If you’re considering buying, selling, or investing in residential real estate this year, keep these trends in mind:
Trend 1: iBuyers are changing.
iBuyers are real estate companies that allow consumers to buy and sell essentially on demand. They will buy your home at a price their algorithms deem correct, giving you the freedom to make an unconditional or cash offer at will.
But over time, some iBuyers have changed their business model. Knock started out as a traditional iBuyer, but over the past two years has evolved into a mortgage lender. The company will give you pre-approval for a mortgage and provide you with a bridge loan for the down payment, allowing you to buy your new home first. Then they will help you prepare your home and stage it for sale. And, if necessary, they’ll buy your house if no one else will – something Knock CEO/co-founder Sean Black said has only happened a handful of times.
Of course, just because you call yourself a real estate tech company, also known as “prop-tech,” doesn’t mean you’re always right. Zillow closed its iBuyer division, Zillow Offers, in early November, acknowledging a potential loss of hundreds of millions of dollars, and said it was cutting its workforce by 25%.
Trend 2: Interest rates are rising (this time, for real).
Ever since the Great Recession, mortgage industry watchers and economists have predicted rising interest rates every year. In 2010, 30-year mortgage interest rates were around 4.69%, but fell to around 3% in 2012, according to Rocket Mortgage, and mostly stayed there. In late 2018 and early 2019, mortgage rates briefly hit 5.34%.
They quickly declined, and by January 2020 mortgage rates had returned to around 3.7%. And then the novel coronavirus hit, the Federal Reserve Bank cut the federal funds rate to between 0 and 0.25%, and mortgage interest rates fell below 3%.
What happens now? Lawrence Yun, chief economist of the National Association of Realtors, and Mike Fratantoni, chief economist of the Mortgage Bankers Association, agree that interest rates will rise. And Fed Chairman Jerome H. Powell’s statement that the Federal Reserve will seek to raise the federal funds rate three times in 2022, while phasing out its bond-buying program, makes an increase likely. mortgage rates.
Trend 3: Millennials and Gen Z homebuyers may find buying unaffordable.
If interest rates rise a lot, Millennials and Gen Z homebuyers will find it increasingly unaffordable to buy a first home. And millennials make up the majority of homebuyers right now.
US home values appreciated at an 18% annual rate in October, according to CoreLogic, which was the highest level recorded in the index’s 45-year history. If you were looking to buy a single-family home, these appreciated at a rate of 19.5%, another record high.
This type of growth, after several years of double-digit price appreciation, is unsustainable. Since house prices are closely tied to income, something has to change: either people will have to make more money, interest rates will have to stay low, or house prices will have to fall to bring everything back into balance.
Meanwhile, the United States is short by an estimated 5.24 million homes (rentals, townhouses, condos and single-family homes), and builders are focusing on high-end developments. After all, if you got the same profit out of a million-dollar house as you did from building three or four $250,000 houses, which would you choose?
In our next column, we’ll take a look at a few other real estate trends that are beginning to bloom.