Tandy On Real Estate

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Economic

The multi-faceted Millennial

In the Consumer Housing Trends Report 2016 the Zillow® Group covered the multi-faceted Millennial.

I found the report enlightening, debunking some of the myths about millennials, and uncovering that I may be a Millennial at heart.

Zillow stressed the importance of home and community for millennials. According to the report millennials under the age of 25 see their home “as a reflection of themselves rather than a financial investment”. This is unlike the older Baby Boomer generation who sees their home as a financial investment and avenue to build wealth for the future and for their family. In addition, more than 55 percent see themselves as involved in their community. They are active in their neighborhoods and the surrounding areas, not so much unlike my Baby Boomer friends.

Zillow confirmed that millennials are “delaying many life milestones that precede home ownership.” They are completing their education, marrying and starting a family later in life, and as a result renting

Further into their adulthood. Here are the stats Zillow revealed:

  • Two-thirds of millennial buyers concurrently consider renting while shopping for a new home.
  • One in three Millennials seriously consider renting.
  • When Millennials buy they “leapfrog the traditional “starter home” and jump into the higher end market by choosing larger properties with higher prices, similar to homes bought by older buyers.”
  • They pay a median price of $217,000 – more than Baby Boomers and 11 percent less than Generation X.
  • The Millennial median home size is 1,800 square feet – similar in size to what older generations buy.

The report also debunked the myth that Millennials are only urban dwellers. According to the report:

  • One quarter of Millennial homeowners live in an urban area.
  • Nearly half of all Millennials live in suburban communities.
  • 8 in 10 adults under 25 living outside an urban core.

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SOURCE:
Zillow® Group Consumer Housing Trends Report 2016

 

Tax relief for victims of Hurricane Harvey

The IRS has provided tax relief to victims of Hurricane Harvey. Those in Texas who have been affected by the storm have until January 31, 2018, to file certain individual and business tax returns and make certain tax payments. This includes an additional filing extension for taxpayers with valid extensions through October 16, and businesses with extensions through September 15.

Currently, the IRS has said individuals who reside or have a business in Aransas, Bee, Brazoria, Calhoun, Chambers, Fort Bend, Galveston, Goliad, Harris, Jackson, Kleberg, Liberty, Matagorda, Nueces, Refugio, San Patricio, Victoria, and Wharton Counties may qualify for tax relief. For up-to-date information, please see IRS News Release: Tax Relief for Victims of Hurricane Harvey in Texas.

REQUIREMENTS FOR POSTPONEMENT OF 1031 EXCHANGE TIME PERIODS
If the taxpayer is considered an “affected taxpayer,” then additional guidance concerning their 1031 exchange is provided in Revenue Procedure 2007-56. Section 17 of Revenue Procedure 2007-56 provides postponement provisions specific to 1031 exchange deadlines that apply in the case of Presidentially-declared disasters. Section 17 extends the 45- and 180-day periods in forward and reverse exchanges that fall on or after the date of a Presidentially-declared disaster by the later of 120 days or the date specified in the relevant IRS News Release, but not beyond the due date for filing the tax return for the year of the transfer.

To qualify for an extension of the IRC Section 1031 deadlines, the relinquished property must have been transferred on or before the Presidentially-declared disaster, and the taxpayer is an “affected taxpayer” or has difficulty meeting the 45-day identification period or 180-day exchange deadline. For these purposes, “difficulty” generally includes, but is not limited to, the following:

  • The relinquished property or the replacement property is located in a covered disaster area;
  • The principal place of business of any party to the transaction (for example, a qualified intermediary, exchange accommodation titleholder, transferee, settlement attorney, lender, financial institution, or a title insurance company) is located in the covered disaster area;
  • Any party to the transaction (or an employee of such a party who is involved in the section 1031 transaction) is killed, injured, or missing as a result of the Presidentially-declared disaster;
  •  A document prepared in connection with the exchange (for example, the agreement between the transferor and the qualified intermediary or the deed to the relinquished property or replacement property) or a relevant land record is destroyed, damaged, or lost as a result of the Presidentially-declared disaster;
  • A lender decides not to fund either permanently or temporarily a real estate closing due to the Presidentially declared disaster or refuses to fund a loan to the taxpayer because flood, disaster, or other hazard insurance is not available due to the Presidentially-declared disaster; or
  • A title insurance company is not able to provide the required title insurance policy necessary to settle or close a real estate transaction due to the Presidentially-declared disaster.

