The US real estate sector had a bountiful fiscal year, in the one that went by. The net value of housing stock witnessed an increment of 6.5%. This roughly equaled about $2 trillion, bringing the net valuation to about $31.8 trillion, as per the industry estimates. This would be a positive news for the American developers and homebuyers as 2017 was suspected to end on a low note, concerning the political, economic and business environment.
Factors such as shortage of housing facilities and high mortgage rates guided the predictions towards a different conclusion. However, the reality beat the odds to surpass expectations. The inventory remained short, the prices inflated, and the mortgage rates barely took it easy on housing loan applicants. Surprisingly, the trend for home buying kicked off at the higher price brackets, and not the lower ones, defying general assumptions. The residential real estate market seemed to soar in spite of all the notable signs of sluggishness in many other markets.
Bearing the current state of the market, it is believed that the following trends would shape the sector in 2018.
Consumers should keep a watch on the mortgage rates in this year. These are poised to rise, which should impede the market from appeasing the consumers. At the current pricing, even an infinitesimal increase in the rates can spell a high spike in pricing for monthly mortgage installments. This may affect the price ranges that young families would like to buy homes at; and what with rental prices and student loans further bleeding the populace’s coffers; it has become quite difficult for the young generation to purchase new homes.
Some of the states in the US are, however, slated to witness depreciation in prices and better income scenarios. This may also be welcomed by most families, as the past half-decade saw the US home prices increasing at regular intervals, with which pay scale rises could not match tandem. Thus, some parallel between the incomes and home prices may benefit the homebuyers and affordability will remain a key factor for most.
According to the federal Department of Housing and Urban Development (HUD), an affordable house is the one that a household can obtain for a mortgage cost lesser than 30 percent of its income.
Mortgage rates are not supposed to align so easily with abovementioned parameters. They are touted to increase in the ongoing fiscal year, to reach 5% on an average, from an already steep 4.6%. This is applicable for the traditional 30-year long home mortgage. These rates, however, are subjected to change by the end of the fiscal term, for better or for worse, possibly better. The reason for this speculation being the fluctuation of the rates both above and below the 4.7% mark. Also, the Drumpf Presidency is supposedly showing some flexibility towards the lending requirements.
Housing for the Millennials
Emerging trends point quite certainly towards the fact that there will be a massive requirement for housing by the time 2018 is over. The majority of this demanded would be spearheaded by the millennial generation, who fall in the age bracket of 20-35 years. The reason being that most of the millennial generations have come of age and have financial sources to support starting a family; and real estate for personal ownership figures well into that plan. Buying homes and taking out mortgages that they can fulfill has become a strong point for these individuals with families.
As per U.S. Census Bureau, the millennial population in the country was registered at 71 million in 2016. This number is predicted to reach 73 million by 2019. Moreover, the forecast states that given the trend of buying houses among millennials, the end of 2018 could see the millennials occupy 43% of the national mortgage applicants tally. The suburbs are also buzzing with activity with suburban real estate providing more reasonable alternatives worth purchasing.
Baby boomers in tow
The forecast is also rife with speculation that the need for affordable real estate would be catalyzed by the generation of baby boomers, which is the nation’s largest adult generation, aged between 52 and 70 years. This trend is going from strength to strength for the past several quarters as baby boomers are increasingly looking for permanent residences to retire to. Besides this, resorts and retirement communities are expected to be swelling up as well, to accommodate the retiring or nearly retired souls.
This generation is fairly aware of the pitfalls of overconsumption and under-saving and is more conscious towards their financial well-being and retirement lives. This is why investment in housing and real estate is something that sits high on their list of priorities.
Re-stocking the inventory
Since the 2007 recession, there has been a shortage of inventory, especially where it is required, in the reasonable price brackets. Make no mistake; there has been real estate development aplenty, but just not at the pace that the supply could match the demand. Developers have started to downsize properties in a bid to bring in more renters, number of housing units and of course revenues. However, prospective real estate buyers have held off solemnly so far until they come across options that match their needs. It is certainly best practice to not undermine your investment portfolio, by purchasing in a market where most are selling.
The primary reason 2018 is claimed to witness an inflection point is because of the assumption that a new generation of buyers shall rise and drive strong demand. This shall also bring in newer incentives to buy real estate. Millennials, as mentioned above are poised to be at the frontline. Given the cascading impact of 2017’s trends well into 2018, real estate buyers are advised to take a call only after conducting thorough due diligence no matter how well the market trends shaping up in overall.