcomers. As the current real estate numbers indicate, Pittsburgh is a good bet.