You may have your eye on one of the South Dakota counties as your next rental property locale. Of course, as any smart investor would, it makes sense to understand the landscape of the real estate market before making a purchase, since it could make the difference between finding a good buy and not being able to find a property at all.

The current real estate landscape across the United States is not at its best with low supply, rising mortgage rates, and more. It's more of a seller's market than it has been in a long time, which means your ability to find a reasonable deal will be a bit limited.

In any case, here are the key insights you need about the state of the local markets.

What Do Current South Dakota Housing Market Trends Look Like?

Take note of the following figures for South Dakota:

  1. 62 average days listed on the market
  2. Median rent price of $1,140
  3. Median home value of $22,435
  4. 1-year appreciation rate of 4.9%
  5. Price to rent ratio of 16.25
  6. Unemployment rate of 3.5%
  7. Percentage of vacant homes standing at 11.81%
  8. Foreclosure rate of 1 in every 54,183 or 0.1%

What Factors Affect the South Dakota Real Estate Market?

Naturally, there are going to be several factors that drive the state of the South Dakota real estate market. The four major ones are discussed below.

The State of the Economy

What happens in South Dakota is influenced by the overall economic state. For example, people who are having challenges with income levels will have less disposable income to think about home purchases, which affects demand.

Additionally, other concerns such as inflation, GDP, prices of goods, etc. form a part of the equation.

Demographic Numbers

The population can be broken down into several classifications including income levels, age, race, gender, migration patterns, and more. You'll often find that you can establish patterns of demand based on the proportions of each demographic in a state.

For example, if there are more high-income earners around, you'll likely find that the demand for housing will be high.

This means that when there are significant demographic changes, you can often see a long-term impact on the housing market.

The Government

The government will put in different policies such as tax credits, subsidies, deductions, and more, which can either make real estate more appealing, or they can turn people off of it.

It's a good idea to pay attention to what the government is doing in this regard as an investor.

Mortgage Rates

This goes without saying. The cost to acquire a property will help you understand how feasible the investment would be. As it stands, the Fed's attempt to control inflation means rising interest rates, which have priced a lot of people out of the market that used to be able to afford housing before.

Pay attention to the latest data and what it means for your interest rate since these will translate to the interval payments required.

Is the Housing Market Expected to Crash?

While there is a belief that the housing market will be slowing down in South Dakota, it's not expected to crash any time soon. Why is this?

A Lack of New Houses

High supply and low demand make up one of the key drivers of a market crash. As you've seen, this is not the current state of affairs and is not expected to become the state of things anytime soon.

The reason a seller's market is at play is because of the high demand compared to the low supply.

Tighter Lending Standards

Almost two decades ago, getting a mortgage was a lot easier than it is today. The standards were not as stringent. However, this did mean liar loans were a real problem. Today's landscape is much different from that of the pre-Great Recession era.

Lenders must demonstrate low risk on several levels, which often leads to those with excellent credit getting access to mortgages.

No Foreclosure Crisis

Even with what home values are, most homeowners today have quite a substantial level of equity in their homes. While this doesn't mean that foreclosures will never happen, it does mean that the likelihood of their getting to a crisis level is very low.

Low Inventory

Housing inventory is at one of its lowest rates historically, standing at a 3.2-month supply nationally. That's one of the reasons sellers have the kind of power they do.

New Buyers Entering the Market

Demand continues to be strong, with new buyers seemingly entering the market consistently. Bear in mind that groups such as millennials, for example, are now in their prime buying years and looking to acquire properties.

South Dakota Real Estate Market Statistics to Remember

Data provided by RealtyTrac shows that South Dakota only has a 0.1% rate of foreclosures. Compare this to the national average, which stands at 0.7%.

What you will find though is that most of the distressed property options in the state fall under the umbrella of auctions. Therefore, the repossessing side of things has already happened. 85.7% of the distressed homes in the state either are already up for auction or are on their way there very soon.

Year on year, this is a 14.3% decline. Any other foreclosures are bank owned, meaning that while they were repossessed, the homes weren't successful in being auctioned off.

As an investor looking to buy in the state, local auctions are a good place to look. This is one of the best ways for you to get your hands on distressed homes in top cities, while paying below-market-value amounts. The highest distressed home rates are found in Minnehaha with 1 in every 13,017, and Pennington, with 1 in every 47,577.

What Do the Market Predictions Look Like?

Millennials are expected to seek more favorable deals in secondary cities. South Dakota is one of the more affordable states in the United States. However, larger cities such as Sioux Falls and Rapid City do not bear the most favorable pricing available. Therefore, millennials are expected to seek better real estate market deals in smaller cities.

This move will likely be mimicked by others for a different reason. With the onset of the pandemic, a work-from-home approach has been adopted by many people and companies. This means that the need to live closer to work in big cities is no longer as essential as it used to be, which means smaller cities may, yet again, see an uptick in real estate activity.

The low inventory is expected to cause the prices in the market to continue to go up. While there are definitely other factors that contribute to the state of things, a lack of acceptable inventory means that the supply is much higher than the demand.

The Viability of South Dakota Real Estate Investing

Provided that you can find investment properties for decent value, the relatively low cost of living, the foreclosure rate, and more, can make South Dakota ideal for your rental property pursuits.

The question is will you try to acquire a property in one of the big cities or will you choose to seek more favorable costing in one of the more remote areas?

Wrapping Things Up

South Dakota is undoubtedly a great place for real estate investment. However, considering the low supply and the costs in today's landscape, you need to do your research and understand the facts before you commit. Hopefully, the information presented helped with this.


Is It Better to Own a Rental Property in a Larger City?

This would depend on what you want to achieve. If you aim to appeal to those who may be priced out of the buying market and need to live in such cities, for example, then the answer would be yes.

What Does the Current Landscape of the South Dakota Market Mean for My Rental Prices?

Since home values are consistently appreciating, it means that you can assign higher prices to your rental property and still have it be a better option than trying to buy for potential tenants.

What Effect Did the Pandemic Have on the Market?

It caused several disruptions. For example, inflation rose, and the Fed attempted to control it with higher rates. This means that the cost of getting a mortgage is very high and continues to rise.

David is the co-founder & CMO of DoorLoop, a best-selling author, legal CLE speaker, and real estate investor. When he's not hanging with his three children, he's writing articles here!

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The information on this website is from public sources, for informational purposes only and not intended for legal or accounting advice. DoorLoop does not guarantee its accuracy and is not liable for any damages or inaccuracies.