"Places like Texas are still winning because you can make a really good living here and home prices are still reasonable."
-Pam Goodwin, owner of Goodwin Commercial, author and Think Realty Resident Expert
Think Realty wants you to stay ahead of the competition, so we compiled a list of predictions and trends for 2018 real estate. Predictions were gathered from Think Realty Resident Experts, industry influencers, and other credible sources to ensure you are making the best possible decisions for you and your real estate investing business.
Real Estate Investors a Major Force
“We’ve seen a “Trump Bump” in home prices in 2017 based more on psychology rather than any real policy changes. The irony is that the first big policy change that appears imminent (the tax bill) has many elements in it that will have a chilling effect on the housing market, particularly bellwether, high-priced markets on the coasts. This along with gradually rising interest rates and gradually increasing inventory of new homes, will slow home price appreciation in 2018. We are expecting about a 3.6 percent increase in median home prices nationwide in 2018 compared to a 7.5 percent increase in 2017.
“In the meantime, I do expect more risk to gradually be introduced to the mortgage market as a result of more confidence in the market as well as expected policy changes from the Consumer Financial Protection Bureau, and this risk will eventually result in a mild correction in home prices beginning around 2019. Some of this risk will come from new, innovative players in the mortgage market that have developed digitally-focused products and crowdfunding platforms in the laboratory of lending to home flippers and other real estate investors and will now try to translate those products and platforms to the broader mortgage market.
“Real estate investors will continue to be a major force in driving the housing market, but we will see the pendulum swing back a bit toward homeownership, placing slightly less upward pressure on rents while continuing to put increasing pressure on home prices. The best opportunities for real estate investors will be in low-value markets in the Rust Belt and Midwest that also carry more risk given generally negative employment and population trends in those areas. On the other hand, those markets do have the most upside potential particularly if Trump is successful in pushing through the infrastructure improvement proposal he campaigned on.”
-Daren Blomquist, senior vice president of communications for ATTOM Data Solutions
Is the Market Heading Toward another Bubble?
“The housing market is much more complex and dynamic than I think a lot of people may realize. It’s a lazy narrative to say, “The market has gone has gone up, so clearly it eventually is going to pop.” That type of thinking doesn’t consider major or minor market factors at play, let alone the specific considerations of each geography. I think what you’re going to start to see is more of a stabilization that will vary from market to market, because of different supply and demand factors in each market. We don’t have some overwhelming “event” on the horizon. We aren’t originating bad mortgages. In fact, the mortgages we are creating are less risky than they have been in the past 20 years. The economy and job growth is very solid. I don’t see a singular event that could cause distress on a national level.”
“If you want to look for potential “bubbles” in the housing market in 2018, they’ll be based on specific product in specific markets. High-density urban luxury development, in particular, is worth paying attention to as you are already seeing supply start to outpace demand. That’s where you’ll start to see a pinch because there is only a finite amount of demand in any market that can absorb high-rise luxury product, and builders and developers never seem to be able to balance the pace of development with organic demand. A good example of that would be what we saw in Miami in 2017. Miami has had a very strong economy and housing market for several years and doesn’t appear to be slowing down, but the very top end of the market you’ve seen a slowdown in sales volume and a decline in prices because they built too much product. There’s a finite number of people who can afford a $1,000 per square foot for a condo in Miami and you may see similar trends take hold in Manhattan, Austin, San Francisco and a handful of other markets across the nation. Just keep in mind that this is not something that is effecting the entire market in those locations, but rather just a specific price point and product type. The distress of high-end condos and apartments doesn’t trickle down to other parts of the housing market that are still undersupplied.
“From an investor standpoint, I think we’re still in a very good place as all of the various factors in place are pushing demand and limiting supply, which means continued growth in rents and prices and lower vacancy. The Fed wouldn’t have raised interest rates recently if the economy were teetering on the brink of a recession. If anything, it’s trying to taper growth and reduce the risk of inflation because we continue to add jobs and expand our economy at a rate faster than we’ve seen in a long time.”