Every taxpayer should be directed to their tax advisor to determine whether they are eligible for the relief and to obtain additional information with respect to their particular circumstances. Learn more @ https://apiexchange.com/tax-relief-victims-hurricane-harvey/.

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SOURCE:
IRS News Release: Tax Relief for Victims of Hurricane Harvey in Texas
https://www.irs.gov/irb/2007-34_IRB/ar13.html#ad83e14
https://apiexchange.com/tax-relief-victims-hurricane-harvey/

Millennials dive into home ownership

I believe that there are many misconceptions when it comes to Millennials. We have all heard that Millennials are renting longer or live with their parents for a longer amount of time than previous generations, and that they have issues with student debt. These factors, to the general eye, would make it appear that Millennials are not interested in home ownership. But, from my research and experience, this is only part of the story.

So, what gives? According to NerdWallet and their review of recent industry surveys and data from government agencies and corporations “a majority of millennials would prefer owning to renting, but they appear to be postponing homeownership because of real and perceived difficulties in affording it. In fact, our analysis found that millennials, those born from 1981 to 1997, look upon owning a home just as favorably as previous generations.”

Here are a few facts on Millennials and homebuying from NerdWallet:

  • U.S. millennials total 66 million individuals and 24 million independent households.
  • The median age for first-time homebuyers has remained virtually unchanged for the past 40 years: In 2015 it was 31 years old, compared with 30.6 in 1970-74.
  • Two-thirds of millennials haven’t reached that homebuying age of 31, and 22% are under 25 years old.
  • Millennials are renting for a median of six years before buying, compared with a median of five years for renters in 1980.
  • Millennials are expected to form 20 million new households by 2025.
  • The median income for a millennial older than 25 is $38,220.
  • Meanwhile, the number of millennials living with their parents has increased nearly 15% from 2006 to 2013.

Here are a couple positive signs:

  • According to Javier Vivas, manager of economic research for Realtor.com, “Millennials’ home search is on.” Millennials recently became the dominant group of users searching for homes on Realtor.com.
  • Both the National Association of REALTORS® and Gallup Poll surveys of Millennials have shown that Millennials believe real estate is a good long-term investment, that they intend to become homebuyers and are increasingly choosing to buy a home.
  • Americans owe over $1.4 trillion in student loan debt with the average Class of 2016 graduate having $37,172 in student loan debt, up six percent from last year according to com. This can be a contributing factor to delaying home ownership as just released by CNN Money. This, of course, is not good news. The positive side of it is that “with student debt on the rise, there’s been a lot of speculation about whether the cost of a college degree hurts an individual’s ability to buy a home,” says NerdWallet’s Ling. “From what we’ve seen, getting a four-year degree or higher is actually positively associated with homeownership — even when accounting for debt.”
  • CNN Money reports that, “Millennials are the largest group of homebuyers. In January, Millennials represented around 45% of all purchase loans, up from 42% the same month in 2016.” Per CNN Money, Millennials are diving into home ownership, but “the struggle can be real”.

When NerdWallet asked Millennials what they believed were the biggest obstacles to getting a mortgage, millennial renters gave these answers, in order:

  • Insufficient credit score or history
  • Affording the down payment or closing costs
  • Insufficient income for monthly payments
  • Too much existing debt

For many millennials, the data NerdWallet analyzed reveal that these reasons may be more perception than reality. The important thing is to look at your financial position, make positive changes/plans to prepare for responsible home ownership through personal fiscal responsibility.

Millennials have a few things to consider when buying a home:

  • Increasing rents make home ownership more attractive. Money saved was the reason 21% of millennials chose to buy a home per Ellie Mae’s Owners’ Key Insights.
  • This buying season Millennial first-time homebuyers will be up against seasoned repeat homebuyers who have already started their home search last year, so it is good to start the search early and be prepared. Make sure you set your budget and get pre-qualified. Check out the Consumer Financial Protection Bureau(CFPB) Home Loan Toolkit to get started.
  • The home inventory shortage means rising home prices which bring into account home affordability. In response to what is stopping you from buying a home 45% haven’t saved enough for a down payment per Ellie Mae’s 2017 Borrower Insights Survey. CNN Money recommends that Millennials move home for two years to save money, reduce their debt and save for down payments.
  • Lending requirements have tightened. Understand your budget and what you will need to save for your down payment. Click here for Zillow’s Home Affordability Calculator.
  • Interest rates are great for home buying. Rates have gone up 3 times since 2015, but even with these increases rates still make home ownership very attainable.

