Analysts are predicting a better year overall for the

Real Estate Digest

Volume 42 • Number 4 April • 2016

Five Real Estate Trends

A

nalysts are predicting a better year overall for the

U.S. housing market in 2016. Here are five real es

-tate trends to watch for the rest of the year:

Millennials Become Homeowners

In 2015, millennials (ages 18 to 34) made up roughly one-third of sales. The trend of millennials as first-time homebuy

-ers is expected to continue, thanks to the large number of individuals in this generational group and improving financial conditions for millennial homebuyers.

According to Trulia.com, 80 percent of millennials want to buy homes between now and 2018. As Ralph McLaughlin of Trulia.com said to MarketWatch recently, “Most borrowers of this age group are waiting for a work promotion or to build up enough savings to buy.” He also pointed out that recent moves by the FHA to lower mortgage insurance premiums are help

-ful. Still, millennials aren’t able to improve their situations as quickly as they might because boomers are holding onto their jobs longer and keeping their homes off the market.

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Rents will continue to increase. Rents are continuing to rise across the United States, with more than 85 percent of rental markets having rents that exceed the 30 percent of income threshold, according to Real

-tor.com®.

30 percent of millennials, 28 percent of Gen Xers and 19 percent of boomers say they would buy a home rather than rent if home prices fell, according to Trulia. But that’s not likely unless interest rates rise, which would create a different kind of affordability problem for renters. Also working against renters are low credit scores, poor savings and lack of documented stable income sources.

Home Prices May Level Off

If the Federal Reserve continues to raise interest rates, mortgage af

-fordability will factor into housing prices, at least stabilizing them. Nearly 3 percent of the approximately 600 U.S. counties tracked by RealtyTrac have average home prices that are “unaffordable” to the average wage earner. Darren Blomquist of RealtyTrac told MarketWatch, “If interest rates rise, and home prices rise, and wages rise only tepidly, we could see the 3% of unaffordable markets rise to as much as 25%. Stagnation of home price appreciation would be a likely scenario.”

New construction will increase. Distress sales are unlikely to con

-tinue to make up the majority of sales and new construction will return to higher levels, resulting in a more balanced market with more normal conditions.

So far that’s the trend. There were 233,000 sales of new homes in December 2015 compared to 208,000 in January 2015. More recently, the new home supply as of February 24, 2016 was 5.8 million, an in

-crease of 13.7 percent over the previous month, according to the Na

-tional Association of Home Builders.

New home construction will focus more on affordability. Home builders have been building higher-end homes in recent years because of higher land prices, a limited labor supply and lack of demand at the entry-level end of the market. But with more market saturation at the higher end, a more stable work force and improved access to credit

markets for buyers, builders are shifting their attention to entry-level homes. “We are already seeing a decline in new-home prices for new contracts signed this fall,” says Jonathon Smoke, chief economist for Re

-altor.com®. “In addition, credit access is improving enough to make the first-time buyer segment more attractive to builders.”

Zombie Properties Getting Scarcer

Zombie properties — or vacant homes — are on the decline around the country. According to Real

-tyTrac, the number of zombie properties in the U.S. now represents just 1.6 percent of homes. That’s 1.36 million homes in January 2016, compared to 1.5 million in September 2015.

Vacant homes are not just foreclosures and abandoned properties. In fact, most are vacation and investment properties. But fortunately, these are not the vacant properties in decline. It’s the foreclosed and truly zombie properties that are diminishing. Buyers are increasingly aware of the financial opportunity of foreclosed properties, including those in dis

-tressed areas, such as Detroit, Youngstown, Oh., and Atlantic City, where vacancy rates are 5.3 percent, 4.4 percent and 3.7 percent respectively. Excellent deals can be made, Albert Saiz, director of the Center for Real Estate at the Massachusetts Institute of Technology, told Realtor.com®.

Don’t Forget These Tax Savings

on Small Home Upgrades

It’s tax time again and unless the house is brand new, most buyers make some improvements be

-fore or when they moved in. If so, they’ll be glad to know that homeowners can get a tax savings of up to $500 on their return by making small upgrades, such as the following, according to Homeself:

Y Biomass stoves

Y Heating, ventilation, and air conditioning

Y Advanced main air-circulating fans (tax credit amount of $50) Y Insulation (10 percent of the cost, up to $500)

Y Roofs (metal and asphalt)

Y Water heaters (non-solar earns a tax credit of $300)

Y Windows, doors and skylights (tax credit amount is 10 percent of

the cost excluding labor).

