2018 is just a few months old, but already several major trends have emerged that will affect the world of real estate for the rest of the year and beyond.
Here are three major areas to keep an eye on throughout the rest of 2018.
1: Housing supply is (finally) catching up with demand
For too long, prospective home buyers faced a simple problem: there weren’t enough houses to buy. That was certainly an issue toward the end of 2017. Available housing inventory was down 12% over the twelve-month period ending in November of last year, according to Zillow.
Decreased inventory leads to booming prices and competitive bidding on available homes, but that’s only sustainable to a certain point. Eventually, the market has to produce more home inventory. That could be in the cards for 2018.
New home construction is expected to increase this year, and that’s why some realtors are predicting a better market for buyers by the end of 2018.
“The majority of the year should be challenging for most buyers, but we do expect growth in inventory starting in the fall,” says Danielle Hale, chief economist for realtor.com.
2: Tax reform will cause changes — but what will they be?
Even a few months after President Trump’s tax reform plan passed through Congress, it’s still not entirely clear how the real estate market will be affected. We can, however, identify a couple of areas to watch.
Trump’s plan changes both the mortgage interest deduction and the property tax deduction, on top of changes that could increase spending capabilities for buyers. It could take some time before people looking to buy a new home fully realize how the new law affects their bottom line, but when they do, the market is expected to respond. With a decrease in the mortgage-interest deduction from $1 million to $750k, higher-end property sales may slow.
On the flip side, there could also be some negative consequences for low-income buyers and renters. Research by Price Waterhouse Cooper points out that Trump’s tax plan reduces the value of low-income housing tax credits, which could make companies that manufacture low-cost housing less likely to build.
3: Millennials are Living Small and Looking for Affordability
As more people move to urban areas, demand for smaller, more affordable apartments is increasing, particularly among millennials. Analyst Nathaniel Kunes told Forbes this could become “more of a norm in big cities” and could affect construction trends over the next decade.
Millennials have famously been less likely to own a home than previous generations, and data consistently points to affordability as the main reason why many haven’t taken the plunge into home ownership. Business Insider identifies an inability to put together a down payment as the main hurdle for many millennials, leaving them looking for affordable apartments and other rental housing in the biggest urban centers.
Affordability isn’t an issue reserved for booming big cities alone. Price Waterhouse Cooper’s study of 2018 trends also points out unmet needs for affordable housing stock in traditionally affordable markets like Charleston, Atlanta, and San Antonio. It’s clear that across the board, the price tag on houses and rental properties alike will be a key issue in 2018.
What 2018 Trends Mean for Fix-and-Flip Investors
Navigating these trends comes down to awareness. With inventory still low for the time being, fix-and-flip sellers have an opportunity to stand out with high quality renovations, but be mindful that a wave of new housing could be on the horizon. Differentiating your updated properties from newly built homes could become more difficult in the near future.
With that in mind, buyers may become more flexible, depending on how the new tax plan affects their bottom line. While the long-term consequences may still be a mystery, if potential buyers get an unexpected tax boost, they could be more willing to jump into the market. That could mean the recent seller-friendly trend may continue.
Finally, as millennials transition toward their home-buying years, awareness of their tendency towards smaller homes and renting will be a big boost to fix-and-flip and buy-and-hold investors. Focusing on smaller properties in areas where demographics align with millennial preferences could be a path to success in 2018 and beyond.