I am excited to see the rise in home search and ownership in millennials. As with anyone approaching home ownership, it is good to make sure you are an educated buyer, that you understand what you are getting into, and that you have someone you trust to work with as you embark on your journey.

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SOURCE:
http://money.cnn.com/2017/04/03/real_estate/millennial-homebuying/index.html
http://www.gallup.com/poll/190850/americans-say-real-estate-best-long-term-investment.aspx
https://www.nar.realtor/sites/default/files/reports/2017/2017-home-buyer-and-seller-generational-trends-03-07-2017.pdf
https://www.nerdwallet.com/blog/mortgages/millennials-and-homebuying/
http://elliemae.com/millennial-tracker
http://elliemae.com/borrower-insights
http://elliemae.com/about/news-reports/press-releases/homeowners-seeking-both-a-high-tech-and-human-touch-mortgage-experience-ellie-mae-2017-borrower-insights-survey-finds
https://www.zillow.com/mortgage-calculator/house-affordability/
https://s3.amazonaws.com/files.consumerfinance.gov/f/201503_cfpb_your-home-loan-toolkit-web.pdf
http://www.realtor.com/realestateagents
https://studentloanhero.com/student-loan-debt-statistics/
http://money.cnn.com/2017/07/13/pf/college/student-debt-home-ownership/index.html

Self-made millionaire: Not buying a home is the single biggest millennial mistake

According to CNBC not buying a home is the single biggest mistake of a millennial. Financial author David Bach says that, “millennials are making a big mistake by not owning a home.” According to his calculations today’s homeowner is on average 38 times wealthier than a renter.

Rent vs. buy
There is a lot of debate out there on if it is better rent or buy. According to Trulia buying is 28% less expensive than renting nationwide. For those of you in the Austin-Round Rock area buying a home is 45% cheaper than renting.

Trulia makes this calculation based on the following assumptions: a $1,650 monthly rent, $230,000 target home price, staying in the home for 7 years, a 25% income tax rate, and a 3.65% mortgage rate.

Zillow also offers a breakeven horizon calculator to calculate how many years it will take before the cost of buying will equal the cost of renting. For Austin, TX, using the same $1,650 monthly rent and $230,000 target home price, after 1 year and 11 months, buying will be cheaper than renting when you out 20% down. If you put 10% down, after 2 years and one month buying will be cheaper than renting.

Making the investment
Bach argues that you have to live somewhere for the rest of your life, so you might as well invest in a home that you could own permanently. By the time you spend all of your money on rent, you come up empty handed with no investment.

For those considering home ownership for the first time, here are a few tips offered by the financial author.

Tips for first-time homeowners:

  • Calculate your costs.
  • Your first home expense can be minimized with a studio or smaller home.
  • Make sure your total monthly housing cost does not take up more than 30% of your take home pay.
  • Put down at least 10%; The bigger your down payment the lower your loan rate.
  • Borrow 10-20% less than the bank’s willing to lend you.
  • Don’t buy if you plan to move in less than 5 years.

Remember, your first home is more than likely not going to be your dream home. This is ok. Get in a home and begin to build your wealth. Bach says that by the time you are in your 50’s or 60’s you should be able to retire off the money from your home.

The decision is yours
As with any financial decision you make, it depends on your personal situation. Home ownership needs to be the right decision for you and one that you enter into both prepared and cautiously. It takes financial stability and responsibility to be a homeowner, and you need to fully understand the cost associated with your home. Make sure you partner with a trusted lender to understand your financial situation, a REALTOR® as you embark on this decision, and title company to help you through the homebuying process. The American Land Title Association offers a Home closing 101 to help you through this process.

With home prices remaining moderate with only slight increases and continuing low interest rates, my bet is that the American Dream is still a safe bet – no matter what generation you are.

