Economists predict that in 2020, buyers will have fewer homes to choose from than they have in five … [+]
As 2019 draws to a close, here’s a look at the year that was in real estate and architecture and a preview of what to keep an eye on in 2020.
Concerns ease over a U.S. recession
Economic pessimism and recession jitters set in earlier in the year as the U.S.-China trade war intensified. However, a group of top economists who gathered December 11 at the National Association of Realtors’ Washington, D.C. headquarters arrived at a consensus that the U.S. economy will continue expanding next year while projecting real estate prices will rise and reiterated that a recession remains unlikely.
“Real estate is on firm ground with little chance of price declines,” said Lawrence Yun, chief economist for the National Association of Realtors and fellow Forbes.com contributor. “However, in order for the market to be healthier, more supply is needed to assure home prices as well as rents do not consistently outgrow income gains.”
iBuyer field expands steadily
iBuyers purchased 3.1% of the homes sold during the third quarter of 2019 across 18 markets, up from 1.6% a year earlier. While iBuyers such as Opendoor, Zillow Offers, Offerpad and RedfinNow operate in a limited number of markets, they are quickly expanding into new places and are expected to keep growing. The term iBuyer (short for instant buyer) is used to describe real estate companies that use technology to make rapid offers to home sellers and then purchase homes in quick, cash transactions. iBuyers charge sellers a higher fee than a typical seller’s agent would for the convenience of helping offload the seller’s property quickly. They then make any necessary improvements and resell these homes swiftly to homebuyers.
Luxury sales are hurting because of high taxes and a pending financial crisis, according to Mike Russo, founder of SparkOffer. “Traditional selling methods are failing home sellers, and they’re actively seeking other options outside of auctions to quickly sell their homes,” said Russo. “PropTech platforms that buy/sell for-sale homes were tested throughout 2019, and in 2020, will become the sought-after solution for homeowners to quickly and profitably sell their homes.”
A push for safe school design
After repeated school shootings, making schools safer through a design-centered approach became a national focus. Legislation introduced in the Senate in September calls for the creation of a “school safety clearinghouse” in the Department of Homeland Security that would identify and share best practices on school building design for security and safety. The bill is supported by the American Institute of Architects.
Sustainability the new norm in real estate
“With sustainability and the preservation of Earth’s materials rising to the top of the news cycle daily, I foresee many developers looking to re-imagine pre-existing buildings for new projects instead of knocking down structures and starting from scratch,” said Allison Greenfield, partner at Lionheart Capital. “By retaining the original integrity of existing buildings, developers can encourage community support and help the environment at the same time.”
The widening black homeownership gap
The already large homeownership gap between black and white Americans widened in 2019. While 73.1% of white Americans owned homes as of the second quarter of 2019, a record low of 40.6% of black Americans had achieved homeownership and 46.6% of Hispanic Americans. The resulting 32.5 percentage-point gap in homeownership between black and white Americans is 3.6 points wider than it was at the beginning of 2010, according to a report by Redfin.
The urbanization of the ’burbs
Rob Zelina, senior vice president at Lifestyle Communities, foresees a continued focus on suburban markets over urban markets. “The urbanization of the suburbs will continue with traditionally urban features like walkability, access to retail and restaurant amenities, and dense housing extending beyond the city limits,” Zelina said. “As people continue to place higher value on livability, walkability and a sense of community, the suburbs will take on a more vibrant, urban aesthetic. Development trends, renter preferences and changing lifestyles will continue to shape the suburbs to include bustling town centers filled with shops, restaurants and diverse populations.”
Architects declare action on climate change
The American Institute of Architects’ board of directors approved a landmark resolution in September that defines immediate and long-term efforts to engage the architectural profession in the fight against climate change.
“This is a defining moment for the Institute,” said AIA President William Bates. “We are making this our top priority in order to address the crisis our communities face. Moving the needle on this critical issue—that threatens the future of our planet and humanity—requires our firm commitment to achieving carbon neutral goals in the built environment and our immediate action. It’s imperative that the industry acts today.”
AIA and its members are rallying the profession to do more to fight climate change as buildings are one of the largest contributors to greenhouse gases. Brooklyn architect Illya Azaroff, founding principal of architecture firm +Lab, designed a groundbreaking resilient home in Breezy Point, New York, known as Hurricane Strong Home.
Climate change will become a bigger factor for buyers, sellers
In 2020, home buyers and sellers will take the consequences of climate change into account when deciding to buy, according to Redfin. The financial costs of climate change are already becoming more tangible as fire and flood insurance premiums rise. Over the next decade, higher insurance premiums in high-risk areas will make housing even less affordable to more people. And in areas with the highest risk, insurers may stop providing insurance altogether, which means it will be nearly impossible to secure a mortgage in those areas.