“Historically, interest rate increases can play havoc in the housing market, but because interest rates are near historical lows and there is still decent housing affordability in most of the country, a tick up in interest rates won’t significantly change the demand from potential homeowners. Also consider that the vast majority of mortgages originated post-recession have been fixed rate loans that aren’t going to have the exposure to interest rate increases that ARM’s did in the past, which reduces the risk of defaulted loans substantially. Demand right now is already sky high, the problem is supply and an interest rate increase will only exacerbate that issue. Millions of homeowners are locked in with fixed-rate loans of 3.5 percent or less, but the downside for the rest of the market is they are less likely to sell their homes if they are only going to be able to move into a similar home with a higher mortgage payment. The data is already reflecting this as you’re seeing people selling their home at a much slower clip than historical averages. The average tenure of a house is now over eight years. What will interest me over the next 12 months is what the developers, builders and the Trump Administration can do to add new housing supply to a nation in desperate need of it.”
-Dennis Cisterna, chief executive officer at Investability Solutions, Inc.
Things are Heating Up
“Looking ahead into 2018 for most of the country the housing market is going to continue to heat up. As we move into summer of 2018 a seller’s market, will be in full swing. At the same time, the house flipping market is going to slow down as flippers face dwindling inventory. According to Daren Blomquist, senior vice president at ATTOM Data Solutions, ‘Home flipping profits continue to be squeezed by a dwindling inventory of distressed properties available to purchase at a discount and increasing competition from fair-weather home flippers often willing to operate on thinner margins.’
“As 2017 comes to an end, institutional house filliping companies have already begun to buy inventory in smaller markets which have job growth. This buying activity will show its full effects as these smaller markets start to see home prices rise even further by the 4th quarter of 2018.
“Overall it is going to be a good year for savvy Real Estate investors.”
-John Wiley, brand ambassador and relationship director for Think Realty
Increasingly High Demand
“In 2018, older, existing class B & C buildings will continue to be in increasingly high demand. As this demand for multifamily properties continues to heat up, different markets that were considered 2nd or even 3rd tier are seeing lots more competition and action. Cap rates are coming down (due to all this competition) and interest rates are inching up, so it is becoming increasingly important to underwrite correctly and make sure you buy right. Some larger investors are sitting out now thinking this is a bubble that is soon to burst, but many more investors continue to hunger for this asset class.
“On the demographic side, millennials and baby boomers continue to drive the demand for real estate. The 70 million baby boomers in particular are creating a large wave of new renters. As they age and downsize, many are opting to rent (especially in amenity-rich multifamily properties) in lieu of buying smaller properties for themselves.”
-Monick Halm, managing partner of Vineyard Investment Properties
New and Now in Tech
“Technology, technology, technology!
“From new apps for finding the property, finding the tenant and managing the property. You can’t miss spending time following up with new apps to streamline and automate your process. Watch for the escalated use of Smart. From sensors that monitor maintenance and safety issues to smart homes sensors that monitor energy efficiency and simplify lifestyle patterns. Look for the emergence of automated intelligence to open and simplify communication platforms between the landlord and tenant.
“Buy and hold hot trends will continue to see the expansion of alternative housing solutions including small homes, container parks, re-purposed commercial buildings and malls.”
-Linda Liberatore, owner of Secure Pay One and Think Realty Resident Expert
Government Impact and Senior Living
“Places like Texas are still winning because you can make a really good living here and home prices are still reasonable. The weather is good; it’s a good place to live, and there are good people. Our government is really strong on bringing new business here, which is really helping as well. One of the biggest booms [coming] is senior living.”
-Pam Goodwin, owner of Goodwin Commercial, author and Think Realty Resident Expert
Impact on Turnkey
“My 2018 forecast for turnkey investment property growth is very bullish. Here’s why:
- Property prices continue to appreciate in most markets around the country, but appreciation continues to be smooth and sound in the second-tier markets we focus on for clients.
- Demand from millennials will rise as they look for housing to raise their new families.
- Rents continue to rise and remain strong giving real estate investors great long-term ROI on rental properties.
- Income producing real estate will continue to be low risk, especially as financing remains historically cheap.
- The economy overall continues to show strength and is favorable for increased employment and growth in real estate sales, new construction, and rental demand.”
-Marco Santarelli, founder of Norada Real Estate, Think Realty Honors’ Master Investor of the Year, podcaster and author