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SOURCE:
http://www.cnbc.com/2016/12/30/self-made-millionaire-buy-a-home.html
http://davidbach.com/
https://www.trulia.com/rent_vs_buy/
https://www.zillow.com/rent-vs-buy-calculator/
http://www.homeclosing101.org/

 

A vision for homebuilding

At the National Association of Real Estate Editors (NAREE) Conference in Denver, Douglas Yearley, CEO of Toll Brothers presented the Keynote Address “A Vision for Homebuilding”. Here is a snapshot of his state of builder/buyer.

Business is good
Toll Brothers announced earlier this summer that they had the best spring selling season that it has had in the past ten years. This can be attributed to many things:

  • Low interest rates
  • Rising home values
  • Consumer confidence
  • Improving job growth, along with wage growth

There are low inventories in most markets in used homes, and we finally have release of pent up demand. As the economy improves and personal balance sheets improve, pent up demand could bring people off the sidelines.

A slow recovery
According to Toll Brothers, we have seen a slower recovery than past cycles:

  • Key metrics are improving
    • Number of households has grown 98% since 1970.
    • 1980 – 1989 – 1.49 million housing starts
    • 2008 – 2016 – .85 million housing starts
    • Home ownership peaked in 2004 at 69%.
    • Today’s home ownership rate is at 63.6%.

We are not quite where we should be. We are still behind the demand, but this only leave room for growth.

Buyers buying new and where the sun shines
There is a 32% premium from a new home to used home. The average is 18%. People are gravitating to buying new homes as the used inventory is older. And, energy efficiency and the opportunity to customize home is driving the premium.

More than 50% of Toll Brothers’ business in done in the West. Denver to the West is where builders are focused. Builders are focused on pro-business states, where land is available and where people want to live – where the sun shines. Boomers are buying in Florida, no big surprise here. And, Texas, a pro-business state, is doing very well in Dallas.

Demographics – the Boomer is driving growth
Baby boomers continue to drive Toll Brothers’ business. As they did for years when they moved to suburban areas to “move up”, and still today as they downsize and prepare for the next stage of their life. Many are buying into active-adult communities or are buying second homes in Palm Springs, Florida and Scottsdale, Arizona.

Design trends – casual family-friendly spaces
According to Toll Brothers the open, casual living with free flow indoor and outdoor space has completely caught on. People want casual environments where living space is connected. And, where the outdoors is a continuation of the home. Where the back of the home will be one big wall of glass making the outdoors, the indoors.

There is also a trend for multi-generational living. With additional living space with a sitting area, little kitchen area, direct access outside and separate entry in the home for older generations living with their family.

And, smart home solutions are evolving and expanding with the ability to remotely control the home.

Labor on the rise
We went from two million houses a year to 500,000. Labor dramatically went away. And, every market has a different issue; there is no national plumber. As we get further into recovery, we are seeing improvements and a return of the builder labor market. Contractors are ramping up their businesses. There is still cost pressure, but according to Yearley, it is definitely less now than it was a year or two ago.

Getting creative with land acquisition
For Builders it is all about the land – whether you are building one home or a master-planned community. You are stuck with the land once you buy it. Builders have to be much more creative in how they look for buy land because people want to live differently. Buyers want to live in a more connected community. And, creativity comes into play due to the availability of land in urban areas. An example of this creativity in land acquisition is buying a car dealership and renovating it. Or, building a park with the mixed use and condo development as part of the sales price for the land, like Maxwell House, former Maxwell House Coffee plant, in Hoboken, NJ. This was the largest in the world and a landmark on the Hudson River since 1939. What was a tragedy for Hoboken is now a trendy redevelopment leveraging both the best of the outdoor and the indoor space.

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SOURCE:
National Association of Real Estate Editors (NAREE) Conference
Toll Brothers
https://www.upi.com/Archives/1990/06/27/Landmark-Maxwell-House-plant-to-shut-down/2261646459200/

 

 

 

The housing shortage

At the National Association of Real Estate Editors Conference (NAREE) in Denver this month “The housing shortage: dealing with barren inventory” was presented. The panel presenting included Thomas O’Grady, Pro Teck Valuation Services; Aaron Terrazas, Zillow; and Javier Vivas, realtor.com. Here is a snapshot of what was covered.

