The housing market is well on its way to recovery, and the signs are present in 2014—you just have to know how to spot them. Below we outline 10 signs of the housing market recovery and overall real estate trends, according to the Urban Land Institute’s Emerging Trends in Real Estate report. Find out what they are and what they mean to the real estate consumer.
1. Recovery is Contingent on Job Growth
According to CBS News Money Watch, “the slow pace of job growth as well as income and wage growth is still holding back the real estate recovery and that’s not likely to change quickly.” Cities such as those in Texas and San Francisco have seen strong housing recoveries due to the strength of their economies. Areas that currently have low unemployment rates can expect better housing recoveries as the year progresses.
2. Millennials are Moving the Market
Millennials are moving the real estate market, but not in the way you might expect. They’re not buying up property all over the country, but they are physically moving to certain areas, increasing economic activity and calling for more real estate development. The Urban Land Institute (ULI) reports Millennials driving an increase in activity in the real estate sectors particularly in Seattle, Portland, Austin, and Minneapolis.
3. Urban is Trumping Suburban
The interest in developing suburban areas is waning. The interest that does still exist, however, is focused on developing areas surrounding more “urban-minded” projects, according to Money Watch. Such urban-minded areas include those with easy access to public transportation and amenities.
4. Inventory is Returning
The Emerging Trends in Real Estate report predicted that 2014 would be the last year that low inventory would help property prices. According to CBS, “distressed inventory is drying up and sellers are looking at better profits than they have in years.”
5. Sellers Have the Upper Hand
Sellers know they can take advantage of buyers that are eager to buy a home before home prices and interest rates go up. Therefore, homes are priced to please sellers and test the pockets of buyers.
6. “Second-Tier” Cities Lead the Recovery
Builders, developers, and investors still show interest in top tier cities (think San Francisco, New York City, Boston, and Washington D.C.) but are beginning to focus more on second-tier cities like Austin, Houston, Seattle, and Dallas. The ULI reports that there are more housing deals to be had in these cities due to consistent job growth and advantages offered to Millennials.
7. Multi-Family Apartment Buildings are on the Decline
Due to the increased demand for apartments from homeowners-turned-renters during the recession, multi-family apartment buildings flourished. However, now that supply and demand have swapped places, the development of and interest in multi-family dwellings will decrease.
8. Smile Investing Returns
According to Money Watch, “smile investing” is gaining popularity among real estate developers once again. Smile investing refers to when:
Developers and investors start looking at cities in the Northeast and [move] south to cities along the Sun Belt—Florida, Texas, Arizona—and then coming back up to the Northwest—Northern California, Oregon and Washington state.
This means that there will be an increase in housing market activity in the aforementioned areas and less in the Midwest.
9. Shadow Banking Arrives
Although lending standards have not quite loosened up as much as most people had hoped by now, a new lending concept called shadow banking has emerged to soften the blow. According to Investopedia, the term “shadow banking” means:
The financial intermediaries involved in facilitating the creation of credit across the global financial system, but whose members are not subject to regulatory oversight.
Shadow banking is similar to traditional bank lending, but done outside banks, therefore getting around bank regulations. According to CBS, “borrowers going this route will find a hodge-podge of private funds, wealthy individuals, family offices, and refugees from other lending markets.”
10. The Condo Market is Still Taking a Back Seat
Unfortunately, the condo market recovery is not up to par to that of the single-family market. Developers are unwilling to risk building more condos, and are instead focusing on building rental apartment buildings that can be switched to condos within 12 to 16 months if the market calls for it.
The ULI concludes that housing will remain troubled until “unemployment rates fall, worker earnings power recovers, the market clears its foreclosed/defaulted properties, and banks loosen up credit standards just a bit.” The report continues by stating that the recovery is in fact underway and more buyers should gain confidence in the market. Furthermore, it concludes that more buyers will be encouraged to do more house hunting due to high rental rates in the foreseeable future.
The ULI does caution that the upswing in the housing market is extremely susceptible to any interest rate hikes or economic reversals. However, “given housing’s significance to the overall economy, the country will be back on track when homebuilders can get back in gear.”