Overall 2016 was another banner year for real estate. The market once again enjoyed a rise in home and property values. This wasn’t entirely predicted since most experts thought the market would certainly cool off and possibly even flatline in 2016.
But the overall economy remained stronger than expected and the real estate market blossomed along with it. Several economic aspects contributed to this growth, from strong job and wage growth to lower gas prices and more millennials entering the market than predicted. It didn’t hurt that mortgage interest rates remained at near-record lows.
Another unpredicted outcome was, of course, the election of real estate mogul Donald Trump as president. A Trump presidency will most likely have far reaching implications on the economy as a whole and the real estate market specifically. Here are five trends in real estate to watch out for in the coming year.
1. Drones, Drones, Drones
It’s official, drones are ready for takeoff. And for their closeup. The FAA finally cleared commercial use of unmanned aerial vehicles (UAVs), or drones, in 2017. The real estate industry has been well ahead of the curve in its use of drones, especially for high end luxury home listings. But using drones as a selling tool is about to become commonplace in 2017.
“Location, location, location has now become perspective, perspective, perspective,” said Steve McIrvin, chief executive of drone manufacturer Autel Robotics USA. “If you have a property [to sell] with more than an acre of land or a unique perspective, it’s a good reason to bring in a drone.”
Drones will not only continue to be used to create dramatic flyovers for real estate agent’s listings, but prospective home buyers will now be able to do their own aerial exploration. Up until this year you actually needed a commercial pilot’s license to fly a drone. Now all you need is, well, access to a drone. And maybe to file your flight plan online.
“I could teach you to operate [a drone] in 30 minutes,” said Tim Nguyen, business-development manager for the largest manufacturer of UAV’s, China’s DJI. “It’s a new way of interacting with clients and buyers from all around the world,” Nguyen said. He predicts drones will combine with live broadcasting on social media to create a home tour that is instantly accessible to millions worldwide.
As pricing on drones continues to drop, $500 is enough for you to enter the prosumer market. And in hot real estate markets like Silicon Valley and Seattle, a drone may soon be required for home buyers to stay competitive.
“Buyers in Seattle are skipping the home inspection because the market is so hot, but that doesn’t mean you can’t get a drone to take a quick look,” McIrvin said. So if you’re in the market for a new home, why not use a drone to examine the home’s roof for damage or chimney for cracks. And for investors who are often forced to buy a home “as is” or without access, drones will certainly prove an invaluable tool.
2. Out with “Mixed Use” in with “Surban”
The neighborhood is making a comeback. As suburban sprawl continues to shrink, demand for denser communities grows. McMansions and strip malls are quickly being replaced by townhomes, urban apartments and tightly knit communities of single family homes. In 2017 keep your eyes and ears peeled for a new word on the real estate block: Surban.
“Existing suburban neighborhoods are adding urban amenities so that there’s an environment where people can live, work and play right outside of the core part of the city,” said Peter Burley, a real-estate executive in Oak Park, Ill. Oak Park is a prime example of an “urbanized inner-ring Chicago suburb.”
“These developments are more than simply mixed-use,” said senior consultant at John Burns Real Estate Consulting, Danielle Leach. Leach is a single mom who lives with her two teen boys in a surban community outside of Chicago called St. Charles. “Surban living is becoming a new way of life for many: where the blend of urban and suburban living provides the best of both worlds,” she said. Surban living hopes to provide it all, with a lifestyle that allows walking to work or to the grocery store, as well as entertainment and park options. A strong public school system is also a big draw for those seeking out surban living.
And for all the talk of urbanization and gentrification, John Burns Consulting predicts that almost 80% of residential growth will happen in suburban communities over the next 10 years. That’s almost a ten percent uptick from the 71% growth rate from 2010 to 2015. Compare that with only 15% predicted growth for “urban” areas through 2025 and it’s easy to see why “surban” may be the real estate word of the year, or the decade.
Though the words suburban and diversity aren’t exactly common partners, surban neighborhoods strive to be inclusive instead of exclusive. Bill Endsley, of the International Real Estate Federation, an international real-estate consulting group, hopes that surban living will bring the advantages of a walkable urban core to lower income workers like teachers, firefighters, police and janitors.
“The more we go down the road of exclusive development, the more problems we have,” Endsley said. Silicon Valley’s San Jose, California is a prime example of the surban model. They have turned a rundown strip mall into “Santana Row,” a thriving destination for shops, restaurants and entertainment that also includes affordable housing.
3. Millennials Skipping the First Rung of the Property Ladder
For a long time the fact that millennials were waiting longer than previous generations to enter the housing market was seen as a major drag on the real estate market. Turns out they might have been saving with a purpose. According to the National Association of Realtors, a record number of those born between the early 1980s and the late 1990s are going to buy homes in 2017.
