Urban experts have a sure-fire way of telling whether a neighborhood has turned the corner from dowdy to prosperous — it’s called the Starbucks test.
“You’re probably well past up-and-coming once a Starbucks moves in,” says Peter Tatian, senior research associate in the Urban Institute, a Washington think tank. Yoga studios and even dog parks are other anecdotal indicators that affluent homeowners and renters have begun to gentrify a neighborhood, adds Tatian.
Of course, Tatian, along with Realtors, homebuyers and homesellers look to another objective test of market interest in a neighborhood. If housing prices shoot up sharply on a year-over-year basis, the odds are that supply is constrained yet demand is high. The neighborhood has turned a corner.
The trick is to buy into a neighborhood while it is on its way up and before it has fully turned a corner. 24/7 Wall St. asked Trulia, a leading supplier of home listings, to provide us with a list of the nation’s 10 up-and-coming urban neighborhoods as measured by yearly price changes in cities. Home prices in most of these area are still considerably lower than other already established neighborhoods in their cities.
Up-and-coming sounds promising, but it may strike many potential homebuyers as a bit risky. Take a neighborhood called Anacostia in Washington, D.C. Wikipedia refers to it as “infamous” for its high crime rates, which is not a compelling real estate reputation. Tatian says that the neighborhood was one of several areas that lost population in recent decades and had some vacant lots. “In older eastern cities there’s some constraints so you have to increase the density of residents per acre to get more people in — and some places are doing that,” he says.
In other words, Anacostia was primed for redevelopment. The median price per-square-foot was $132 in 2012, up 14% over 2011. A historic neighborhood may be on its way back — thanks mostly to a rise in jobs. “That’s one of the many reasons why the Washington area has been growing so quickly,” says Tatian, “it’s because we have a lot of jobs here, generated by the federal government and things related to federal employment.”
An area such as Anacostia may also benefit from federal laws aimed at priming the local economy. A recent Washington Post piece stated that the neighborhood is a “Historically Underused Business Zone,” which could help local business “gain preferential access to federal procurement opportunities.” And, as you might expect, rents in the neighborhood are “a fraction” of what they are elsewhere in the District, according to the Post.
Just as an urban neighborhood can spiral out of control when unemployment and crime erode the quality of life and torpedo housing values, a neighborhood comeback can take on a life of its own. “It’s a bit of a feedback loop — where something positive happens and causes somebody else to come in and open a business,” says Titian. “But [the recovery] doesn’t always work out that way. It is risky.” His favorite example of a neighborhood comeback is “Columbia Heights [in Washington, D.C.,] which has established itself as a very desirable neighborhood — and it’s very expensive now — whereas 10 or 15 years ago it was much more affordable.”
These are 10 up-and-coming neighborhoods for 2013.