A newly-released report from the Urban Land Institute (ULI) entitled "Emerging Trends in Real Estate" provides some insight into what experts say can be expected in 2014, based on interviews and surveys of more than 1,000 industry professionals including developers, builders, and lenders. ULI has been providing both domestic and international real estate industries with reliable market condition reports for 35 years.
The following represent the most likely scenarios for 2014:
Rental Markets Lead – The report reveals rentals continue in popularity especially among Generation Y or Millennials, who will be the driving force in the market in 2014. Renters flooded the market in the last two years and that trend is expected to continue at a stable pace in the coming years. These Millennials are largely seeking urban digs with high “walkability” and plenty of amenities. Baby boomers are also expected to make a strong showing in the rental market in 2014 and beyond, and perhaps ironically are looking for many of the same amenities as their younger counterparts.
Congruent Employment and Housing Rates – Real estate demand predictably mirrors employment rates in cities and provinces across the US and Canada. When employment rates are high, real estate investors and homebuyers appear in abundance. As the economy continues to gradually stabilize, more municipalities will begin to see significant gains in their housing markets, creating an upward spiral of larger tax bases, more local business revenue and further employment gains. But in those cities with continued high unemployment numbers, slow growth (or even contraction) can be expected.
Multifamily Apartment Building Development – Demand for apartment buildings surged in the past 3-4 years and developers have hurried to try and to keep pace with the demand for more apartments. In 2014, developers expect steady growth in the multifamily rental sector, though perhaps at a slower growth rate.
Decrease in Condo Development – Given the slack in the homeownership rate, the multifamily industry has shifted away from condominium development. Among buildings being built to sell retail to homebuyers, focus has shifted toward single family home development.
Strengthening Seller’s Market – Sellers may soon be holding the upper hand for the first time in years. This is certainly welcome news to those reluctant landlords who entered the rental market out of necessity. Sellers are finding that their homes are selling faster and for higher prices than in the years immediately following the Great Recession. Of course, this is not so good news for real estate investors looking to steal their next deal. While there are still great deals to be had, investors may have to work a little harder to find them.
Urban emphasis – Developers and investors’ focus has shifted slightly away from projects in the suburbs and towards more urban areas around the country. Centralized locations with public transportation, attractive amenities, culture and nightlife all undoubtedly attract Millennial and Baby Boom renters, which is who developers think will drive housing demand upward in the coming years.
Secondary Cities Resurface – Cities such as Houston, San Francisco and Seattle are red-hot and attracting developers and investors who once ignored them for larger cities like Washington, DC and New York City. In DC, the continuing uncertainty surrounding the federal budget has many developers and investors scouting elsewhere for investments, entering 2014.
Shadow Banking – Traditional banks’ stringent regulations and the relatively tight credit conditions in the aftermath of the Recession created a need for more borrowing alternatives. The recent term “shadow banking” refers to borrowing from less institutionalized (and therefore less regulated) lenders, such as private hard money lenders, family members, crowdsourced funding and foreign lending markets, and it is growing in popularity and availability. This opens even more avenues to capital for individual investors, which makes real estate investing more accessible than ever to general public.
Another democratizing trend, not mentioned in the ULI report, is the increasing amount of real estate data and DIY transaction resources available to the public such as Zillow, Craigslist and Redfin. Real estate agents may not be irrelevant, but the public certainly has more access than ever before to browsing available real estate without an agent, and for-sale-by-owner listings are more viable than ever before for sellers.
Do you agree with the projected trends? Have you seen some of your own you would like to add?