5 Trends That Will Keep Real Estate Growing in 2016

 

A report about the real estate trends for 2016 has been released by Pricewaterhouse Coopers and the Urban Land Institute on Wednesday.

According toconstructiondive.com, commercial real estate will soon be dominated by small- scale building firms as companies with less than 50 employees surpass the growth of large- scale construction firms.

Mitch Roschelle, a partner at PwC, said "The real estate industry's traditional focus on big cities and large employers is shifting significantly as small businesses emerge as the growth engine for the U.S. economy. This is creating disruption in the office sector as it finds ways to create new space models to accommodate these employers."

The trend report is the result of varius interviews and surveys with different real estate professionals and firms. Below are some of the top real estate trend for 2016 according to Pricewaterhouse Coopers and the Urban Land Institute's report.

 

1.       Real estate industry will see success in "18- hour cities"

-          "18- hour cities" are the place known as secondary market. Several reports have shown that these secondary market are starting to gain momentum as real estate investors are turning their gazes to these markets. These market entice investors for it can offer the same urban amenities a company requires but for a cheaper price. These secondary markets are San Antonio, Denver, Austin and the like.

2.       Office sector will continue to grow

-          As the number of employees grow, so as the office buildings needed to house the business. Also, expansion of companies from different industries open an opportunity for real estate investors selling or leasing office spaces to gain more profit. Laos, redesigning office spaces is becoming part of the company's way of introducing their brand resulting to renovations and acquiring new spaces to better suit their business.

3.       Suburban properties are making a comeback

-          For years, acquiring properties or investing in suburbs has been feared by the investors as lack of market might kill off their business. However, recent reports showed that millennials are starting to look into living in suburbs to take a major life step of having a family. Developers are now looking into offer features that will both benefit the urban and suburban areas of a certain town. This includes mixed used properties and transit- oriented real estates.

4.       Food production in urban areas

-          People in cities are starting to look into having access to fresh food which made the use of urban property to produce food has becoming a trend nowadays. One example of this is the three hydroponic operations in Brooklyn and Queens that produce more than 300 tons of vegetables. The report also said "Just as the reinvention of the suburbs is an emergent story for the decade ahead, so is the creative adaptation of inner-city uses."

The report also detailed other trend that might be a trend though some of it are still going through extensive observation and research to fully identify if these trends are going to change the face of real estate industry.

Shortage of Inventory Will Keep California Home Prices Rising in 2016

 

California’s housing market is expected to improve in 2016, but a shortage of available inventory and continuing high costs are expected to limit the improvement, according to a report released Thursday by the California Association of Realtors.

According to CAR's 2016 California Housing Market Forecast, existing home sales are expected to rise in 2016 by 6.3% over 2015’s expected total.

Additionally, existing home sales are expected to hit 407,500 in 2015, which would also represent a 6.3% increase over 2014, when there were 383,300 existing home sales.

CAR’s forecast calls for existing home sales to rise to 433,000 in 2016.

The state’s rising prices are predicted to hold back home sales slightly. The California median home price is projected to increase 3.2% to $491,300 in 2016, following a projected 6.5% increase in 2015 to $476,300.

 

Despite those increasing prices, 2016 is still estimated to have the slowest rate of price appreciation in five years.

CAR’s forecast projects growth in the U.S. gross domestic product of 2.7% in 2016, after a projected gain of 2.4% in 2015.

With projected nonfarm job growth of 2.3% in California in 2016, the state’s unemployment rate should decrease to 5.5% in 2016 from 6.3% in 2015 and 7.5% in 2014, the CAR forecast said.

Additionally, the CAR forecast projects the average interest rate for the 30-year, fixed mortgage will climb only slightly to 4.5%, but should still remain at historically low levels.

With a statewide market as diverse as California, some areas will see the effects of those changes more than others, according to CAR President Chris Kutzkey.

“Solid job growth and favorable interest rates will drive a strong demand for housing next year,” Kutzkey said.

