What Changed in Residential Property Market in the Last 10 Years
The housing market of the United States is undergoing a substantial transformation. The subprime mortgage crisis undermined the public trust in the industry. 2018 marks the 10 year anniversary of the real estate crash which jumpstarted the biggest economic crisis in the US history since the Great Depression. In many aspects, the US economy rebounded since the disaster. Stock indexes are setting new records, the unemployment is in check, and customers are regaining trust in the real estate investments. The picture is no longer so grim. However, the recovery is uneven across the United States. Certain metropolitan areas and especially suburbs still have not fully recovered. In the same time, internet real estate transformed from simply a medium to a full-fledged industry. Companies like Zillow, Trulia and Appartments.com became new juggernauts of the real industry changing the market as we know it.
The housing bubble was at the epicenter of the last recession. Due to the oversupply and loose lending standards the crash was especially painful. After the collapse residential investment declined at an astounding rate of 20 percent a year. The introduction of Dodd-Frank act in 2010, pushed for the stricter regulation of the financial sector to ensure the accountability of the lenders and security of new mortgages. Due to tight credit and the oversupply the market remained flat for a couple of years. With the return of the economic growth and low interest-philosophy of the Fed the market recovered. Lending standards were consistently easing and the mortgage rates picked up. Prices have risen nationwide to the pre-crisis levels and even to the all-time high of 185.51 in January 2017. Prices exceeded pre-crisis level in certain high growth areas.
However, numerous economic scholar and real estate experts accuse this optimistic surveys of distortion. The recovery is uneven. Certain Southern and Western states experience a deeper and longer recession than the rest of the country. In the same time, The sluggish economic recovery and slow rate of job creation were reflected in the housing prices.
According to the Ralph B McLaughlin, an economy scholar and real estate consultant:
“…only a little over a third of homes in the U.S. have recovered to their pre-recession peak values. But that distribution varies pretty widely across space. For example, in places like Denver and San Francisco, nearly 100% of homes have recovered, whereas, in areas such as Las Vegas, Tucson or Bakersfield, fewer than 3% of homes have recovered”
The slow recovery is common in the areas with a history of lingering economic growth. The housing bubble disproportionately raised the prices and inflated the market. The hike did not have economic underpinning, it was driven solely by customer confidence and the belief in “prosperous times”. Coming to terms with reality was overwhelming for those areas
New trend: Urban villages
The recovery is also characterized by new trends and housing preferences. Millennials are becoming the largest demographic group surpassing the baby boomers. This tech-savvy and innovative generation is becoming more economically active and searches for investment opportunities. Suburban living no longer appeals to them, and unlike their parents, they are looking for infrastructure and cultural diversity of urban cores. The primary factors when choosing a home for individuals under 36 are proximity to jobs and quality of the neighborhood.
According to the Austin restate agent, Jason Bernknopf millennials spur urban revitalization:
“We didn’t have a downtown living area in the early 2000s. Now there’s huge apartment high-rises as well as condo high-rises, and more areas for people to shop and eat in the heart of town.”
Jeff Plous, an associate real estate broker at One Realty in Denver, outlines how metropolitan areas hold their grounds even in the wake of recession:
“The suburbs were hit really hard,” Plous says. “But the city itself wasn’t that bad. It took longer to sell, but people were still buying.”
Renting is a new buying
The homeownership rate is on the sharp decline for the past ten years. There are various reasons for that. One of them is the massive unemployment and underemployment of college graduates. 53% of recent college graduates are underemployed. They have to work jobs that do not require a bachelor degree. Only 27 percent of college grads have a job related to their major.
College graduates often find themselves with huge college loans they are struggling to repay. 68% of students graduated with a significant student loan. The average debt is around $30,100. Those who manage to get a job, often find themselves in temp jobs or working as contractors, without health insurance or any social guarantees. These kind of jobs are unstable and does not encourage settling down. Millennials are highly mobile workforce moving between cities and states. As a result, most of them prefer to rent a place instead of buying one.
Internet Real Estate
A generational shift is not the only thing that drives changes in the housing market. Internet real estate platforms and applications profoundly change how the average customer choose their future home. According to the joint study of The National Association of Realtors and Google, 90% of homebuyers and renters search for property online. Generation of millennials is the main engine behind this tectonic shift. 31% of home shoppers who take action on a real estate site are aged 25-34. Other age groups mainly use online platforms to aid their research, but stay with traditional realtors. Various listing services, like Craigslists, allow customers to obtain general information about the property, contact various agencies and decide which company to purchase from. Companies like Trulia and Zillow, take a more comprehensive approach. They provide information on specific communities, median resale prices, crime rates etc. It is not just advertising, it is letting customers make a knowledgeable decision. First-time buyers increasingly turn digital to inform their research.
With the rapid expansion of the digital real estate, the traditional brokers and agents are compromised. First-hand experience and empirical knowledge of agents can no longer compete with extensive databases and search engines of the online real estate platforms. Similarly to a revolution of HomeAway and Airbnb in the vacation rentals, real estate platforms foster a direct relationship between the buyer and seller. There is no need for a middleman.