According to the panel we have had 23 months of historic low home sales. With 200K fewer homes for sale, and 150K of the homes being in the mid- to low-tier. We are losing inventory at record pace and in a segment where we are seeing the most demand – in the entry-level buyer. The shortage is national, and in smaller square footage homes.

When looking at the inventory shortage, there are two factors to consider:

  1. Homes hitting the market are selling fast.
  2. There are not enough homes entering the market.

What’s causing the inventory shortage?

  1. New construction has lagged among existing home sales. Homebuilders are not building at the levels they were.
  2. Homeowners have negative equity in some markets.
  3. There is a shift of owner occupied stock to rented occupied stock with 6.3 million more renter-occupied.
  4. The power of psychology. There is a psychology of market for seller; they are holding on to homes to see what kind of gains they can get.

The homebuilder blame game

Homebuilders are getting a lot of the blame, particularly for affordable homes. 24% of all home building costs is put towards regulations – making it expensive for builders to build. And, there is a ack of labor and a high cost of acquiring land. Smaller builders are also having issues will accessing financing.

Housing trends:

It’s hard to move up in a rising market

People aren’t selling because they cannot replace what they have. Buying up is becoming out of people’s grasp in some markets. There is a fear that I can’t put my house in market because I won’t be able to find anything to buy. This is the inverse of what we had in the boom. Appreciation and run upon price is going to hit into affordability, and as always, people want to get a deal.

A rise in home equity

In appreciating markets where the homeowners have equity and a low interest rate, we are seeing homeowners tap into equity and make home improvements versus putting their homes on the market. 40% of home owners have more than 20% equity. And to further support this, people are staying in homes for 10 years which is an all-time high. This stat used to be only 6 years.

Homeowners in love with their loans Many homeowners are locked in by their super affordable mortgage rate. REALTORS® are starting to say that they have more people in love with their loan than with their home. Many homeowners do not want hassle with competitive market.

Investors are staying in the market

Investors propped up the market by buying homes in the crash. People thought they would sell them but they have been making so much money that they aren’t selling. Rental securitizations are bringing a lot of liquidation. We are seeing this more in urban areas.

Seasonal adjustment disorder

Spring buying season started in the winter this year. This is a very big trend this year. Spring home buying season started 3 weeks earlier based on online activity and market velocity. We typically see a spike in online activity in January. This year we saw a peak at the second week of January. This is important because we saw buyers earlier. 1 in 4 homes are selling in less than a month – typically the housing market hits that in March, but this year we hit it in January. And, some of this seasonal adjustment disorder is attributable to the shift in the population demographics. Younger buyers are not held to seasonality and schools.

The urbanization of employment

Job growth – employment growth over past decade has been concentrated in urban areas. There is an employment drive in a lot of markets. The panel called this the Urbanization of employment – creating white collar jobs.

Creating “gray space”

We are seeing people moving further out and now seeing commuting as a more viable solution for home ownership. A good example of this is people moving from San Francisco to Antioch.

In Nashville the population grew by 10%, but housing stopped and home prices went up. People can’t afford to live there anymore. The Mayor is trying to put housing along transit roots to make more affordable home options.

There is an urban, suburban myth. Will urban searchers ever compromise on their urban dream, or will they move to the “gray space”? These are the “gray spaces” between urban and suburban popping up and picking up in demand. The future of housing could be the Long Island’s of the U.S.

Building wealth and potentially frustration

There is a shadow buyer demand – a lot of renters who got in their rental really wanted to buy. They had no other option and needed the extra space. People want the white picket fence, and are almost frustrated that they cannot get it.

Boomers have preached that the best way for middle class to build wealth is through home ownership. Buyers not yet on the market are asking themselves, “Will I have less wealth because I entered the market later in life compared to the baby boomer?” There is a common legacy of thinking that owning a house is a big deal, and we will see frustration around this.

It is getting harder to get into the market. Many potential homebuyers know that the longer they wait the harder it will be to get into the housing market. The market at the entry level is very competitive. The high end the market is slowing down a bit.

All of this will resolve itself through natural evolutions. LA was a low-cost alternative to NY. And now, Dallas is a low cost alternative to LA.