“However, in regions where inventory is tight, such as the San Francisco Bay Area, sales growth could be limited by stiff market competition and diminishing housing affordability,” Kutzkey continued. “On the other hand, demand in less expensive areas such as Solano County, the Central Valley, and Riverside/San Bernardino areas will remain strong thanks to solid job growth in warehousing, transportation, logistics, and manufacturing in these areas.”

CAR Vice President and Chief Economist Leslie Appleton-Young said that there may be a shift in sales to more inland areas of the state in 2016.

“The foundation for California’s housing market remains strong, with moderating home prices, signs of credit easing, and the state continuing to lead the nation in economic and job growth,” Appleton-Young said.

“However, the global economic slowdown, financial market volatility, and the anticipation of higher interest rates are some of the challenges that may have an adverse impact on the market’s momentum next year,” Appleton-Young added. “Additionally, as we see more sales shift to inland regions of the state, the change in mix of sales will keep increases in the statewide median price tempered.”

San Francisco Rents Hit Another Milestone Peak

San Francisco metro area residents paid record median rent in August, but there was a glimmer of good news: the pace of year-over year rent increases rose at the slowest pace since June 2014, Zillow said Tuesday.

The Zillow Rent Index for the San Francisco metro area stood at $3,313 in August, up 13.3 percent from August 2014.

That put San Francisco in second place nationally for highest median rent — surpassed only by the San Jose metro area, which had a Zillow Rent Index of $3,401 in August, up 9.5 percent from August 2014.

The San Jose area's 9.5 percent year-over-year increase in August median rent marked the first month the Silicon Valley metro area's year-over-year increase in median rent was below 10 percent since April 2014, according to Zillow data.

The Zillow Rent Index is the median rental value of all the rent zestimates in an area.

The Bay Area's slowing pace of rent increases reflects a national trend, which the Associated Press covered.

Zumper, a venture-backed startup focused on creating a more efficient apartment rental market, says the level of venture capital pouring into the region is a key factor in San Francisco's high rents.

Zumper pins one-third of San Francisco's rents on venture capital financings in the region.

"At the end of the day, we had an adjusted R-squared correlation of 0.83 for venture capital investment. It's very strong," Devin O'Brien, head of Zumper marketing told TechCrunch.

That will come as little surprise to those who managed not to sleep through their Econ 101 class. Housing costs have a strong correlation, if not the strongest, to job creation.

What's one of the first things entrepreneurs do when they get venture funding? Hire.

Hot Bay Area Housing Market Shows First Sign Of Cooling

Zillow's latest figures show that the nation's housing market is cooling off, even the white-hot Bay Area. The national housing market is slowing down, with home values showing the first monthly drop since the market began recovering four years ago, according to the real estate data company's report for July.

San Francisco, San Jose, Denver and Dallas are still tallying double-digit year-over-year home value increases, but even those hot markets are seeing a pullback in their pace of appreciation from June, Zillow said.

In San Francisco, July's Zillow Home Value Index stood at $756,100, up 0.6 percent from June and 11 percent higher from July 2014. In San Jose, July's Zillow Home Value Index was $891,500, up 0.7 percent from June and 11.5 percent from July 2014.

"This slip in home values is a sign of the times. Many people didn't think it was happening, but it is: we're going negative," Zillow Chief Economist Svenja Gudell said in speaking of the national housing market. "We've been expecting to see a monthly decline as markets return to normal.

"The market is leveling off, and it's good news, particularly for buyers, because it will ease some of the competitive pressure," Gudell said. (Note to loyal followers of Zillow's number-crunching: Gudell's predecessor Stan Humphries was promoted to chief analytics officer for Zillow Group.)

Zillow (NASDAQ: Z) expects that the pullback in June-to-July valuations in several cities, including Cincinnati and Washington, D.C., will spur home owners, who have been sitting on the fence pondering whether to sell, to finally put their homes on the market. That would help ease a shortage of available homes for sale that buyers have confronted over the last several months.

