WHAT WILL SHAPE REAL ESTATE IN 2020?
Every year, the Urban Land Institute releases its Emerging Trends report which gives both buyers and sellers a look into the market’s real estate trends for the coming year. A real estate market as large and dynamic as the United States rarely moves quickly, and that holds true for 2020. In fact, the most striking narrative running throughout the annual report is the sense of static and stasis.
After reviewing the real estate trends report, one could say things feel unmoored due to our current economic and political uncertainty. The overall insight conveyed by the authors of the report—the Urban Land Institute and PricewaterhouseCoopers—is good news for both sides of the coin when it comes to real estate. After interviewing 750 industry members, and surveying 1,450 more to create this report, the researchers formed a consensus that we’re in for a soft landing, not a sudden crash.
We’ve all heard that a recession may be on the horizon, but experts agree that the housing market doesn’t have anything to fear. That’s because it is on much firmer footing than it was in 2008. Still, there’s been a widespread feeling that the decade-long economic expansion has been due for a correction, and homebuyers have felt nervous about the future.
“The short-term impact to housing is less likely to be as reactive,” says Javier Vivas, director of economic research at Realtor.com. “The impact of the last recession is fresh in our minds and can have a play in homebuyer psychology. But barring weak fundamentals, housing tends to perform fairly well during recessions. Over-construction is largely what got us into trouble last recession, and we’ve experienced just the opposite since then.”
Experts say the housing sector is still in great shape. Confidence is “palpable,” due in large part to the fundamentals combined with low-interest rates. Analysts don’t see the same oversupply or over-leverage issues that caused panic and set off the last Great Recession. In other words, the new normal might be a slightly small, less active version of what we see today.
Warning signs to watch for in real estate trends include a decline in residential building permits, a softening of housing starts, and lethargic car sales. On the other side, we’re still seeing relatively low unemployment with growth that’s expected to inch up over the next two years—only 2% annually according to the Congressional Budget Office. That leads experts to predict that homeownership levels will plateau, but instead of witnessing a swift drop, the real estate world may simply enter a sustained slowdown.
Still, there is a broad feeling of uncertainty for the future. That has led to a worldwide hunt for safe investments, which, in many cases is coming up short. One investor reported to researchers that there’s “a continued shortage of deals with desirable yields; there are more investors chasing deals than there are good deals available.”
That attitude has created a paradox in the capital market—namely, too much money looking for a place to invest. The abundance of capital is both a blessing and a curse for most institutional investors, especially those who have taken a conservative approach. While there is liquidity on the market, there’s also a temptation to yield to the pressure and “invest anywhere, somewhere.” That attitude could lead to bad bets and more uncertainty.
The Rise of Hipsturbia
There is a slow but steady push toward the suburbs today. That’s due to the fact that more millennials are growing up. With families of their own, this generation is looking to buy a home. And they are looking to move to suburban areas as we have here in the Santa Barbara area. The preferred place to live used to be big cities, but that is evolving. In what the report dubs “the rise of Hipsturbia,” the hot locations are evolving for this age group. Besides being more diverse, they’re also walkable, with developments that favor density, retail, recreation, and transit access. In short, developers are utilizing the live/work/play formula that we have enjoyed along the American Rivera for years, with much success.
A Silver Tsunami
As life expectancy has risen overall, the baby boomer generation is entering prime retirement years. In fact, the number of Americans over 80-years-old will rise from six million to twelve million in the next two decades, according to statistics from Harvard’s Joint Center for Housing Studies. The study goes on to report that by 2035, one out of three U.S. households will be headed by someone over 65. That means the real estate industry will see a huge flood of seniors looking for a variety of housing options. That has huge implications on housing, both in terms of renovations for those who want to age in place, as well as new options for seniors looking for an appealing, post-retirement lifestyle choice.
Social Good: ESG
Millennials, along with their younger peers, are increasingly factoring social good into their investment decisions. They are looking for a property that keeps in mind ESG—environmental, social, and governance. What does ESG mean for real estate? Something we relish here in Santa Barbara—projects that lay claim to being more community-oriented or have a bottom line beyond just profit. Projects that keep ESG in mind also have the potential to become popular investments over time and the potential to attract more community-focused capital. In short, doing good can do well for a developer’s bottom line.
Fact is, many of the current real estate trends fit nicely with the lifestyle and homes here in the Santa Barbara area. So, if you’re considering investing in a home in any of Santa Barbara’s upscale neighborhoods, have a look at my portfolio of homes for sale, which includes the Contemporary Montecito Residence on Stately Grounds pictured above. Need to sell your current home first? Give me a call at +1 805.886.9378 or email me at Cristal@montecito-estate.com. This is a great time to move and the best place to settle either part-time or full-time on the American Rivera. That’s because we push all the real estate trends buttons in The Urban Land Institute’s annual look at the year ahead. In short, our future looks bright!