Ways of adapting to the shortage

  • Seeing more multigenerational, joint home investments.
  • The spillover effect – people will move further out and commute longer.
  • Mermaid effect – people are falling in love with their 2nd and 3rd home choices.
  • Macroeconomic play in effect that will make us have to wait it out.
  • Only feasible relief is through the homebuilders.

Despite all of this according to the panel, the U.S. real estate is one of the most attractive asset classes.

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SOURCE:
https://www.proteckservices.com/category/home-value-forecast/
https://www.zillow.com/research/about-us/aaron-terrazas/
http://research.realtor.com/

 

NAR HOME survey says 71 percent of homeowners believe it’s a good time to sell

The National Association of REALTORS® released their quarterly Housing Opportunities and Market Experience (HOME) survey yesterday, and “71 percent of homeowners believe it’s a good time to sell.”

This is not surprising with the rising home prices.  This is up from 69% last quarter and 61% more than a year ago.

The survey also revealed that 42 percent of respondents believe homes are affordable for almost all buyers, with those living in the Midwest being the most likely to believe homes are affordable (55 percent) — and not surprisingly — West respondents (29 percent) being least likely to think homes are affordable. And, 20% would consider moving to a more affordable community. Twenty-seven percent of these buyers make under $50,000 a year versus 16% who make more than $100,000.

According to Lawrence Yun, NAR chief economist, in the NAR press release “it’s apparent there’s a mismatch between homeowners’ confidence in selling and actually following through and listing their home for sale. There are just not enough homeowners deciding to sell because they’re either content where they are, holding off until they build more equity, or hesitant seeing as it will be difficult to find an affordable home to buy. As a result, inventory conditions have worsened and are restricting sales from breaking out while contributing to price appreciation that remains far above income growth.

Yun went on to say, “Perhaps this notable uptick in seller confidence will translate to more added inventory later this year. Low housing turnover is one of the roots of the ongoing supply and affordability problems plaguing many markets.

Click here to see the full press release on the survey’s findings, or here for the full survey.

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SOURCE:
https://www.nar.realtor/news-releases/2017/06/71-percent-of-homeowners-believe-it-s-a-good-time-to-sell-economic-and-financial-confidence-dips
https://www.nar.realtor/infographics/home-survey-june-2017
https://www.nar.realtor/reports/2017-q2-homeownership-opportunities-and-market-experience-home-survey

 

 

 

Top 10 issues affecting real estate

The Counselors of Real Estate® (CRE) announced on June 14, 2017 the CRE 2017-2018 Top Ten Issues Affecting Real Estate at the National Association of Real Estate Editors Annual Conference in Denver last week. In the presentation Scott Muldavin, 2017 chair of The Counselors of Real Estate,  revealed the Top Ten issues, and then broke out the impact on both residential and commercial real estate. Today I will cover how the Top Ten affects residential real estate according to CRE.

 

 

  1. Political polarization and global uncertainty

Watch any bit of news or fake news, and you know this one to be true, but how does this impact real estate? As we continue to see uncertainty about changes to trade, travel and immigration policy threaten cross-border investing, hospitality properties, retail and manufacturing supply chains. Middle class how ownership will also be impacted as interest rates rise.

The impact on residential real estate:

  • Consumer price index rise
  • Interest rate rise
  • Mortgages less affordable
  • Polarized communities.
  1. The technology boom

We have seen the boom in apps. It is now at an inflection point where the use of technology will totally effect the real estate industry. In 2016 2.7 billion was spent in real estate tech. This boom will change every aspect of buying and selling real estate, as well as the homes that we live in.

The impact on residential real estate:

  • Smart homes (thermostats, lighting, security…)
  • Wireless access and bandwidth key
  • Health and wellness attributes on the rise
  • Suburbs could benefit from new transportation models
  1. Generational disruption

Babyboomers and millennials are now about the same. According to CRE The Baby Boomers generation of approximately 74 million (born between 1946 and 1964) is now smaller than the Millennial generations of approx. 75.4 million (born roughly between 1980 and 1997.) A significant number of today’s real estate decisions, as well as those connected to the workplace and consumer spending are now made by people under the age of 40. For the first time people are living and working together (both old and young). Boomers are wanting to move to inner suburbs and want more of an experiential lifestyle. “Surban” areas are the new it. These are suburban urban areas that feel urban-esque. People are looking for an urban feeling in suburban areas.

