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residential real estate

Spring Buying Season Is Here

Spring is here. Finally, after a long, cloudy and wet winter we have had a couple sunny days, the bluebonnets are starting to boom, allergies are on high alert, and the Spring buying season is starting. To help you prepare, here is a snapshot of the housing market forecast.

Freddie Mac recently reported, “Mortgage interest rates have been steadily declining since the start of 2019. These lower mortgage interest rates combined with a strong labor market should attract prospective homebuyers this spring and could help the housing sector regain its momentum later in the year.” This is great news as we approach our typical Homebuying Season.

Mortgage interest rates continue to decline

According to Primary Mortgage Market Weekly Survey mortgage rates have steadily declined after reaching a high of 4.94 percent in November of 2018. As of late-March, the 30-year fixed mortgage rate was 4.28 percent, its lowest level since February 2018.

Home sales to slowly regain momentum

Existing home sales nationally fell by 7 percent, to 5.32 million homes, in November compared with November 2017, according to the National Assoc­iation of Realtors. Lawrence Yun, chief economist for the National Association of Realtors, expects sales to be flat in 2019. This spring will be the best measure of whether the housing market is returning from very tight to normal, Yun says.

Freddie Mac reports, “existing home sales slumped to start the year, likely in part due to exceptionally cold weather in January and the temporary effects of the government shutdown. With mortgage rates down significantly from last fall, we expect to see existing home sales bounce back and trend higher for the rest of the year. However, our forecast indicates that total home sales (new and existing) will remain down at 5.94 million in 2019 since home sales are starting the year at such a slow rate, before increasing to 6.14 million in 2020.”

However, home sales for the Austin MSA increased 1.5 percent for 2018 vs 2017. Median home price increased 3.7 percent to $305,900. 

Housing starts
Freddie Mac reports, “Housing starts averaged 1.25 million in 2018. Due to the recent increases in building permits, we anticipate that total housing starts will gradually increase over the next two years with most of the growth coming from single-family housing starts. We forecast that total housing starts will increase to 1.27 million units in 2019 and to 1.33 million units in 2020.”

According to Moody’s Analytics, “homebuilders have been underbuilding for more than a decade. Builders have been hindered by labor shortages, community opposition to high-density projects and growing costs of land, labor and materials. Plus, they’ve been building at the mid-to-high end of the market, not at the entry level. But it’s not all bad news. Builders are offering in­centives to buyers, and they’re slowly starting to build smaller, lower-price homes that are more affordable.”

Locally, Austin single family building permits increased 4.6 percent in 2018 over the previous year. 

Home equity

CoreLogic Homeowner Equity Insights 4th Quarter Report continues to see a rise in home equity. “U.S. homeowners with mortgages (roughly 63 percent of all properties*) have seen their equity increase by a total of nearly $678.4 billion since the fourth quarter 2017, an increase of 8.1 percent, year over year.”

A look at home prices

Home prices started to soften in mid-2018. Kiplinger’s Personal Finance recently reported, “Prices will continue rising, but more slowly, as the housing market regains some balance between buyers and sellers.”

Freddie Mac similarly reports, “After accelerating in recent years, home price growth in the United States has continued to moderate. In line with recent trends, we have lowered our home price growth forecasts to annual increases of 3.5 percent and 2.5 percent in 2019 and 2020, respectively.”

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SOURCES:

Freddie Mac – http://www.freddiemac.com/research/forecast/20190322_economic_growth.page?

Freddie Mac – http://www.freddiemac.com/pmms/

National Association of Realtors – https://www.nar.realtor/

Real Estate Center Texas A&M University – https://www.recenter.tamu.edu/data/housing-activity/#!/activity/MSA/Austin-Round_Rock

Moody’s Analytics – https://www.moodysanalytics.com/

Real Estate Center Texas A&M University – https://www.recenter.tamu.edu/data/building-permits/#!/msa/Austin-Round_Rock%2C_TX 

CoreLogic – https://www.corelogic.com/insights-download/homeowner-equity-report.aspx

Homeownership mortgage source: 2016 American Community Survey – https://www.census.gov/acs/www/data/data-tables-and-tools/data-profiles/2016/

MReport – https://themreport.com/daily-dose/03-25-2019/important-drivers-home-sales

Kiplinger – https://www.kiplinger.com/article/real-estate/T010-C000-S002-where-home-prices-are-headed-2019.html

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/

 

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