In the world of real estate, the term MSA is commonly used. But what exactly does MSA stand for? If you're a real estate investor, understanding the significance of Metropolitan Statistical Areas can greatly impact your investment returns. In this article, we'll delve into the world of MSAs, exploring what they are, how they work, and why they matter to real estate investors. So let's get started!
Metropolitan Statistical Areas defined
Metropolitan Statistical Area (MSA) refers to an area consisting of the principal city and its surrounding communities. These communities are connected to the principal city through various social and economic factors outlined by the U.S. Office of Management and Budget (OMB). To qualify as an MSA, the principal city must have a population of at least 50,000 people. Currently, there are 384 regions in the United States that meet this criteria, including Dallas, Fort Worth, and New York Newark, Jersey City.
It's important not to confuse Metropolitan Statistical Areas with micropolitan statistical areas. The latter term refers to sparsely populated areas that consist of a principal town and its surrounding communities, with a population between 10,000 and 50,000. Although both phrases can be used for statistical purposes, they serve different purposes when referring to specific geographic areas with a large total population.
Let’s dig a little deeper
The United States Office of Management and Budget (OMB) provides a comprehensive description of micropolitan and metropolitan statistical areas based on data collected by the Census Bureau. Simply put, these areas are defined by a core region with a significant population nucleus, along with its surrounding communities. That core area demonstrates a high degree of social and economic integration.
The current MSAs were established based on the standards set in 2010, the 2010 census, the American Community Survey data from 2011 to 2015, and the data collected by the Population Estimates Program in 2018. The OMB released the latest micropolitan and metropolitan statistical areas in 2020.
It's worth noting that the concept of metropolitan areas dates back to 1949, known then as standard metropolitan areas (SMAs). Over the years, the terminology has evolved, with phrases such as standard metropolitan statistical areas (SMSAs) and metropolitan statistical areas (MSAs) being used. Today, the term "core-based statistical areas" (CBSAs) is commonly used by real estate brokerage firms to collectively define metropolitan and micropolitan statistical areas.
How are MSAs typically used?
Metropolitan Statistical Areas serve various purposes, beyond gathering population estimates for the decennial census. The Bureau of Labor Statistics (BLS) utilizes MSA data to gain a better understanding of labor market conditions in different regions. The stability of employment rates within metropolitan statistical areas is generally higher due to the ability of employees to switch jobs without needing to relocate.
Furthermore, MSA datasets are valuable for government agencies when making decisions related to per-capita incomes, unemployment rates, and spending patterns. This information assists in formulating effective policies that promote economic growth at the local, state, and federal levels.
Caption: A high angle shot of properties located in a suburban neighborhood.
What real estate investors should know about investing in Metropolitan Statistical Areas
They are among the strongest markets
Real estate investors can benefit from the fact that government officials closely track the status of properties in metropolitan statistical areas for statistical purposes. This is especially true for remote investors who may not be physically present in the area. By utilizing this statistical data during market analysis, investors can identify real estate markets with the highest growth potential.
When conducting market analysis, it's essential to look for a history of population growth and consistent employment rate growth across various industries. Additionally, the strength of the real estate market itself should be considered. Alongside census data, housing data specific to metropolitan areas is collected by the National Association of Realtors (NAR).
They offer more flexibility
Metropolitan Statistical Areas have strong labor markets, allowing employees to switch jobs without needing to relocate. This flexibility gives real estate investors more options when choosing locations to invest in. You can easily commute into a city from the surrounding areas, expanding the scope of your potential investments.
Investors are not limited to the core urban areas; they can also conduct market research in adjacent counties. This allows renters to commute easily to their workplaces. By investing in these areas, investors can tap into the real estate market at a more affordable price point.
You might face high competition
Metropolitan statistical areas with respectable job markets, growing populations, and strong housing markets attract numerous real estate investors. As a result, you may face stiff competition from other real estate agents and companies from different towns. To navigate this competitive landscape successfully, consider partnering with a local real estate brokerage to gain valuable insights into the market.
When making an offer on a property in a primary metropolitan statistical area, ensure your offer stands out from the competition. With multiple offers on the table, it's crucial to bring your A-game and make a compelling case for why your offer should be chosen.
Caption: An aerial view photo of real estate.
What is the significance of MSAs for a commercial real estate broker?
MSAs play a vital role in gathering statistical data for specific urban areas. In the United States, there are over 380 metropolitan statistical areas, with 7 in Puerto Rico. These MSAs group together towns and even counties that are closely interconnected. This makes it easier for businesses and government agencies to compile statistical data for specific areas.
Most MSAs are centered around large cities such as Boston, New York City, and Miami. They include surrounding areas to create a larger MSA. To qualify as an MSA, the collective population of the principal city and its surrounding areas must be approximately 50,000 people.
For commercial real estate companies, understanding MSAs is crucial as they can impact access to commercial financing. Lenders may be more hesitant to lend outside of these areas due to increased risk. However, the United States Department of Agriculture (USDA) offers financial arrangements for businesses and multifamily loans for properties in certain rural areas, albeit with restrictions based on resident incomes.
In summary, having a solid understanding of MSAs in your region is essential when searching for commercial lenders and navigating the commercial real estate market.
Now that you have a clearer understanding of what MSA stands for in real estate, you can leverage this knowledge to make more informed investment decisions. Remember, MSAs offer strong market potential, flexibility, and increased competition. By staying informed and conducting thorough market analysis, you'll be well-equipped to capitalize on the opportunities presented by Metropolitan Statistical Areas.