The impact on residential real estate:

  • Younger renters/buyers’ income limits
  • Marrying later, moving to suburbs
  • Older owners downsizing, selling, moving back to cities
  • Design, amenities differ by age group, yet they will live side-by-side in the same properties and neighborhoods
  • “Surban” communities thrive
  1. Retail disruption

According to CRE, there is a trend toward transforming retail in to “experiential” continues and is offsetting the shrinkage in the physical “bricks mortars” consumer goods platforms. Half of all U.S. households are members of Amazon Prime. There is a fundamental behavioral change in how people shop. The emphasis is on “timely, fast delivery of goods to consumers. May retailers are adopting an “Amazon-like approach, creating new warehouses; new distribution methods; and new fulfillment models while, ironically “disruptive retailers” such as Amazon are opening physical stores. With these changes, up to 30% of malls expected to close, but with this comes opportunities to repurpose the malls Retails is not dying, it is just changing. It is resilient. This disruption is similar to when Sears had to reinvent themselves because of Walmart.

The impact on residential real estate:

  • Walking distance retail demand is up
  • Unique destinations in high demand
  • Retail disruptions is a residential value determinant
  1. Infrastructure investment

We don’t really know what is going on with infrastructure now with the political polarization. It is clear that infrastructure investment is critical. 200 billion was spent over 10 years. 80% of which was state and local government. Mass transportation is being zeroed out. Don’t typically do tax reform or infrastructure spending in a time of growth.

The impact on residential real estate:

  • More infrastructure jobs = more income for housing
  • Better access to housing, work, shopping; improved utilities
  • Improved delivery of purchased goods
  • Potential higher costs for access to privately owned infrastructure (roads, utilities)
  1. Housing: The big mismatch

Affordability is a big issue. In Cleveland you can still buy a house for 80K. But, where jobs are being created there are huge affordability issues, i.e. Denver, West Coast… According to CRE, “Safe, decent, affordable housing has been shown to have a stabilizing effect on urban economies, crime, and public health.  A current lack of inventory has  generated a spike in home prices and, as a result, declining affordability for many home buyers, particularly those in lower income sectors.   A critical disparity exists between housing needs and housing supply. Although improving home prices, economic growth, mortgage accessibility and rental development have improved housing access and affordability in many areas, a confounding series of supply-demand mismatches continues to severely impact markets worldwide.  While the United States increasingly wrestles with the issue, a recent study of 300 metropolitan areas around the world ranked North America as a market with far fewer affordability problems than most.”

The impact on residential real estate:

  • Lack of inventory
  • Few “starter homes” for young buyers
  • Spike in home prices
  • Rising rents
  • Declining affordability
  • Poor market for older, larger homes in suburbs hinders Baby Boomer downsizing and moves
  1. Lost decades of the middle class

According to CRE, “After successive post-recession years of insignificant gains, median household incomes in the U.S. rose in 2015 by 5.2% to $56,516. Still, despite this welcome increase, middle class incomes have yet to recover their pre-recession highs ($57,403 in 2007), and are actually hovering below inflation-adjusted levels from almost two decades ago ($57,909).  Battered by automation and outsourcing, middle class jobs are still under pressure as the U.S. economy transitions from manufacturing to services.”

The impact on residential real estate:

  • Lack of funds for home purchases = postponed home buying
  • Debt and rents of more than 40% of income makes saving for down payment difficult
  • Little disposable income to support retail, restaurants…
  1. Real estate’s emerging role in health care

According to CRE, “Building occupants are increasingly demanding that the space they inhabit be designed, constructed, and operated in ways that advance positive health outcomes. It makes intuitive sense that buildings could help or hurt health in that people spend 90% of their time indoors. Research from the Mayo Clinic also concludes that only 20% of health comes from health care, with environmental and behavioral factors accounting for 40%.”

The impact of residential real estate:

  • Rising health care costs put a strain on household spending and saving
  • Potentially increased access to medical services at malls
  • May see health buildings/homes increase in desirability
  1. Immigration

According to CRE, “New immigrants tend to rent, boosting demand for multifamily housing, especially in gateway cities.  Recent surveys suggest that immigrant populations aspire to own homes and to move relatively freely from cities to suburbs and back in the search for employment. Labor mobility and homeownership rates will be constrained by limiting immigration. Industries like tech that demand highly skilled workers may be forced to innovate and substitute capital for labor if they cannot fill vacancies by recruiting foreign workers – constraining job growth. Longer term, if the entry of immigrant populations that tend to have larger households is curtailed, there will be a limit on the so-called demographic dividend for economic growth, with less of a labor force to support an aging population.”

