Seldom has the future of real estate looked as bright as it does today. It’ll never be perfect but the months ahead look promising for investors, sellers, and buyers alike. Home prices should continue appreciating in value (good for sellers) but at a slower rate (good for buyers) and mortgage rates can be expected to remain very affordable (good for all).
Tight inventory can be expected to continue for several months but should see some relief later in the year as more new houses come onto the market. For builders, there is still more money to be made from higher end homes. The result will be a continued tight inventory for entry level. That means continued upward pressure on rental prices. High rental profits will keep many investors satisfied to be landlords which will continue to keep a tight rein on existing housing listings.
What will be interesting to keep an eye on is how much appetite there will be for the mid to higher end market. Millennials have shown a preference for these as entry level when income, savings, and parental financial help sustain it. The mid to higher end market could further be sustained by move-up buyers that got into the entry level market five or more years ago. The high demand for those entry level homes combined with appreciated value and a strong history of mortgage payments has these early buyers primed to move up. Although move-up buyers will list entry level homes on the market, demand will still outstrip supply.
Alternatively, that equity also translates into HELOCs (home equity line of credit) becoming available. Typically, those with equity also have good credit ratings. A recent TransUnion study found 67 percent of homeowners have enough equity to qualify for a HELOC. A trend to watch for is how Millennials choose to spend this money.
As always, economics will play a major role in how the real estate market unfolds. As long as unemployment remains very low, there will be wage increase pressure to retain existing employees as well as financial incentives drawing experienced workers to better opportunities. This supports the move-up to bigger and better homes. However, student loans haven’t gone away. HELOCs paying off these loans or for other lifestyle choices could be the wave of the future. Millennials are expected to make up 43+ percent of home buyers/owners taking out mortgage related loans by the end of 2018.
Look for some of the strongest markets to further develop in the south in places like Tulsa, Little Rock, Dallas, and Charlotte. The allure is these regions have been attracting corporations and job growth for years along with the balmy weather, low cost real estate, and generally lower cost of living.
One threatening cloud on the real estate horizon are increases in mortgage rates. Many experts predict rates will be close to 5 percent in the months ahead but they’ve been saying this for at least two years. Reality is more likely to be a divergence in the rates available. Lenders have slowly but steadily been making more loans available to people that had credit events in the past, interest only loans, and limited income documentation loans. Private loans are also here to stay. This leaves more stringent and traditional lenders mostly able to compete with lower interest loans. The much more automated application and approval process also means downward pressure on closing costs. Overall, the mortgage industry is much more competitive than in the past which will make loans at varying rates available to more people.
Please leave a comment about your insights to the future of the residential real estate market.
Author bio: Brian Kline has been investing in real estate for more than 35 years and writing about real estate investing for 10 years. He also draws upon 30 plus years of business experience including 12 years as a manager at Boeing Aircraft Company. Brian currently lives at Lake Cushman, Washington. A vacation destination, a few short miles from a national forest. With the Pacific Ocean a couple of miles in the opposite direction.