FIRPTA Changes Should Boost Foreign Investment

FIRPTA, the Foreign Investment in Real Property Tax Act of 1980, has “historically made direct investment in U.S. property a non-starter for trillions of dollars worth of foreign pensions,” James Corl, a managing director at private equity firm Siguler Guff & Co., told Bloomberg. The law requires tax withholding on cer

-tain transactions, including real estate transactions, by domestic or foreign corporations, partnerships, trusts and estates.

Congress’ recent modification of the law is “a game changer,” said Corl.

Under the PATH Act of 2015 (Protecting Americans from Tax Hikes), Congress removed the tax penalty that FIRPTA imposes on foreign pen

-sion funds that invest in U.S. real estate. The law also now permits for

-eign pensions to purchase as much as a 10 percent stake in a publicly traded U.S. real estate investment trust before FIRPTA liability is trig

-gered. This reflects a 5 percent increase compared to the previous regu

-lations.

Since the 2008 financial crisis, foreign investors have become in

-creasingly attracted to U.S. real estate, thanks to the perceived safety and healthy yield of investments in office buildings, apartments, indus

-trial facilities and shopping centers. As a result, commercial real estate markets in the U.S. are at all-time highs.

Jim Fetgatter, chief executive of the Association of Foreign Investors in Real Estate, also told Bloomberg the changes are “a huge deal” that will no doubt increase foreign investment in U.S. property.

Federal Reserve Interest Rate

Hike to Impact Real Estate

On December 13, 2015, the Federal Reserve, in an expect

-ed move, increas-ed interest rates by 0.25 of a percentage point. Interest rates in the United States have been at near zero since 2008.

The Fed anticipates that its rates will not approach normal levels of roughly 3.5 percent until the year 2018, when the economy is expected to stabilize. “Were the economy to disappoint, the Federal Funds rate would likely rise more slowly,” said Janet Yellen, the chairman of the Federal Reserve.

In 2016, 30-year mortgage rates are expected to range from 3.9 to 4.1 percent, according to Doug Duncan, chief economist of Fannie Mae. Adjustable-rate mortgages are expected to increase twice as quickly, by roughly half of a percentage point.

Some economists are predicting that the Fed will continue with a series of small rate increases, which could hurt home price appreciation over the long term.

Five Commercial Real Estate Trends for 2016

Several commercial real estate trends are gaining mo

-mentum, according to Whista.com. Here are some of the shifts that are taking place now:

Crowdfunding. Commercial real estate lending is ex

-pected to grow, with crowdfunding websites, such as Re

-altyShares and Realty Mogul, increasing market share. Smart buildings. Commercial real estate is embracing the Internet of things (IoT) by incorporating technology to create “smart buildings.”

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4th asset class. Commercial real estate has now opened to new in

-vestors, thanks to low rates, diverse capital sources and greater trans

-parency. It is now considered as the fourth asset class in addition to stocks, cash and bonds.

Mixed-use real estate. Redevelopment of multifamily properties is fueling a trend toward mixed-use properties.

Natural design. Commercial design is making a comeback, with a fo

-cus on natural elements. “This trend will blur the lines between interior and exterior spaces,” according to WHISTA.

Home Inventory Shortages Are

Likely to Continue in 2016

Homebuyers are continuing to experience limited choices of available homes for sale. A lack of housing inventory has left shoppers struggling to find options with home prices rising too quickly in certain markets, according to Lawrence Yun, chief economist for the National Association of REALTORS®.

Although pent up demand continues to cause concern in the interim, analysts predict that existing home sales will increase by 2017.

“We expect a robust rise to 720,000 by the end of 2017, a rise of around 50% compared to current levels. That means total home sales are set for average annual growth of just under 3% over the next two years,” said Capital Economics in its latest report.

How Much Can Millennials

Afford to Spend on Homes?

Millennials are showing greater interest in real estate. However, they may want to head to the Midwest or South for better options, according to a newly re

-leased study from SmartAsset.

SmartAsset based its estimate of the average home price that mil

-lennials can afford in the 23 largest cities in the United States by evaluat

-ing data on median net worth and median income for U.S. citizens under 35 years of age.