The impact on residential real estate:

  • Fewer immigrants = fewer new household formations
  • Fewer renters
  • Fewer homebuyers
  • Fewer larger immigrant families = fewer larger homes needed
  • Affects urban and suburban areas alike
  1. Climate change

According to CRE, “In January 2017, the National Oceanic and Atmospheric Administration (NOAA) released a new report based on the most up to date scientific evidence on sea level rise that more than doubles the 2013 forecasts of potential sea level rise by 2100 from 2.2 to 4 feet to 6.6 to 8.6 feet.  Sea level rise is caused by both the thermal expansion of the oceans—as water warms up, it expands—and the melting of glaciers and ice sheets.  These dramatic rises were due largely to new research on the role of the Antarctic in sea rises as well as improved forecast models.  The Atlantic (Virginia Coast North) and western Gulf of Mexico Coasts’ sea rise is projected to be greater than the global average by .3 to .5 meters by 2100.  Alaska and the Pacific Northwest are projected to be 0.1 to 1 meter lower.

While a potential rise of sea level by 6.6 to 8.6 feet by 2100 may seem far in the future, NOAA also estimates that annual frequencies of disruptive and damaging flooding would increase 25-fold with only a 14-inch increase in local sea level rise.  Major cities such as Miami, New York, New Orleans, Tampa and Boston are projected to have the most costly problems, with South Florida and most coastal areas all exposed to differing levels of sea rise risk and cost.”

The impact on residential real estate:

  • Property value declines
  • Property insurance too costly or not offered in impacted areas
  • Potential early home sales before next climatic event to protect ‘nest egg” equity for retirement
  • Particularly in cities like Miami, NYC, New Orleans, Tampa, Boston, South Florida

CRE also identified three issues to watch including: tax reform and monetary policy, other policy issues and the cannabis.

The CRE Top Ten list is developed annually by members of the CRE organizations’ External Affairs group. The Counselors’ 1,100 members around the world undertake an extensive dialogue on current issue and trends to identify the final list. Click here to see the full list or follow #CRETopTen on Twitter.

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SOURCE:
https://www.cre.org/
https://www.cre.org/news-releases/political-polarization-global-uncertainty-top-cre-2017-18-top-ten-issues-affecting-real-estate-list/
https://www.cre.org/external-affairs/alert-the-cre-2017-18-top-ten-issues-affecting-real-estate/
https://www.cre.org/external-affairs/cre-2016-2017-top-ten-issues-affecting-real-estate/

 

Buyer traffic on the rise

Each month the National Association of REALTORS® surveys 50,000 real estate practitioners on their expectations for home sales, prices and market conditions to create the REALTORS® Confidence Index. On April 21st, the new REALTOR® Confidence Index was released. The index reflects strong buyer traffic and tight supplies as we enter the peak housing market, and that REALTORS® are optimistic about the next six months. 88% of respondents reported higher prices than a year ago this due to the strong buyer traffic and reduced home inventory levels. Given this demand, REALTORS® believe home prices will continue to climb.

Lawrence Yun, Senior Vice President and Chief Economist highlighted the Confidence Index’s findings as follows:

  • First-time homebuyers accounted for 32 percent of sales.
  • Amid sustained job creation, the share of first-time homebuyers has been on a modest rise, up from 29 percent in 2014.
  • With fewer new foreclosures, distressed properties accounted for six percent of sales, purchases for investment purposes made up 15 percent of sales, and cash sales accounted for 23 percent of sales.
  • Amid tight supply, half of properties that sold in March 2017 were on the market for 34 days or less compared to 47 days in March 2016.
  • Lack of homes for sale was the main issue reported by REALTORS®.

Click here to download the full report.

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SOURCES:
https://www.nar.realtor/news-releases/2017/04/pending-home-sale-dip-08-in-march
https://www.nar.realtor/topics/pending-home-sales
https://www.nar.realtor/reports/realtors-confidence-index

 

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