Real Estate Investing Looks Forward To 2017
The EBG dashboard is clean and clear looking into 2017. The optimism looking forward continues to be strong. In fact a recent optimistic survey conducted by John Burns Real Estate Consulting shows 34% of respondents have an increase in optimism for the next 3 years versus a year ago. This survey also suggests that housing construction will rise over the next three years and homeownership rates will increase. I have held many discussions with investors, builders as well as buyers and sellers and the consensus appears to coincide with everything I read as well. The next 3 years shall bring slow and steady increases and be similar to what 2016 has shaped up to be.
Ownership growth with an aspiration for technologies
About 2/3rds of the population appear to believe that homeownership will continue to improve over the coming years. There is of course massive technologies being incorporated into the housing industry and as the millennial population is our strongest segment based on sheer volume.
This request for technology running our homes will continue to be a dominant force in housing. Perhaps this will be something we, as investors, will want to keep a close eye on as to maintain our tenants we may have to compete with this desire for technology.
Housing within our anticipated rising mortgage rates
Perhaps the rising interest rates will not affect the housing market. It depends on what causes the rates to rise. A large number of people are indeed concerned about the rise in interest. We have become accustomed to the 3% and 4% rates we have enjoyed over the past decade.
The flip side however is that the economy and job growth as well as wages have been stagnant for the past decade as well. In order to keep the economy moving forward the rates needed to be low. If indeed the jobs start to increase again and salaries go up then the natural progression of affordability of housing will also be maintained.
Buying a home tends to be less tied to the interest rates and more tied to the consumer’s wellbeing and as the consumer's household incomes increase, the affordability will maintain its strength.
Entry level housing
What may hurt the housing market in the near future, especially for entry level buyers is not the interest rates but instead the lack of available properties within the price points favored to the entry level buyer.
This lack of inventory will keep an upward pressure on the housing price (simple supply and demand). It is these types of houses that have been snatched up by investors over the past several years. As these single family homes are being made available by way of tenancy over home purchase, I believe the landlord will be positioned for sustainability to this rental class.
How slow new construction will affect the housing sector
There is a high demand for housing and there is low supply, so home builders are obviously happy and content. So why are they not building more at a faster pace? New regulations have been very costly and time consuming. Labor shortage has been a big factor and shortage of buildable lots has been a large factor.
The inability to build faster has kept overall housing supply short which means prices will continue to rise and may do so until the balance of supply and demand are in check. Builders are o.k. with this as they need to keep prices up to offset their increased expenses in building. All this of course points to sustained growth in value as long as the incomes can substantiate and keep the affordability in check.
Housing under a Trump presidency:
There are many ideologies around how Trump will impact housing. Some fear he will cut many government programs and that may lead to a recession. While no one will know the overall outcome for sure, we do know that Trump himself is a Real Estate Mogul and understands that housing sector is one of the country's strongest economic engines.
He tapped Dr. Ben Carson to be the head of HUD (Housing and Urban Development). Both Trump and Carson believe in lower regulatory restrictions which should assist in keep rates low and more available to the masses. Overall many see a Trump presidency as being good for the housing sector.
Housing Market to Normalize for 2017 and beyond
Based on everything we are seeing and all the surveys being conducted, I believe 2107 will bring a more normalized housing market, one that still boasts a healthy number of sales but a moderate rate of price growth. Prices will have a more normal pace of increase and low supply will keep it sustainable. Those who cannot buy will continue to rent and the entry level houses that are in short demand will be winners for the landlords who own and rent them.
Landlords now more than ever will want to keep a hand on what latest trends in real estate are so they can adjust to meet the wants and needs of their tenants.
Location remains KING
As many markets strengthen this is the time buyer’s markets balance and balanced markets turn to sellers markets. Now more than ever you want to keep your eye on your market demographics and fundamentals.
When markets that you currently own in reach seller market status, you may opt to reposition to next best markets. This is perhaps the best strategy for maintaining a strong portfolio and we are definitely at the point to be keeping our eye on the best and transitioning markets.