No matter where you go, real estate valuations are at a record high. While it may be too soon to predict a downturn in the housing market, realizing which factors are contributing to sky-rocketing residential prices, could help you in your future property investment.
The pressure on the millennial to own their own home and a fairly performing economy, may be signs that the housing market is set to remain firmly where it is. Although market crashes are not in the very near future, there are steps that property buyers can take to understand what is driving the market. From the economy to buyer demographics, a closer look at these factors can help you make smart real estate investments in 2020.
The Arrival of the Millennial Home Buyer
If you are unsure of what a millennial is, it includes all persons born within the period that marked the end of the nineties to the early 2000s. With millennial property buyers of more than 70 million, they far outweigh the baby boomer generation. Set to make their property investments, the modern millennial has made a highly influential mark on the real estate market.
According to Forbes, property ownership among the millennials is represented at less than 64% of average natural home ownership figures. This means that the rising demand is pushing more millennials to make their first property purchase. With the average income sitting at $88 000 per annum for the millennial home, most can afford their own properties.
As the millennial sector continues to push for first time home buying, it will have a direct influence on property prices. This is particularly true for the single-family home.
Higher Interest Rates
It is simply not possible to predict the turn that the Federal Reserve Rate will take. If we look at the last few months, the trend has been towards a downturn in mortgage rates. Market analysts see the average mortgage rate rising to 5% for 30-year fixed home loans for 2019.
Where the cost for financing reaches its critical point, we can expect to see a minor fluctuation or decrease in real estate prices.
The Affordability of Housing
The rental market across the United States is proving 59% more affordable compared to the housing sector. In over 80% of markets, the price of properties has continued to rise while the average wage remains unchanged according to Attom Data News. The demand for rental properties is believed to soar while single family home prices may bottom out. Reports have revealed how purchases or investments in affordable housing has declined owing to high mortgage rates and exorbitant property valuations.
In markets where populations have reached more than a million people, interested property buyers may find it harder to afford a home. With such pressures causing higher rental rates and a lack of single-family home affordability are present, it may be in the favor of the multifamily investor.
The Impact of City Expansions
While the so called first tier of home buying remains on the rise and in demand, more property buyers are moving out of these popular areas to find more affordable investments. The rising financial investment in the second-tier communities means higher prices and property values. Major brands including Apple are moving away from popular cities and into smaller metropolitans to expand upon their services and manufacture. These significant moves are said to increase prices for properties in second tier markets.
Tax Incentives for Qualified Opportunity Zones
The tax incentive that has been included in the Qualified Opportunity Zones or QOZ, should be determined by property investors. The tax incentive was introduced by the 2017 Tax Cuts and Jobs Act concerning investments in real estate in QOZ sectors. The law has made provision for the removal of capital tax gains on specific investments and reductions that local market and property experts could benefit from. With developments believed to reach trillions in the QOZ sectors, these types of property investments could pose as a lucrative purchase for many property buyers.
What We Know So Far
From supply and demand to changing economies, there are specific market factors that will influence house prices. Adopting a precautious approach to investing could help potential real estate buyers uncover some incredible market opportunities with favourable returns.