Trader Joe’s vs. Walmart: What Your Local Grocery Store Means for Home Prices
While many homeowners appreciate having a grocery store nearby, the actual value of the store may depend on which chain you operate.
In areas where a Trader Joe’s opens, home prices outpaced the national average by 6% over the next three years, according to a new analysis from Aziz Sunderjihousing market strategist and founder of Home Economics.
On the other hand, Sunderji found that in neighborhoods where new Walmarts are opening, home prices are 4% below the national average.
Sunderji conducted his analysis by cataloging the opening of more than 32,000 grocery stores since the approval of federal SNAP retailers since 1975, and comparing them to ZIP code-level home price data from the Federal Housing Finance Agency.
The analysis found that the grocery chain associated with the highest home price performance was Sprouts, a natural and organic food retailer located primarily in major Sun Belt cities.
Like Trader Joe’s, Sprouts is known for targeting highly educated, upwardly mobile neighborhoods, making them ripe for future home price appreciation.
“What seems to happen is that Trader Joe’s and Sprouts tend to open in ZIPs where home prices are rising quickly—and they continue to rise quickly after they open,” Sunderji tells Realtor.com®.
In other words, the new store is probably not the main reason for home prices to rise in the surrounding areas, but rather these sellers are leading the way in exploring new areas with a strong increase in price appreciation.
The shoots are targeting areas where at least 40% of residents are college-educated, and most of them hold white-collar jobs, according to planning documents published by Prince George’s County in Maryland.
The documents show that Trader Joe’s is very specific, targeting the opening of new stores in neighborhoods for 44 years, where there are at least 36,000 college-educated residents within five miles, and at least 60% of residents are homeowners.
A spokesman for Trader Joe’s declined to comment on the company’s specific criteria for selecting new store locations, but pointed to a company podcast that explains how to open stores.
“We are looking at hundreds of neighborhoods across the country as we hope to open new neighborhood stores every year,” said a spokeswoman. “Every neighborhood store is really unique.”
On the other end of the spectrum, budget retailers like Walmart and Dollar General may choose sites in more rural areas that are struggling economically, making them more prone to declining housing prices.
“The bottom line is that these big companies are choosing their locations carefully,” said Realtor.com’s chief economist. Jake Krimmel. “When it comes to opening grocery stores, affiliation is not the reason. Rather, certain stores choose their location where their customers are likely to grow.”
For example, Walmart may choose to open its new stores in ZIP codes where home prices, and possibly income, may be low or already low.
“This is probably in line with their business model of being a one-stop shop with good value for all types of merchandise,” Krimmel said. “The opposite is true for stores like Trader Joe’s, which market themselves as a specialty grocery store.”
Also, sellers who simply target wealthier areas may tend to underperform house price growth, as prices in those areas have less room to work.
Sunderji notes that Costco and Target both target affluent neighborhoods, and Target’s neighborhoods have the highest median home price of any chain at $481,000. Yet three years after opening, home price growth in Costco’s ZIP codes is about the same as the rest of the country, while Target locations are underperforming.
In terms of the direct impact of grocery chains on home prices, Dollar General may be an exception to this rule. Sunderji says there is evidence that the discount chain actually benefits home prices after opening.
In the three years before Dollar General opened, local home prices generally underperformed the national average by 6.6%, improving to 2% underperformance in the three years after opening, Sunderji said.
Dollar General is often associated with rural areas that may be poorer or less populated than Walmart, making the store’s arrival a welcome prospect that provides commerce and employment.