For top metropolitan areas of the United States, including New York, Los Angeles, San Francisco and Washington, D.C., the average millennial may only be able to afford a home of less than 300 square feet. In cities such as Jacksonville, Memphis and Detroit, young buyers may be able to afford a home that is 1,500 feet or larger.

“Perhaps the most compelling explanation for the low rate of home

-ownership among millennials, however, is the simplest. With wages stagnant and the cost of education chipping away at savings, many young people cannot afford to buy a home,” says Nick Wallace, Data Editor at SmartAsset.com.

20 Real Estate Markets that

Ended 2015 with High Demand

Residential real estate in the United States may have end

-ed 2015 on a lower note overall. However, this slowdown did not impact every market, according to a study done by Realtor.com®. In fact, the study identified 20 medium-to-large markets in which there are high levels of interest from potential buyers and homes are moving the fastest. California markets topped the list of the country’s hottest markets, and improvements were also seen in several real estate markets in the Midwest and Florida.

“Pent-up demand and robust economic growth combined with limited supply will keep California tight in 2016, but more markets will challenge them as demand improves elsewhere,” said Jonathan Smoke, chief economist of Realtor.com®.

These markets generally represent greater metro areas, since people tend to work in the nearby cities but reside in the suburbs.

The following 20 markets produced sales at a rate of 29 to 51 days faster than markets in the rest of the US. These markets have seen a combined reduction in days on the market by 15 percent year over year. Homes in these areas also saw 1.4 to 2.9 more views per listing on Real

-tor.com®, as compared to the national average. 1 San Francisco, Calif.

2 San Jose, Calif. 3 Vallejo, Calif. 4 Dallas, Tex. 5 Sacramento, Calif. 6 San Diego, Calif. 7 Denver, Colo. 8 Santa Rosa, Calif. 9 Yuba City, Calif. 10 Stockton, Calif.

AGENTS’ CORNER

Five Ways to Improve Your Real Estate

Website for More Leads in 2016

Real estate websites are one of the top sources of leads for agents. The good news is that there are many things that real estate agents can do to help their web

-sites generate leads more effectively. Here are five changes that agents can make for more online leads. 1 Create new landing pages and test old ones. The more landing

pages you have, the higher the chances are that you will generate leads. You should make sure to update older pages, as the structure of a landing page can have a significant impact on its conversion

rate. Testing different layouts, images and the positioning of the page elements can yield better results.

2 Add a blog to your site. If you want to get traffic from Google and social media websites, you need to add a blog to your site. A blog helps your site rank for keywords that appear in your posts. In addition, it also helps you to gather leads directly by placing opt-in boxes over the content so readers sign up for your email list. “If you want them to sign up for your newsletter, be straightforward and make the task of filling out the form beyond easy,” says Matthew Bushery, content creator at Placester.

3 Simplify the navigation of your website. It shouldn’t be difficult to find important information on your website. Making your website concise and easy to navigate will help visitors to stick around longer, leading to more conversions. Navigation doesn’t only refer to the menus of your website; it can also refer to the overall user interface for your site.

4 Add more calls to action. Calls to action are important for lead gen

-eration. Make sure your phone number, business address and email address are prominently displayed on the important pages of your website. You may also consider changing the wording of the calls to action that you use to encourage people to sign up.

5 Install analytics tools to track your progress. None of the updates you make to your website will matter if you aren’t tracking the con

-version rates for your pages in Google Analytics. Installing analytics software will provide you with insight to determine if your efforts are working. With analytics tools, you’ll understand what’s happen

-ing on your website in realtime. 11 Los Angeles, Calif.

12 Oxnard, Calif. 13 Nashville, Tenn. 14 Palm Bay, Fla. 15 Modesto, Calif. 16 Detroit, Mich. 17 Boulder, Colo. 18 Tampa, Fla 19 Fort Wayne, In. 20 Midland, Tx.

The information presented and conclusions stated in this newsletter are based solely upon our best judgement and analysis of information sources. It is not guaranteed infor-mation and is not necessarily a complete statement of all available data. Web site citations are current at time of publication but subject to change. This material may not be quoted or reproduced in any form, including copy machines or any electronic storage or transmission medium, in whole or in part, without permission from the publisher. A special edition of Real Estate Digest is available for real estate agents specializing in commercial property or high-end residential, and for mortgage brokers. Please call 866-762-7879 to order your personalized copies today.

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