But the slower rise in appreciation, if not outright depreciation, will likely come as a shock to Bay Area home owners accustomed to robust growth in home values. Still, the key to home values will continue to be the pace of job growth.

Zillow says falling valuations and more homes on the market may spur renters to buy, especially given the dramatic increases in rents. San Francisco area rents jumped 14.1 percent to $3,285, according to the latest figures from Zillow. The company found that Bay Area rents can be quite painful, literally, as tenants skip doctor and dentist visits so they can pay the landlord

California Pending Home Sales Soared in July

Pending home sales in California soared in July compared to the previous year, posting the strongest year-over-year increase in more than six years, an industry trade group reported Monday.

But there are signs of a possible forthcoming decline in real estate activity after California Realtors, responding to CA’s July Market Pulse Survey, saw a reduction in floor calls, listing appointments, and open house traffic, compared with June.

The Market Pulse Survey is a monthly online survey of more than 300 California Realtors, which measures data about their last closed transaction and sentiment about business activity in their market area for the previous month and the last year.

The Pending Home Sales Index, meanwhile, climbed 17 percent on an annual basis to 122.4 in July, based on signed contracts, CAR said in a statement. The July 2015 index was up from the 104.5 index recorded a year ago and marked the eighth straight month of year-to-year gains and the sixth straight month of double-digit advances, it said.

Statewide pending home sales in July also reversed a three-month decline, rising 1.6 percent on a month-to-month basis.

Pending home sales in Southern California were essentially flat, dipping 0.3 percent from June to reach an index of 109.3 in July but up 16.8 percent from a year ago.

At the same time, the share of equity sales — non-distressed property s

ales — increased in California in July to post its highest level since late 2007. Equity sales made up 93 percent of all home sales in July, up from 92.4 percent in June and 90.2 percent in July 2014, according to CAR.

Conversely, the combined share of all distressed property sales fell in July to 7 percent of total sales, down from 7.6 percent in June and 9.8 percent a year ago.

CAR also reported today that the share of sales closing below asking price was unchanged in July, remaining at 43 percent. More than a third of homes — 34 percent — closed above asking price, and 24 percent closed at asking price, CAR said.

For the one in three homes that sold above asking price, the premium paid over asking price remained at an average of 11 percent, unchanged from June but up from 11 percent in July 2014, and the 43 percent of homes that sold below asking price sold for an average of 9.6 percent below asking price in July, down from 11 percent in May, according to CAR.

Bay Area Home Prices Seen Higher in 2016

Like many people in the Bay Area, Ken Ball and his wife would like to sell their home in Oakland and use the profit to buy a house without a mortgage somewhere cheaper. The problem is, they can’t do it for nine to 12 months, and Ball wonders where the market will be then.

“I think we are at some kind of peak” in the market, but “we are probably not ready” to sell, he said. “Is there a resource that offers Bay Area housing price forecasts out a year?

Many people forecast home prices for the state or U.S., but these are of limited use because real estate is hyper local. Most forecasters expect Bay Area prices will be higher a year from now, although the rate of appreciation will slow.

Zillow, the real estate website, forecasts home values all the way down to the ZIP code. It first looks at macroeconomic factors such as unemployment, mortgage rates, construction costs and land availability, then looks at what prices are likely to do based on what they are doing today. It updates its forecast every month.

It predicts that home values will be higher in June than they were this June in all nine Bay Area counties, with increases ranging from 1.5 percent in Sonoma to 6.8 percent in San Mateo. 

Readers can find Zillow’s forecast by going to www.zillow.com/research/data. Under Additional Data Products, click on Data next to the line labeled Zillow Home Value Forecast and you will get a spreadsheet with Zillow’s price forecast for every metro area, city and ZIP code.

Ken Rosen, chairman of the Fisher Center for Real Estate at UC Berkeley, said he thinks real estate prices will “slow substantially” in 2016, but will still be positive. In June, prices in Bay Area counties were up 10 to 20 percent over the previous year. “The three things that are causing this — the huge increase in jobs, the supply shortage and very low interest rates” will all begin to change in 2016.