Bidding wars will rebound
“Low mortgage rates started to revitalize the market at the end of this summer, but we won’t see their full impact on demand for housing until next year,” according to Redfin chief economist Daryl Fairweather. “In 2020, buyers will have fewer homes to choose from than they have in five years. But the return of bidding wars is good news for sellers who may have been holding out this year as the market stabilized. The competition and faster price growth will tempt more homeowners and builders to list homes, which will help improve the balance between supply and demand by the end of the year.”
30-year fixed rates will stabilize
Throughout 2020, 30-year fixed mortgage rates will remain low, hovering around 3.8%, predicts Redfin, noting that faced with slowing economic growth, the Federal Reserve will keep interest rates low. Although the housing market is strong, weakness in other sectors like manufacturing is pulling down the economy. Because some investors are already bracing for the possibility of a recession, Redfin doesn’t expect mortgage rates to fall much lower than 3.5% in 2020 even if the economy weakens. If the economy strengthens, Redfin expects mortgage rates to stay below 4.1%.
“As the Fed continues to combat a slowing world economy, we anticipate that interest rates will remain low and the U.S. jobs market will stay strong, creating a conducive climate for home buying next year,” said Paul Lueken, CEO of Draper and Kramer Mortgage Corp. “Loosened rules on FHA loans and pent-up demand from Millennial homebuyers should also help usher in a bigger wave of first-time buyers in 2020 than what we saw in 2019.”
Amenities arms race to continue
“The amenities arms race is a big moment that has transformed residential real estate, both for rentals and condo,” said Peter Olesker, executive vice president of developer services and corporate communications at @properties in Chicago. “It’s no longer just about space but rather the activation/programming of that space,” he said, adding that this is a “phenomenon that has reached a crescendo as the end of the decade approaches.”
“Personalization is the next level in amenity offerings, according to David Hovey Jr., president and principal architect at Optima Inc. “Connecting with residents in a personal way further enhances and customizes their day-to-day experience – and also gives them a few extra minutes in a day.”
Adaptive re-use revolution
With sustainability and the preservation of Earth’s materials rising to the top of the news cycle daily, Allison Greenfield, partner at Lionheart Capital, foresees “many developers looking to re-imagine pre-existing buildings for new projects instead of knocking down structures and starting from scratch. By retaining the original integrity of existing buildings, developers can encourage community support and help the environment at the same time.”
Foreclosure rate the lowest in at least 20 years
As of September, the foreclosure inventory rate, which measures the share of mortgages in some stage of the foreclosure process, was 0.4%, down 0.1 percentage points from September 2018. The September 2019 foreclosure inventory rate tied the prior 10 months as the lowest for any month since at least January 1999.
“The decline in delinquency rates in North and South Carolina compared with a year ago reflects the recovery from Hurricanes Florence and Michael, which hit in the autumn of 2018,” said Frank Nothaft, chief economist at CoreLogic. “Shortly after a natural disaster, we tend to see a spike in delinquency rates. Depending on the extent of devastation, serious delinquency rates generally return to their pre-disaster levels within a year.”
Homes will continue to shrink
The sprawling, suburban homes that Baby Boomers coveted will increasingly become a relic of the past in 2020 and into the next decade as the median square footage of newly built, single-family homes will fall for the fourth time in five years, Zillow predicts. The typical U.S. home has shrunk by more than 80 square feet since 2015. Millennials, the largest group of buyers in 2020, are proving to have much different tastes and lifestyles than their parents’ generation. Many prefer homes in urban areas with an abundance of amenities within walking distance over the mansions in the exurbs that Boomers are vacating.
Presidential debate puts focus on housing
For the first time this election cycle, Democratic candidates for presidents discussed the affordable housing crisis during a debate on November 20. The moderator in the fifth primary debate of the 2020 election cycle in Atlanta asked candidates for their solutions to the nation’s housing affordability crisis. During the debate, Diane Yentel, president and CEO of the National Low Income Housing Coalition, tweeted: A presidential debate question on housing! Historic. #OurHomesOurVotes2020
Affordability crunch for renters
In 2019 alone, renters spent more than $512 billion on housing – the most of any year in this decade, according to a new Zillow analysis. Altogether, renters spent 2.9% more on rent this year than they did in 2018 and 46.5% more than in 2009 ($349.8 billion). The current median rent is $1,600 per month, up 2.3% from a year ago. Rent prices have been on the rise since 2012, creating an affordability crunch that has led many renters to make sacrifices in order to pay their rent, including living with roommates longer or reducing their savings for a down payment. Nationally, rent prices grew the fastest in June 2015, when the U.S. median rent rose 6.5% annually. As of October, rents in Phoenix and Las Vegas were growing the fastest of the country’s 50 largest metro areas.
