The year 2019 is just a moment’s away, and many US real estate investors are excited for another year of high return on investment. Unfortunately, however, the US real estate market 2019 is expected to carry some issues with it. What are these issues and how will they affect real estate trends and the future of real estate?
Heading into 2019, the most pertinent issues impacting American markets are climate change, property insurance, affordability, and infrastructure.
Climate change has been a hot topic in the United States for some time. About 13 percent of Americans reject its existence. Many others, however, blame it for the surge in recent natural disasters, such as hurricanes and wildfires.
How does climate change affect the future of real estate trends? A clear and general pattern has not been deduced yet, due to the complexity of the issue. Still, experts predict that climate change will impact all US real estate investors to some degree in the coming future. Still, however, there is considerable evidence displaying the effect of climate change on specific American markets. This is definitely a matter of concern for the US real estate market 2019 and overall future of real estate.
Property owners on Florida’s coast are likely to be among the most affected by climate change and natural disasters. For instance, as mentioned in The Wall Street Journal, Harvard researchers found that properties in lower areas of Miami Beach naturally appreciated at slower rates compared to other properties. Residential real estate trends, more specifically, are negatively altered. Researchers found that residential properties near rising sea levels sold for 7 percent less, on average, than properties without this exposure.
As a result of climate change, there will be an estimated decreased demand for waterfront properties in 2019. This is likely to be the case, even with the typically high demand of such investment properties for vacation rental or Airbnb investing. There is another, more immediate consequence on the future of real estate, however. This leads us to the next issue.
Natural disasters, which are influenced by climate change, come in many forms. The most notable ones in 2018 were storms, floods, hurricanes, and wildfires. Due to an unusual increase in these natural disasters, property insurance is projected to increase in 2019, affecting the future of real estate costs. As mentioned in a report by the PwC, property insurers have been experiencing massive payouts due to these disasters. This will lead to higher premiums for real estate investors so that the insurers can make up for the difference. Property owners, especially those in areas prone to natural disasters, should therefore be properly covered and take these potential expenses into account when budgeting.
The affordability crisis is another key issue affecting the future of real estate. This is obviously not the case in every specific market, but it is a general trend to take note of. Unaffordability is most apparent in large cities. San Francisco, with its absurd property prices and rental rates, provides the most extreme example. According to a report by the CRE, there are three reasons why affordable real estate will take a hit in 2019. They are limited supply, rising mortgage rates, and wage stagnation. Despite these concerns, however, 2019 residential real estate trends will, fortunately, not lead to a housing bubble.
The simple principle of supply and demand dictates that if supply is limited, demand will increase. In the case of the real estate business, limited housing leads to higher property prices. According to the aforementioned report, there has been a net underproduction of about 2 million units since 1999. Unfortunately, this issue is expected to persist in the immediate future of real estate in 2019. Experts estimate that 4.6 million units are needed by 2030 to keep up with national demand.
Increased Mortgage Rates
The increase in mortgage rates will also contribute to the affordability problem of 2019. While there has been an uptick in rates as of late, rates are expected to surge to 5.8 percent for the 30-year fixed rate in 2019. The last time the rate was this high was during the 2008 housing crisis.
An issue severely damaging to the future of real estate, and the future of the American economy as a whole, is low wages. It is estimated that since 1979, real wages for the middle class have increased less than 3.5 percent. The lower-middle class has seen a real wage increase of less than 1 percent. Real wages for the top income quintile, however, have increased more than 24 percent. Coupled with the rising costs of living, low wages arguably act as the biggest detriment to the affordability of entering the real estate business in 2019.
The shortcoming of US infrastructure also contributes to the future of real estate issues. According to the American Society of Civil Engineers, US infrastructure received a grade of D+ in 2017. The ASCE estimates that $4.5 trillion is required to improve critical infrastructure by 2025. During that time, about $3.9 trillion in GDP and $7 trillion in reduced business sales are not materialized due to deteriorating infrastructure.
Insufficient and improper infrastructure have direct impacts on a real estate investment, both existing and developing. Some include inadequate water and electricity systems, poor supply allocation and usage, crumbling public transit, and deficient development and redevelopment opportunities.
Should You Invest in Real Estate in 2019?
The four issues mentioned in this blog- climate change, property insurance, affordability, and infrastructure- are the most relevant to 2019 and the immediate future of real estate. Even with the presence of these issues, however, a real estate investment remains to be one of the safest and most profitable investments you can make. Investors simply should be aware of these issues, have proper real estate risk management to reduce or avoid their impacts, and know how to identify the best investments with high ROI.
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