The country ended 2016 on a bit of a question mark as far as housing is concerned. Mortgage rates have spiked about 0.75 points since the week before the election, and the standard 30-year FRM is now hovering around 4.3 percent – this is the highest rates been in three years. Additionally, a skilled labor shortage has helped stall the new construction market, and inventory shortages are bottlenecking sales and pushing up home prices across the country.
To top it all off, the impending administration is advertising a pretty sharp deviation from typical politics. The market could soon see a privatized and deregulated Fannie and Freddie or the end of the coveted mortgage interest deduction. However, while there is a lot of uncertainty surrounding the real estate market right now, there are still a few certainties.
Age, gender, culture – when a person or a family is purchasing a property, these are some of the fundamental elements that will ultimately dictate home selection. What used to be the considered the top of the bell curve – the nuclear family and the out-of-the-house-at-21, home-owning college graduate — now slopes to either side. Taking their place are booming new buyer segments composed of single women, retirees, and millennials planning or currently saving to buy in the near future (or so every agent hopes).
A major change to the market’s consumer makeup is occurring. The Urban Land Institute (ULI) projects that, by 2025, one in every seven people in the U.S. will be foreign born. ULI also projects the 65-and-older population will hit 66 million, a 35 percent jump from 2015, in that same year. This all translates to change in preferences and a huge change in the market.
A separate report from ULI brings up the growing popularity of optionality, or the concept of maximizing space, which often means blending work and living spaces. The report shares an anecdote in which an employer is providing housing to employees. The employer explains the move as a reaction to millennials not wanting the commitment of homeownership, as well as a way to fill space and make a little extra money. The employees seem to like the arrangement, reflecting the sentiments of a large block of millennials.
There are already markets – New York, Miami, Houston, Los Angeles, San Francisco Bay Area, Toronto – that attract millions in foreign home purchases. And, there’s expected to be even more in 2017. International buyers accounted for $87 billion in real estate sales in 2015, and experts think there’s a pretty good chance the level of foreign investment will continue ballooning in 2017.
The United States real estate market, recovering though it may be, offers stability and transparency seen in few other countries – a fact that events like China’s economic implosion and Brazil’s economic and political turmoil are making even more appealing. Even new policies, such as the revised Foreign Investment in Real Property Tax Act, are making it easier for foreign investors to operate stateside.
The country has a serious affordability problem. It was probably the most pervasive housing issue of 2016. The National Association of Realtors reported that home prices rose at double the annual rate of wages last year, and, in many cities, that dynamic is even more startling.
The question is: what can be done? Builders can’t be expected to eat the cost of labor, land and materials to force more affordable homes into the market, and seller agents can only coerce listings so low.
A report from Curbed posits that municipal governments may be the ones best positioned to enact change: Local governments are able to expand inclusionary zoning policies, regulatory fees and rent control measures. Local governments also have a better understanding of their markets, so newly enacted measures are calculated and dynamic albeit slow to deploy.