Real estate investors do not only look for profit potential, but also consider the risk that comes with the property. The real estate market trend should be considered too because it can directly affect the investment strategies used by investors. Let us take a look at where the future of real estate industry is heading on this year.
Millennial home buyers are the primary market
Real estate is primarily dependent on the supply and demand. This year, the majority of the real estate market is millennial home buyers. These are people born from 1980 to 1999. This year, more and more millennials are looking for a place to call their own, which also means that the demand for homes will increase significantly. Millennial buyers are here to stay, not only this year but for the years to come. They will remain a big chunk of the population.
Increase mortgage rates
Mortgage interest rate is on the high side and will continue to increase for the years to come. However, the increase in mortgage interest rate is slow and not in any significant amount. It will require a consistent economic growth and inflationary pressures to have a significant increase in interest rate. The interest rate for a 30-year fixed mortgage is in the 4% to 5%. The increase in the interest rate is not likely significant when compared to the overall home buying market. It could somehow affect the low end of the market, especially the first time homebuyers.
Easy credit access
The deregulation of the financial market has led banks to become lenient for credit borrowers. Easy credit access is beneficial not only to home buyers but also for real estate investors. The availability of credit along with rising interest rate and increased demand for new homes could significantly put inflationary pressures on home prices.
Continuous home price appreciation
There is a continuous home appreciation, not only this year but for the years to come. There will be a 3.9% growth year after year, as per the Realtor.com 2017 Housing Forecast. Some regions will have a higher rate such as in Denver, Portland, and Seattle. The west part of the United States will have a stronger appreciation compared to other parts of America. Home price appreciation is caused by employment growth. Thanks to the increasing demand for skilled employees.
Are there any downsides?
There is no such thing as a risk-free investment. This principle does not only apply to the real estate, but in all other types of business. As a smart real estate investor, you need to be prepared for the downside risks. Factors like political uncertainty, terrorism, and conflict of interest in the country and international trade could significantly impact the economy. The rise in the value of the dollar can affect the export industry, which also has an indirect effect on the real estate industry.
Overall, the future of the real estate industry is going to be great this year and for the years to come. Prices will continue to rise but at a slow pace. Mortgage rage will be volatile, but the credit availability will significantly improve. The housing supply will improve significantly but still remains short because more millennials will be looking for rental properties and most of them are first-time home buyers too. As the demand continues to increase, the competition among real estate investors will grow fiercer. Last year, typical properties stayed on the market for about two months and predicted to be even faster this year. Politics has something to do with the future of the real estate industry. President Trump’s policy priorities can significantly affect the housing market. The president pledges to cut taxes, spend more on infrastructure, and crack down on immigration. Any move in these three areas can somehow impact the real estate market.