He sees mortgage rates going up a half a percent, job growth slowing and inventory growing. 

“Because of the big price increases, people will start thinking maybe they can sell their house,” he said. “We might see a bigger supply next year than we have the last couple of years.”

A year from now, he predicts prices will be 7 percent higher in the East Bay and 9 percent higher in San Francisco. “I don’t see prices going down unless we have a big recession or mortgage rates going up much higher than a half a percent.

Mark Schniepp, director of the California Economic Forecast, also sees Bay Area prices going up. “Our forecast was made in April. We had 6 to 7 percent for this year,” which proved to be conservative. “In certain cases, (price increases) are off the charts.”

At the time of his forecast, he predicted that prices in San Francisco would be 6.1 percent higher in 2016, 4.4 percent higher in 2017 and 3.6 percent higher in 2018. His forecasts for other Bay Area counties are in the same ballpark. He considers the current rate of appreciation unsustainable.

“You are approaching another bubble-like condition,” he said. “At some point in time, you are going to see it level off or pare back so that the annual average for 2015 is going to be a little more rational. If it doesn’t, I would want to adjust 2016 so it might actually show a decline.”

Jerry Nickelsburg, an economics professor at the UCLA Anderson School of Management, predicts that Bay Area prices will be higher for a simple reason. “Home demand depends on household formation,” which includes people moving to the Bay Area, kids moving out of their parents’ house and roommates moving into their own homes. “You have had very rapid job and income growth. That has fueled demand for housing, but you have not had much increase in the stock of housing. That gives you better home prices.”

His forecast is for the Bay Area to experience job growth faster than the U.S. over the next 12 months. “That is going to mean higher home prices,” he said.

Dean Wehrli, a senior vice president with John Burns Real Estate Consulting, agreed. “There is no question that a year from now, prices will be higher,” he said. “Three years from now, that’s a harder question to answer.”

Nela Richardson, chief economist with Redfin, a real estate website and brokerage, does not forecast local prices. But she said homeowners can get a sense of where they are going by looking at statistics such as how many days a home is on the market before it sells, the percentage of homes selling above list price, and inventory, or how many months it would sell all of the homes on the market at the current pace of sales.

In June, homes in the San Francisco metro area stayed on the market for 19 days versus 15 days the previous June. Although 19 is very low, “it looks like it is slowing significantly,” she said. The fastest market was Denver, where homes lingered only five days. The nationwide average was 26 days, a record low since Redfin started keeping track in 2009.

As for inventory in the San Francisco metro area, it’s running around 2.3 months. “Anything over six months is considered a buyer’s market,” Richardson said. Below that is considered a seller’s market. Oakland has just 1 ½ months of supply. “It’s a more affordable market than San Francisco,” she said.

Although low inventory “generally” means higher prices, things may get so unaffordable that buyers move to the sidelines. “You don’t always have to buy. We are seeing in San Francisco, buyers are a little more hesitant. It used to be, anything upright can be sold.”

Bay Area Median Home Price on the Rise

The median home value in San Jose is $783,100. San Jose home values have gone up 10.7% over the past year and Zillow predicts they will rise 4.5% within the next year. The median rent price in San Jose is $2,830, which is lower than the San Jose Metro median of $2,980.

Foreclosures will be a factor impacting home values in the next several years. In San Jose 0.8 homes are foreclosed (per 10,000). This is greater than the San Jose Metro value of 0.7 and also lower than the national value of 3.8

Mortgage delinquency is the first step in the foreclosure process. This is when a homeowner fails to make a mortgage payment. The percent of delinquent mortgages in San Jose is 3.9%, which is lower than the national value of 6.0%. With U.S. home values having fallen by more than 20% nationally from their peak in 2007 until their trough in late 2011, many homeowners are now underwater on their mortgages, meaning they owe more than their home is worth. The percent of San Jose homeowners underwater on their mortgage is 4.3%, which is higher than San Jose Metro at 3.8%.