What direction is U.S. real estate heading in the coming year?
Whether real estate investor, industry business owner, Realtor, builder, home buyer, renter or seller, it is extremely important to have an eye on trends for the year ahead. What will make good buys? Is it smart to sell sooner rather than later? What quirks will change which properties appreciate faster than others. Perhaps more importantly, what segments of the market are likely to bounce back?
Urban Vs. Suburban
Urban cores have rebounded the fastest thus far. Some analysts and Trulia have already begun proclaiming rapid traction has already pushed markets like Austin, TX to being overvalued. While historical cycles tell us that even the hottest of these markets will continue to rise for several years, many sophisticated investors are already eyeing more suburban communities for value and growth. Trends in remote working and technology, as well as surveys showing home buyers’ favorite features, suggest these investors could well be right. Those that stick to the most popular urban centers should expect extreme competition, and perhaps even slightly slower growth.
Competition Like You’ve Never Experienced Before
For those newer to the industry and buying real estate, 2015 could present one of the most competitive years they’ve ever experienced. Looking at the bigger picture, it is still a great time to buy homes, invest in income property, fix and flip, and wholesale, but expect more competing offers and for Realtors, sellers, builders, and asset managers to become more difficult.
Land Makes A Comeback
While some of the largest funds and corporate real estate buyers have already been scooping up land, vacant land and lots have still largely been ignored by the average buyer and real estate investor. Expect more forward thinking investors and buyers to try and get ahead of the curve by scooping up infill lots, and large parcels of vacant land.
Rising Utility Costs & Increased Challenges
Utility costs aren’t expected to go anywhere but up. This means each housing unit and owner should anticipate costs to go up. In some places, increased shortages could be an issue. Expect the media to pick up on droughts in California, and warn of how booming populations in Nevada and Arizona.
Drive For Sustainability
The development of sustainable housing will likely reach tipping point in 2015. ‘Green building’ has done well at catching on, but we really haven’t begun to see the biggest pivots in sustainability yet. In other countries entire green smart cities are being built. Some have been built with no above ground traffic and have been designed to essentially zero out energy bills. Expect more gains in solar, water harvesting and retention, and green materials, as well as entire communities designed to be sustainable. While some properties in these advanced communities may go for a premium, they will enjoy healthier living and lower holding costs.
Ongoing Foreclosures & REO Sales
With almost a quarter of a trillion dollars in REOs and delinquent mortgage loans on the books of U.S. banks, there will still be plenty of activity in distressed property in 2015. It may make up a smaller percentage of the overall market as broader growth occurs. However, there will be plenty of it. Banks will both be more able, and more motivated to cycle through this inventory. Those that build relationships with those in control of these properties and mortgage debt will be well positioned to continue finding value in the market.
Homeownership rates are likely to be a point of contention and media conversation in 2015. At least one of the most influential and respected billionaire investors has predicted U.S. homeownership will drop another 10%. This will certainly not be out of any lack of desire to invest in real estate or buy homes. However, there will still be many exiting old homes and credit and difficulties in obtaining high LTV financing could still hamper dreams of buying homes, at least for the next 18 months. Ultimately, this should turn around as credit becomes more accessible, but it is interesting to note that in older countries, and even popular hubs like Berlin, only about 50% own versus renting.
Rents Keep Rocketing
With no signs of rents slowing, and multiple factors increasing demand for rentals expect, asking rents to push new highs. Given the drive for profit and income some markets will push far past the cost of owning a home, and if not prevented within the industry could eventually lead to government intervention to curb it, and at least create safeguards for preserving some access to affordable housing.
While the ZIllow behemoth will probably make online advertising in real estate more expensive, and bring stiff competition, many real estate investors and Realtors will turn to smaller niches and locales. The first to make a big splash in their areas, and do it well, will have the advantage. Also, look for luxury homes, second homes, and vacation rentals to come bouncing back strong.
Turnkey Real Estate Investing To Reach New Saturation Level
Between incoming global real estate investors that are used to investing through turnkey programs, and more awareness stateside, expect turnkey property investing to become hugely popular.