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If you want to find the best US housing markets for buying and investing in real estate, skip the larger markets and go local.

Some of the hottest investment markets can be found at the hyperlocal level, according to the results of a study released yesterday by ATTOM Data Solutions, a multi-sourced national property data warehouse.

“The top five neighborhoods in this ranking represent a diverse set of markets across the country, illustrating that great neighborhoods come in many different forms, Daren Blomquist, senior vice president at ATTOM Data Solutions, says in the digital release.

For the study, ATTOM examined over 10,000 US neighborhoods. Locales were divided into quintiles and ATTOM analyzed housing characteristics and trends by group.

Each neighborhood was assigned a letter grade from “A” to “F” based on its performance in six indicators that strongly impact hyperlocal markets, including overall affordability, home price appreciation, unemployment rates and property taxes.

Neighborhoods that received an A had, on average, the highest median home prices, highest property taxes and fastest pace of annual home price appreciation.

The five neighborhoods that came out on top according to the index were Pine Ridge in Naples, FL, Westlake in Mobile, AL, Union in San Jose, CA, Westmoreland in Charlotte, NC, and Hunters Hill in Denver, CO.

Surprisingly, only two “hot” markets had neighborhoods that made the top 5 — San Jose and Denver. The results illustrate that there are many “hot” markets at the hyperlocal level within larger markets that are not necessarily known as “hot.”

There are neighborhoods even in what some might call a boring market like Mobile, AL, that are seeing rapid home price appreciation, have good schools, low crime and unemployment and low property taxes,” Blomquist tells Livabl.

And while the average median home price for A-rated neighborhoods was $513,968, there were over 130 neighborhoods in that subset that had median home prices of $100,000 — or less.

But lower home prices alone don’t necessarily equate to greater affordability.

In F-rated neighborhoods, the average median home price was $299,234 — the lowest of the 5 subsets. However, these neighborhoods were ultimately more unaffordable than A-rated neighborhoods.

Most surprising to me was the affordability or price-to-income ratio, which was worst in the F-rated neighborhoods even though those neighborhoods have the lowest median home prices,” Blomquist says.

The median annual income in F-rated neighborhoods was $52,107 compared to $87,997 in A-rated neighborhoods.

Additionally, home prices are negatively appreciating in F-rated neighborhoods while growing at a solid 21 percent annually in A-rated neighborhoods.

“It’s a bit of a case of the rich getting richer while the poor get poorer, at least when it comes to homeownership wealth,” Blomquist observes of the disparity.

Still, F-rated neighborhoods do still have some strong selling points.

These areas offered the highest gross returns on home flipping as well as the highest profits from flipping. Additionally, annual rent appreciation was the highest in F-rated neighborhoods.

These neighborhoods also offered the highest gross annual rental yields compared to the other neighborhood groupings in the study.

However, these “benefits” come with the added risk of higher delinquency and vacancy rates.

“For some investors that additional risk will be worth taking for the additional return potential, but I would recommend that less experienced investors tread carefully,” Blomquist advises.

For the curious, a random sampling of F-rated neighborhoods include Sea Gate in Brooklyn, NY, Ramona in Riverside, CA, and Marina in San Diego, CA.

Click here to read the entire release.

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