Six Real Estate Megatrends For 2012 And Beyond

Today’s housing market is evolving, and many of the changes we are seeing now are unlikely to go away any time soon. Today, we examine six rising trends that are set to become the new “normal” in the majority of US housing markets in the months and years to come.

1. Distressed or foreclosed properties will continue in high numbers, keeping the supply of vacant homes at levels that will exceed end user demand in many local markets.

Areas with an over-supply of existing homes will continue to see prices flat or eroding, until the supply-demand ratio comes back into balance. In some parts of Florida, California, Georgia, Nevada, and Arizona, to name a few, it will take years for this ratio to balance out.

Any market seeing increasing foreclosures in 2012 will experience this imbalance in the future, to some extent. The larger the supply relative to the existing demand, the lower the prices will tend to be.

2. Conversion Of Single Family Homes To Rentals

Home ownership has been shrinking. The housing market is undergoing a fundamental change to a much higher percentage of single family rentals. Rent rates will only go up in those areas that have a tight supply relative to local demand. This will be mostly near major employment centers in bigger cities.

That being said, we’ll see a much higher percentage of tenants in suburban “bedroom communities”. Those neighborhoods tend to have higher foreclosure rates, and are located farther from the best paying employment centers.

The Worst locations are neighborhoods near “dying” employment centers. A prime example is Detroit, Michigan. As the auto industry has lagged, and employment has fallen in a number of related sectors, jobs in the “rust belt” are still dwindling. “Industrial age” population centers are shrinking and this trend will continue have a negative impact locally.

For residential real estate brokers, the biggest growth opportunity at present is in property management. Some brokers have opened new property management companies to accomodate the growing demand caused by a local transition from owners to tenants.

3. A New Market Variable – The development of “Big Box” rental property owners in the single family market

Wall Street has entered the housing market in an attempt to buy up bulk reo packages of single family residences being offered by Fannie Mae or other entities holding a large inventory of foreclosed properties.

This has never been done before. The impact may be positive in the short term for the selling entity, but I believe that it is most likely that this development will have a negative impact locally. The increased supply could force rental rates lower. Mom and pop investors may have difficulty cash flowing against such competition.

Managing a Single Family Rental project of this type and scale are unprecedented.
For existing homeowners, this event could lead to a higher percentage of tenants in many neighborhoods that used to be 90 to 100% owner occupied.

The attempt to cash flow single family rental properties in unprecedented numbers, combined with high unemployment and lower incomes among the tenant population is leading to

4. Significant growth in the use of government subsidized housing programs commonly known as “Section 8”

Today there are fewer people who can afford to pay full “market rent”, which is usually higher than a mortgage would be on the same property. And Government Subsidized housing has a reputation for paying above market rent rates for a variety of reasons.

I fully expect that “Big Box” landlords will want to utilize “section 8” or similar programs, as this is a common strategy for boosting rental income to “above market” levels, thereby increasing positive cash flow. However, in cities where the number of available properties exceeds the local demand for subsidized rent, houses can go begging for tenants. This could upset the “Big Box” cash flow projections. It will be interesting to see how this plays out over the next few years.

5. Government Domination of The Mortgage Market

Taxpayer “ownership” of the secondary mortgage market, in order to continue funding mortgages in a market that has lost most of it’s private investment capital. The financial burdens are already significant for both the taxpayers and the buyers who are using these loans. We’re stuck in a vicious cycle of more government programs and guarantees, with much less private sector involvement than ever before in the history of the secondary mortgage market.

6. Higher unemployment and lower wages

Productivity is at record high levels, but new technology has limited the creation of new jobs for humans. Globalization and internet commerce have made Americans compete with workers in Pakistan or Indonesia, resulting in much lower incomes. This will have a direct impact on home prices, rental rates, and government intervention in the housing market.

These are not short term events, they are here to stay on some level. This is part of the new “normal” where today’s housing market is concerned.***
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Donna S. Robinson is a 16 year veteran of the real estate industry and a residential market analyst. She also has an extensive background in residential real estate investing. Get her free newsletter on her website at www.RealtyBizConsulting.com