In a recent special external affairs report, The Counselors of Real Estate® highlighted the Top Ten Issues Affecting Real Estate™ for 2018 – 2019, with a look at five short-term trends and five long-term items the industry should be looking at in the coming months and years. Below, you’ll find an outline of the five most pertinent issues impacting real estate now.
For years, market pundits have speculated that The Fed would begin to raise interest rates and we are now experiencing gradual increases. As CRE reports, “historically, this has been a powerful signal of market expectations of an economic down cycle,” which was many questioning whether it is “time for investors to focus on playing defense at the end of this long cycle.” There don’t appear to be any immediate effects, however, as CRE anticipates that it may slow some real estate deals given that transaction volume rates nationwide have dropped 13% over the past few years.
In terms of actual rate hike numbers, Wall Street Journal recently reported on The Fed’s plans, as they announced they will continue to raise rates until they reach what is called a “neutral” status, meaning rates are not meant to spur or slow economic growth. Experts are not in full agreeance on the actual neutral rate, but many say it falls somewhere between 2.75- and 3-percent. The Fed has raised rates twice so far in 2018, and “officials last month penciled in two more rate increases this year and three more next year,” which means we could become neutral as early as spring 2019.
The affect of politics on real estate can be divided into two categories: 1) those with a direct impact, and 2) those with an indirect one. Things that fall under the direct category include 2.2155, which “frees smaller lenders from the toughest requirements of the Dodd-Frank Act,” HVCRE, which “would exempt income-producing property” and HDMA, which “reduces the number of data fields collected by insured depository institutions.” Among indirect factors are the Tax Cuts and Jobs Act, which has the potential to bolster the industry through increased spending, and growing trade wars with other countries, which illicit fear and slow consumer spending.
In many cities across the U.S., falling inventory and rising demand are adding pressure to affordability, as more and more buyers are ‘driving to affordability’ and electing to purchase within neighborhoods and housing options that, in the past, have served as starter homes for first-time buyers and retreats for downsizers and empty nesters. CRE says that two primary questions will emerge over the coming months and years as cities tackle this issue: 1) who is paying? and 2) how?
It will be particularly interesting to examine how this trend plays out in the Emerald City, where inventory has surprisingly gone up over the past three months. In early July, Seattle Times reported that “the total number of single-family homes on the market jumped an eye-popping 43 percent in June form a year ago across King County.” Only time will tell whether this trend of more homes available for sale will continue or revert to the same story of low inventory and growing demand when the fall sales season commences.
The real estate industry is definitely feeling the impact of shifting demographics, as the traditional age group categories—such as 25 to 34, 35 to 54, etc.—are falling to the wayside and the influence of four distinct groups is felt: “the Millennial generation, aging baby boomers, Gen X (those born between the mid-1960s and the early-1980s, which exhibit characteristics of the two large groups on either side of the age spectrum), and Gen Z (born between 1995 and 2010).” CRE writes that approach to work spaces, company locations, and property types will be three of the top considerations when it comes to these demographics.
5. Online Retail
It will come as a surprise to no one that e-commerce spending is growing, and numbers indicate that online retailers grossed $123.7 billion within the first quarter of 2018 alone. While many have heralded the “death of U.S. mail” and the brick and mortar retail store, CRE says signs of life may be found in service-oriented retail growth and through the hybridization of physical and digital shopping through Amazon’s acquisition of Whole Foods, for example. In offering both options, the real estate industry is set to benefit from “discount retailers and high-end luxury stores” that keep their storefronts and the growing need for warehouse and distribution properties utilized by e-commerce companies.