Those buyers are not only first timers, but many have saved enough to skip the condo unit or starter home altogether, said Jessica Lautz, NAR’s managing director for research. As investment markets continue to climb and interest rates remain extremely low, millennials are finally paying down their their student debt and building up enough of a cash reserve to afford a surprising amount of home.
NAR found some interesting numbers in 2016. 17% of buyers under 35 saved enough for a down payment for their first home in a year’s time. That’s three percent better than the national average of all age groups at 14%. In fact, 37% of those buyers under 35 saved enough for a down payment within only six months.
Still, we’re not clear of the student debt issue. It’s the number one reason that prevents millennials from buying a home. NAR found that 44% of these potential buyers had at least $25,000 in student loan debt. It’s also somewhat of a surprise that the baby boom generation is also taking on mounting debts. The median debt balance of baby boomers is actually higher than millennials at $29,100. Of course this might not be “their” debt. “This may be due to not only their personal educational loans but accumulating debt from their children’s education loans,” Lautz said.
4. How Trump’s shocking win could change real estate
It wasn’t a good year for conventional wisdom, or for pundits, pollsters and prognosticators of all kinds. While the polls were actually right, correctly predicting Hillary Clinton’s lead at roughly 3% of the national vote, almost no one foresaw the falling of the Democratic “Blue Wall” in the midwest electoral college. The result of course was one of the most shocking in US politically history and Donald Trump is only a few days away from being sworn in as the next president.
Another foregone conclusion was the “gentle increase” in interest rates last December. Turns out a Trump win might have resulted in an even gentler increase when the Fed approved only a .25 percent increase last month.
The only thing certain about a Trump presidency is the uncertainty it brings. Many think Trump will cut government spending dramatically in his first year, which conservatives see as a stimulus while liberals see a recipe for recession. While the stock-market has only gone up since Trump’s election, there is still a lot of turmoil surrounding his transition, so market volatility will most likely be the new norm. That could result in yet another year of low interest rates.
“I don’t believe that there will be any significant changes to interest rates, at least in the near term, since the underlying fundamentals that have led us into a low-interest-rate environment haven’t changed,” said Rick Sharga, executive vice president of real estate auction site Ten-X.
Sharga predicts that a Trump presidency will be a positive one for housing and mortgage markets. “He seems committed to bringing regulatory relief — and regulatory certainty — to the financial-services industry, which should make more credit more available to average home buyers who have been locked out of the market by today’s extraordinarily tight credit standards,” he said.
Overall, many think the real estate market is poised to benefit from a Trump presidency. That’s good news for a market that still struggles mightily with low inventory. “This is absolutely a seller’s market and has been for quite some time, and we do not feel Donald Trump’s win will negatively affect the market for those looking to sell,” said Nancy Dennis, a vice president at mortgage lender American Financing Corp.
But there is a possible downside to Trump’s aggressive plans for economic growth. They could result in fast rising interest rates due to inflation. “The accelerated economic growth and ensuing inflationary pressure could prompt a quicker pace of rate hikes that are potentially more aggressive than exhibited over the past year,” wrote John Chang, a vice president at Marcus & Millichap.
5. Don’t Sleep on Generation Z
Hot on the heels of the millennial generation waits Generation Z. Though they’re only teenagers now, it won’t be long until they enter the market, with the first of them reaching 18 years old in 2017. According to the National Association of Realtors, Gen Z differs greatly from the turmoil experienced by millennials, who came of age in a recession, a war, terrorist attacks, a stock market crash and are still fighting all time high student-loan debt and the end of the housing downturn.
Gen Z is set to come of age in a potentially more stable economic time, though again Trump is the unexpected wild card here. Still Gen X’s are currently enjoying low interest rates, better job prospects and higher wages, said NAR research director Lautz.
“It might sound a little traditional, especially when compared to what we’ve seen with millennials, but this is a generation that values homeownership,” said Sherry Chris, chief executive of Parsippany–Troy Hills, N.J.–based Better Homes and Gardens Real Estate.
Gen Z are already ahead of their more rebellious millennial counterparts, who delayed or shunned homeownership in worrisome numbers. In a recent survey, 97% of the Gen Z age group said they want to own a home. “I want a big house,” said Cayman, a 17-year-old interviewed by NAR. “I want a room for each of my kids, a master bedroom, a few guest rooms, a movie room. I want a lot of space.”
Who knows maybe she can find her dream home in a new Surban community. But don’t forget to fire up your drone before putting in an offer, Cayman, you don’t want any unexpected surprises.
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