What a difference a decade makes. After the real estate debacle of the Great Recession, home prices are now near record highs in many markets with mortgage default and foreclosure rates at near record lows, according to the National Association of Realtors, or NAR.1
However, Lawrence Yun, NAR’s chief economist, says some of America’s most overheated real estate markets will begin to see a slowdown by year-end, albeit mainly due to diminished supply rather than weaker demand. Fortunately, some of the policy reforms and consumer protections put in place during the last decade have led to more prudent lending standards. Today’s average homebuyer has a higher credit score than those who were granted mortgage loans prior to the real estate market decline.2
After years of predicting a bubble in housing prices, price-growth may not be declining — but it does appear to be decelerating. The national index of annual gain recently dropped from 6.4 percent to 6.2 percent. However, the growth rate is still more than twice the rate of inflation.3
A couple of things worth considering: First, what goes up must come down — although in finance, one never knows by how much, only knowing that prices will fluctuate. Second, if housing prices start declining, it’s generally a good idea to sell at the top of the market, particularly for anyone thinking of downsizing ahead of retirement. Be sure to consult with a professional real estate agent or broker to help decide what’s best for your unique situation.
The multifamily residential market continues to flourish despite increasing vacancy rates, which have been incremental and moderate. Rent growth is currently at 4.5 percent annually while vacancies are just under 5 percent nationally. Affordability is one of the biggest issues for both the multifamily and single-family housing markets, but that’s not exactly bad news for landlords.4
One potential perk to investing in real estate is that, historically, it doesn’t tend to have as swift and dramatic upturns and downswings as the stock market. It also can frequently provide ongoing income and build equity over time. However, the Federal Reserve presents headwinds as it continues to raise interest rates — less so in terms of homebuyer mortgages and more so by affecting builder labor and material costs. Then again, landlords tend to benefit from housing shortages.5
From a demographic perspective, millennials continue to prefer to rent rather than buy. Economists expect this to change gradually over the next 20 years as this generation enters its peak spending years, which bodes well for the long-term real estate market.6
While only in the proposal stage, President Trump has pitched an additional tax break linking capital gains to inflation. This would adjust the original purchase price for inflation, which in turn would likely drop the tax rate by several percentage points for both real estate and stocks. Analysts project that more than 63 percent of the tax break would benefit the top 0.1 percent of taxpayers and cost more than $102 billion in tax revenues over the next decade.7
Worth watching is Uber’s recently announced launch of Uber Real Estate services, designed to upend traditional real estate brokerage services by reducing transaction costs by up to 50 percent. The firm says it will hire only highly experienced brokers and broker attorneys and offer them equity participation based on the company’s performance metrics.8
1 National Association of Realtors. Aug. 27, 2018. “Realtors Chief Economist Reflects on Past Recession, What’s Ahead for Housing.” https://www.nar.realtor/newsroom/realtors-chief-economist-reflects-on-past-recession-whats-ahead-for-housing. Accessed Sept. 4, 2018.
3 Andrea Riquier. Realtor.com. Aug. 28, 2018. “Home-Price Growth Slows Again, Case-Shiller Says.” https://www.realtor.com/news/real-estate-news/home-price-growth-slows-case-shiller-says/. Accessed Sept. 4, 2018.
5 4 Jeremiah Jensen. HousingWire.com. Aug. 13, 2018. “Same rent, different day: Multifamily mighty at midway point in 2018.” https://www.housingwire.com/articles/46430-same-rent-different-day-multifamily-mighty-at-midway-point-in-2018. Accessed Sept. 4, 2018.
5 Victoria Rock. WealthManagement.com. Sept. 4, 2018. “Despite Rising Interest Rates, Real Estate Offers Opportunity To Investors.” https://www.wealthmanagement.com/alternative-investments/despite-rising-interest-rates-real-estate-offers-opportunity-investors. Accessed Sept. 4, 2018.
7 Kathryn Brenzel. Therealdeal.com. Sept. 4, 2018. “Trump is considering a tax break that would be a boon for real estate.” https://therealdeal.com/2018/09/04/trump-is-considering-a-tax-break-that-would-be-a-boon-for-real-estate/. Accessed Sept. 4, 2018.
8 PR Newswire. Sept. 4, 2018. “Uber Real Estate is Now Disrupting Real Estate With Their Uber Model.” https://www.prnewswire.com/news-releases/uber-real-estate-is-now-disrupting-real-estate-with-their-uber-model-300704933.html. Accessed Sept. 4, 2018.
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