Opportunity Zone Real Estate Surges: Housing Prices Keep Pace With Broader Market Trends

Housing in opportunity zones continues to keep up with price gains in broader markets.

Median single-family home and condo prices rose from the second quarter to the third quarter in 54% of the opportunity zones around the country and increased at least 5% in nearly half of them, according to a report from real estate data provider ATTOM that examined 3,465 opportunity zones across the country.

"The third-quarter price data shows that many of the country's lower-income neighborhoods continue to come back from the brief downturn we saw last year, right along with the rest of the U.S. housing market," ATTOM CEO Rob Barber said. "While there were exceptions, opportunity zones overall saw no extended backslide and continued to benefit from the boom that has spiked home values around the nation for more than a decade."

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The trend is likely connected to financially marginal house hunters being priced out of more expensive locations and turning to opportunity zones where they can find more affordable homes, Barber said.

"This should give investors looking to take advantage of opportunity zone tax breaks more welcome news about the potential for those neighborhoods," Barber said.

Home values in most opportunity zones fell well below those in other neighborhoods around the country in the third quarter. Median prices were less than the U.S. median of $350,000 in 81% of opportunity zones. Median prices also fell below $200,000 in 49% of the zones during the third quarter.

The Midwest continued to have larger portions of the lowest-priced opportunity zone tracts. Median home prices were less than $175,000 in 66% of zones, followed by the Northeast at 47%, the South at 41% and the West at 6%.

Implemented in 2019, opportunity zones are an economic development tool that allows people to invest in distressed areas of the United States. They were created to spur economic growth and job creation in low-income communities while providing tax benefits to investors.

Tax benefits for investing unrealized capital gains in opportunity zones include temporary deferral of taxes on previously earned capital gains until the end of 2026 or when the asset is sold, according to the Tax Policy Center. Investors pay no taxes on capital gains earned through their investment in opportunity funds — the vehicle that invests in opportunity zones — for investments held for at least 10 years.

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Opportunity funds can finance commercial and industrial real estate, housing, infrastructure and existing or startup businesses.

"Like most places with fewer resources, opportunity zones remain especially vulnerable to negative forces affecting the housing market or the broader economy, so we will continue to keep a close watch on prices in those locations," Barber said. "But the ongoing tight supply of homes for sale combined with high homebuying demand around the country suggest opportunity zones are in a good position to remain on pace with the broader national trends."

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