Retiring baby boomers, aging millennials and rising interest rates: The Counselors of Real Estate says those will be among the most important trends facing real estate over the next year.
The CRE released its annual list of the top issues and trends this week, with a hint of anxiety.
“This list reflects a higher degree of economic uncertainty than in years past,” Noah Shlaes, chairman of CRE, said in a statement. “Anticipation of rising interest rates, continued currency devaluation, and excess capital flowing into the United States are all on the minds of our membership. Combine this with a growing wage gap and major changes in demographics, and we’ve got a lot to think about this year.”
You can see the full list online here. Here’s a sampling of some of the major issues CRE highlighted:
1. Shifting demographics: Baby boomers are getting older and retiring, and millennials might be getting the housing itch. The decisions both groups make – whether to downsize, buy a house, rent an apartment, purchase a condo – will have a huge impact over the next several years as millions of households move.
“Demographic shifts will drive decisions across virtually all real estate sectors this year and for the foreseeable future,” CRE wrote.
2. Excess capital supply: There is still a lot of money flowing into the U.S. from other countries to buy real estate, and that could pressure real estate markets. “The supply is driven by economies that have high savings rates, a shortage of mature financial markets and few safe assets,” CRE wrote. “The investment rate is approaching record highs, presenting the potential for pressure on investments in the future.” Multifamily is one of the most attractive sectors in this area.
3. Rising interest rates: We can’t stay at zero forever, can we? Well, CRE expects rates to stay near historic lows for “a while.” But investors should prepare for the inevitable. “An interest rate rise could spur short-term commercial development and slow home sales,” CRE wrote. “Rising rates will cause higher mortgage payments, thereby decreasing homebuyers’ choices. But if Millennials jump in and buy before interest rates rise too far, it could create a second wind for the residential market.”
4. Global instability and currency devaluation: In case you haven’t noticed, the world is a bit turbulent these days. Many other countries are also seeing their currencies devalued. “Investment from non-U.S. sources helps fuel the U.S. real estate market, but event risk should be considered – “hot spots” of conflict are continually in the news, as is cyber security – and the global economy is psychologically linked,” CRE wrote.
5. Urbanization: This is the reason so many new developments are being marketed as “live-work-play” these days (Think about the cluster of three mixed-use developments next to each other on Providence Road just south of I-485).
“An increasing desire to reside in “live-work-play” and “walkable” communities is not limited to young professionals; older generations are also drawn to such locations,” CRE wrote. “Shopping malls must adapt; many have skewed to one of two successful models – luxury or discount offerings. Urban vertical shopping configurations are gaining traction. Some suburbs are feeling residential pressure, with home resale not easy when younger families don’t want the kinds of homes that are in plentiful supply from a past generation of suburbanites. The past few years have also seen a rise in corporate relocations to cities from the suburbs as a strategy to attract younger, urban professionals.”