The report “Expectations & Realities of Real Estate in 2019” was just released by its co-authors George Rativ, Director of Housing and Commercial Real Estate with the National Association of REALTORS® (NAR), Mathew Kimmel, Deloitte Transactions and Business Analyst and Ken Riggs, President and Global Head with Situs RERC. This collaborative report deserves your attention.

Agents and brokers with Harris Real Estate Coaching will be particularly interested in what these experts have to say about housing and real estate investment. We’ll focus Part I of this 2-part series on these experts’ insights concerning housing. Part II will focus on real estate investing.

First, a brief overview of the economy as seen by Rativ, Kimmel and Riggs…

In July 2019, the economic expansion that has been occurring since 2009 will surpass the longest expansion in our country’s history. The good news for all property sectors, according to the above named experts, is that all properties are holding their own in terms of valuations and pricing. Specifically, the experts point to the following areas:

  • The need for distribution centers is increasing.
  • The demand for industrial space is growing.
  • The apartment sector is seeing renewed strength as affordability continues to plague single-family housing markets.
  • The hotel sector is at an all-time high.
  • Office space is being spurred by growth in non-major and suburban markets with sales volume +21% and sales prices +20%

United States real estate markets, both residential and commercial, are the most preferred markets by foreign investors, followed by Hong Kong and China. Canada has been the biggest foreign investor in US real estate in the last 12 months.

The good news specifically for housing is…

  • Millennials are projected to create 25M new households over the next 5-8 years.
  • Generation Zers are projected to overtake Millennials in terms of numbers during 2019-2020, according to Bloomberg.
  • Wage growth is beginning to increase.
  • US residential housing markets continue to be the most preferred housing markets by foreign investors.

The bad news specifically for housing is…

  • Millennials and Gen Zers are projected to create well in excess of +25M new households over the next 5-8 years BUT the long-term homeownership rate is expected to only come close to and NOT surpass the long-term 65% average. These experts essentially say to forget about even approaching the historic peak of 69.2% homeownership rate in Q4 2004.
  • Housing affordability in nearly ALL MAJOR MARKETS combined with student loan debt and underwhelming income growth continues to force many potential buyers to rent out of necessity.
  • Pioneering business models such as Common and WeLive (based upon flexible/variable lease options, flexible space planning, and ever improving new smart technology) are developing more affordable and convenient rental options that enable potential buyers to live where they want without having to deal with the daunting task of saving enough for a down payment, having enough money for forever-and-a-day mortgage payments and having enough cash to pay for inevitable maintenance and repair costs.

The Deloitte, NAR and Situs authors developed three distinct scenarios as a way to look at housing in 2019:

Lower Case Scenario

  • A weak economy and low wage growth will cause home prices and new construction to increasingly fall and slow down, respectively.
  • Already high home prices, steadily (but slow) rising interest rates and tightening lending standards will force even more people out of the housing market.

 

Base Case Scenario

  • A solid demand for housing will be propelled by accelerating household formation, population growth and increasing incomes.
  • Rising materials and labor costs will continue to soften new construction.
  • Steadily rising interest rates and tight housing supplies will continue to slow sales and the rate of price appreciation.
  • Affordability will become an ever-growing concern in most metro markets.

 

Higher Case Scenario

  • As prices begin to rise, the number of housing starts will rise.
  • A stronger job market and increasing wage growth will drive more renters into the housing market.
  • The lack of existing homes for sale and strong price appreciation will boost new home construction.