N187)Future of real estate in the USA

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In this video, we will talk about the Future of real estate in the USA

High-interest rates and a recession will make 2023 a challenging year for commercial real estate. Though inflation eased in late 2022, it was still running at more than 7%. The Fed will continue raising rates until it sees a marked reduction in inflation nearer to its 2% target. Weakening fundamentals and higher cost of capital will generally lower asset values.

The recession will not be particularly deep. Corporate finances are in good shape and employers will shun excessive layoffs to avoid losing employees in a tight market for skilled labor. While consumer confidence is highly subdued, average household debt is low compared with the onset of previous recessions. These factors suggest a moderate downturn, with unemployment unlikely to breach the 6% level. Inflation will be significantly lower by the second half of 2023, setting the stage for falling interest rates and the beginning of a new cycle that will last until the 2030s.

Despite economic headwinds, the pace of change will not ease. ESG considerations and the growth of the digital economy will continue to affect real estate demand. Hybrid working offers many benefits for businesses and employees, but companies and the office sector will have to evolve. Cities too will need to adjust to new commuting patterns and reduced office demand. The resurgent retail sector is just now reaping the benefits of a long period of change, which is attracting keen investor interest. Data centers and industrial real estate will probably be the most resilient sectors and the housing shortage will benefit the multifamily sector. The hotel sector’s recovery from pandemic restrictions will continue but life sciences activity, which was turbocharged by COVID, will ease for a while as venture capital becomes scarcer. All sectors in all places will be required by governments, occupiers, and investors to make significant decarbonization efforts.

Our 2023 outlook details the major trends that will dominate the year. Should you have any questions about how these trends may impact your specific real estate strategy, please don’t hesitate to contact us.

Richard Barkham

Global Chief Economist & Global Head of Research

Over the last few years, we’ve seen homes sell at astronomical prices, way above the market value. It’s been a housing market that, to say the least, has left many aspiring homebuyers feeling disillusioned — like homeownership is even further off than they thought. Granted, much of this occurred under extraordinary circumstances — during a pandemic that pushed people out of densely populated cities and into suburban homes and a time of record low-interest rates.

But an economic report by Realtor.com released in March 2023 asserts that the monthly cost of financing your home (assuming you made a 20% down payment) has increased by almost $630, compared to last year.

The hefty financial burden of owning a home today has left many people wondering: If homes are this expensive now, how much could prices rise in the future?

According to a RenoFi report from Oct. 2020, the average price of a single-family home in the U.S. could reach $382,000 by 2030. Depending on where you live, this figure may seem like a drop in the bucket compared to the home prices in your city. For example, the median price of a home in New York City in February 2023 was $760,000, but the average price around Albany in Upstate New York was $219,000, according to Redfin trends.

RenoFi also looked into the projected 2030 home prices for every state and some major cities in the U.S. It projects that San Francisco will have the highest average home value in the country at a staggering $2,612,484. Following it will be two other California cities, San Jose at $2,251,703 and Oakland at $1,713,554.

Housing prices in the U.S. increased 48.55% over the past 10 years, according to RenoFi. When doing the projections, RenoFi assumed housing prices would again increase by the same amount over the next decade. Here’s what else RenoFi shared in its report:

New York City will have an average home value of $964,101 by 2030.

The average home value in Nashville will reach $539,292. Currently, the average home value is $435,000.

Houston will see an average home value of $309,806 by 2030. The average home value as of March 2023 is $258,055.

RenoFi has the full breakdown on its website.

Home value doesn’t always equate to the actual price a buyer pays. The home value represents the amount of money a home will likely sell for based on the market. But buyers may agree to pay a price that is lower or even higher than the home’s value.

In 2021, Danielle Hale, chief economist at Realtor.com, explained to CNBC Select, “These are hefty price increases. We see this because sellers ask for one price, buyers make an offer and the home usually sells for another price. This year [2021] we saw the sale price come in above the asking price in many places.”

This was at a time during super-low interest rates and increased demand for homes. But even during normal times, home prices continue to increase — as we saw by looking at home prices from 1996 to 2006 to 2016 and from 2021 to 2022. Supply and demand and interest rates can certainly affect home prices but according to Hale, another contributing factor can be an increase in wages.

“In a normal economy, we see home prices increase roughly on par with wage increases because the majority of homebuyers are using wage income to buy their homes,” she explains. “Even though incomes are rising, home prices are rising even faster.”

According to data from the Social Security Administration, the average wage in the U.S. between 1996 and 2019 has increased from $24,859.17 to $51,916.27. Thanks to inflation and an increased cost of living though, it can feel as if the dollar affords workers less and less over time. This is why, for many people, it can still feel as though homeownership is a far-off goal.

How can people prepare for higher prices?

Though looking at projected future home values might make homebuying feel like a pipe dream, it’s important for aspiring homeowners to start taking steps to improve their chances of being able to afford the home they want in the future.

“The key is for young people to start saving as soon as they can,” Hale says. ″The earlier you start, the more money you may accumulate and the bigger your potential down payment will be. Be consistent about it.”

If you don’t plan to buy a home for another five to 10 years, you might want to consider investing the money you save for a down payment in order to make sure your cash is beating inflation.

Index funds are a low-cost way to invest, and some funds, like those tied to the S&P 500, have a history of yielding an average return of 10% per year. (Note that past returns do not indicate future success.) You can get started by opening a brokerage account through a financial provider like Fidelity or Charles Schwab.

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