Top Trends Impacting Real Estate Finance in the U.S.
Every year there are new trends entering the real estate finance market. Generally, these trends are based on the socioeconomic and political factors the country faces that year. This year there are some new aspects to pay attention to when it comes to real estate finance. In 2019, keep an eye out for millennial buyers, higher prices, affordability challenges, higher mortgage rates, and a focus on secondary cities.
Millennials Enter The Market
Those born between 1981 and 1997 are known as millennials, and in 2019 they make up a large group of home buyers. In this economy, we are seeing more and more people taking up that “paycheck-to-paycheck” life. This makes it harder for buyers to save up the funds to purchase their first home. However, with rising rental rates in urban cities, some are choosing to move into surrounding suburbs. Moving from an urban landscape to living in the suburbs and commuting is becoming more common for millennial homebuyers. This trend is fueling a shift in the entire real estate finance market as ‘18-hour’ cities become more prominent buyers’ markets.
Prices Continue Going Up
After a huge jump in prices from 2017-18, buyers will be happy to hear that home prices are only expected to rise by about 1% in 2019. New home construction will also go up to around 8%, which is good news since inventory is low in many US cities. Since many modern buyers are interested in new home construction it’s likely that price increases will be seen across the board for new homes. Buyers looking for a bargain will likely buy an older home and upgrade as they go. While house flippers may have more trouble closing quick deals post-renovation.
A convergence of activity is pushing investors to focus on what Forbes refers to as secondary cities. Cities such as Dallas Austin, Texas, Atlanta, Georgia, Nashville, and Tennessee are all considered secondary. These cities are being chosen for companies as they exit higher priced states like California opting for less expensive, more corporate forward states. With huge campuses like Apple in Austin and Lyft in Nashville, come employees. These employees will either be renters or home-buyers, both of which surge the real estate economy in these areas. This year we will continue to see a healthy real estate economy in secondary cities.
As mentioned above, home prices have been on the rise for years, and they’re not stopping in 2019. Layer this on top of the fact that in 80% of cities the housing price has increased without a wage increase. Because of this, renting will continue to be the affordable option. This is especially true in Las Vegas, San Jose, Portland, New York, and other strong markets. Investors will have luck on large housing projects like apartments and community living spaces. Focus on a renters market for investments, and look outside of cities for single-family home sales.
Higher Mortgage Interest Rates
Analysts have predicted that long stagnant mortgage rates will start to rise in 2019 from 4.5% on a 30-year fixed mortgage to around 5%. That will put mortgage rates at their highest in seven years. It’s a fact which will make buyers more discerning and offers less frequent. It will take houses a bit longer to move, and buyers should opt for 15-year mortgages. Also, to be safe, investors should expect lower IRR.
As a real estate agent, it’s important to stay ahead of the real estate finance trends. Some are disheartening like higher mortgage rates and prices. But there’s some hope in new buyers entering the market and new cities becoming more prominent. Understand these trends can get you closer to closing deals faster. And if you can’t wait for closing after a signed contract, real estate agents can always rely on Payfully to offer an advanced commission on real estate.
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