The Counselors of Real Estate recently released their official CRE® 2015-2016 Top Ten Issues Affecting Real Estate. This annual report delineates the anticipated trials and tribulations the real estate market will be facing in the coming years.
Noah D. Shlaes, the 2015 chair of The Counselors of Real Estate, said the housing market is currently undergoing a higher degree of uncertainty than previous years, which is reflected in the list.
"Anticipation of rising interest rates, continued currency devaluation, and excess capital flowing into the United States are all on the minds of our membership," said Shlaes. "Combine this with a growing wage gap and major changes in demographics, and we've got a lot to think about this year."
Here is the CRE's full Top Ten list:
1. Demographic shifts
Baby boomers are beginning to retire and their decisions to age in place, purchase a downsized home or move to a master planned community will impact the future of real estate development. In addition, millennials buying their first homes or delaying their decision will also be a significant factor for the future of real estate. These two alterations will be big; combined they're contributing to a seismic shift in the demographics of the housing market. The choices of these two age groups have pushed this issue to the top of the list.
Both retiring baby boomers and first-time homebuying millennials will play a significant factor in the future of real estate development.
2. Excess capital supply
Due to the relative stability in the secure, transparent asset class of U.S. real estate, many foreign investors continue to pump money into the country to purchase property. This is creating an excess of capital, which threatens to undermine the availability of inventory and drive up prices. As The Washington Post noted, the average national housing inventory would all be sold in five months while median existing home prices increased 7.9 percent year over year. As more foreign capital pours into the country, this might only exacerbate the issue.
3. Rising interest rates
The Federal Reserve has kept its benchmark short-term interest rate at near zero since 2009. While certain market watchers think it will increase in September, there's no way to tell for sure. Once it does happen, however, it could slow home sales, since higher interest rates will leave many people unwilling or unable to afford mortgage payments.
4. Global instability and currency devaluation
We're currently experiencing a moment when the U.S. dollar remains strong compared to the euro and other global currencies. Although the excess of foreign capital can gobble up inventory and drive up prices, the housing market remains dependent upon a healthy dose of global investment. To this end, event risks around the world can negatively affect non-U.S. investment.
A growing segment of the population - particularly among millennials, but also among older generations - prefers to live in urban areas that offer walkable communities that support a live-work-play lifestyle. Many suburban areas are feeling the weight of this shift as homebuyers prefer to purchase urban homes instead of houses in the suburbs.
Oil prices plunged last year and they have yet to reach their pre-plunge highs. This impacts the overall economy since it affects workforces, which can create a decrease in consumers' buying power. On the positive side, though, it has created more demand for alternative energy among consumers - a demand real estate developers and master planned communities can take advantage of to attract new buyers.
7. The gap between rich and poor
As income inequality widens in the country, it will impact real estate developers, since more people will end up renting instead of purchasing a new home. However, the market dictates that as the demand for rental properties grow, so will the pricing. Indeed, as RealTrac noted, Texas rental prices jumped 24 percent, the largest increase in the country. As rental prices continue to surge, more consumers will move to consider buying homes.
Much of the current infrastructure in the U.S. is severely dilapidated and underfunded. Roads, bridges and the grid are currently not maintained well enough to satisfy the needs of businesses and a global economy. Individual municipalities do not have the means to improve the severely distressed infrastructure, and political gridlock is preventing the federal government from diverting the funds to make the much-needed improvements. Homebuilders and real estate developers need to work in lockstep with local officials to ensure the new developments and master planned communities have access to the necessary energy, water and road infrastructure and can accommodate the growing demands of the general public.
9. Real estate technology and crowdfunding
The real estate industry has always been on the forefront of innovative technologies. New sources of investment from venture capital and crowdfunding are already disrupting the market by pouring more money into startups and mid-range companies. Developers and homebuilders can take advantage of these advances by incorporating them into their current business models to stay at the vanguard of these novel techniques.
10. The changing retail model
All the above factors contribute to an ever-evolving retail model that makes one week's housing market hot spot next week's ghost town. Demographic groups are changing their preferences, forcing homebuilders to pivot their long-term plans, while consumer purchasing power also declines. Real estate developers need to remain flexible and adapt to shifting industry trends.
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