Rental website Zumper recently released its 2019 State of The American Renter Report. Based on responses from over 10,000 people who took Zumper’s survey this year, 32% of respondents said they do not believe that the American Dream involves homeownership. Financial situation was the overwhelmingly top reason that the survey respondents said they rented instead of owned. Flexibility and responsibility of homeownership followed.
Wright designs added to UNESCO World Heritage List
After more than 15 years of extensive, collaborative efforts, eight of Frank Lloyd Wright’s major works were officially inscribed to the UNESCO World Heritage List in 2019 by the World Heritage Committee. The Wright sites that have been inscribed include Unity Temple, the Frederick C. Robie House, Taliesin, Hollyhock House, Fallingwater, the Herbert and Katherine Jacobs House, Taliesin West, and the Solomon R. Guggenheim Museum. The collection of buildings, formally known in the nomination as The 20th-Century Architecture of Frank Lloyd Wright, span 50 years of Wright’s influential career, and mark the first modern architecture designation in the United States on the World Heritage List. Of the 1,092 World Heritage sites around the world, the group of Wright sites will now join an existing list of 23 sites in the United States.
Cities becoming less car-friendly
Redfin predicts that in 2020, more cities will favor green modes of transit and actively discourage driving. Some cities already have plans in the works. San Francisco’s Market Street will transform into a car-free corridor in 2020, and New York City drivers will have to pay to drive into the heart of the city beginning in 2021. In cities that become less car-friendly, those that frequently spend time in the city-center will place more value on a commute that doesn’t require a car and move to either a walkable city center or close to public transit. Meanwhile, some people will choose to avoid the city center altogether and put a higher value on suburbs where they can live, work and play.
In November, a San Francisco-based developer broke ground on the country’s first car-free community in Tempe, Arizona. Culdesac, which bills itself as the world’s first post-car real estate developer, is building a 1,000-person neighborhood called Culdesac Tempe. Culdesac intends to establish a vibrant people-focused pedestrian neighborhood and lead the way for the future of planning for urban communities.
Lack of entry-level homes
The number of entry-level homes available, which home search platform Homesnap defines as a two- to three-bedroom house with an average cost of $150,000 to $250,000, is decreasing as markets across the country are experiencing an overall lack of homes for sale in comparison to the amount of buyers. From January to November 2019, there was a 9.93% decrease in new listings.
This lack of new for-sale homes is not only lowering inventory of entry-level homes, but also driving up prices for those homes due to high demand. As buyers delay purchasing due to the lack of inventory and higher home prices, Homesnap predicts in 2020 you can expect more people to prolong rental agreements as opposed to purchasing their first home. As the rental trend continues, investors will respond by purchasing for-sale homes and converting them into long-term rental properties, further decreasing the amount of starter homes available.
Construction worker shortage deepens
The fourth-quarter 2019 USG Corporation and U.S. Chamber of Commerce Commercial Construction Index shows confidence levels among contractors are down after a record high last quarter. Labor shortages continue to negatively affect the construction industry, though over 70% of contractors say technology on the job site could improve project delivery and labor productivity, and anticipate increasing usage in the coming years.
To address concerns over worker skill levels and availability, the construction industry is embracing technologies like drones, equipment tagging and augmented/virtual reality to improve project delivery. In fact, 60% of contractors already report using technology on the job site, up six points year-over-year, and 80% believe they will be using technology by 2022.
Top metro areas
The National Association of Realtors has identified the top metro areas for the next three to five years based on domestic migration, housing affordability for new residents, consistent job growth relative to the national average, population age structure, attractiveness for retirees and home price appreciation, among other variables.
In alphabetical order, the markets are: Charleston, South Carolina; Charlotte, North Carolina; Colorado Springs, Colorado; Columbus, Ohio; Dallas-Fort Worth; Fort Collins, Colorado; Las Vegas; Ogden, Utah; Raleigh-Durham-Chapel Hill, North Carolina; and Tampa-St. Petersburg, Florida.
Strong economy will maintain luxury home values
Gregory Malin, CEO and founder of real estate developer Troon Pacific, believes the strength of the U.S. and global economy will prevail. “We expect luxury home values in primary markets like San Francisco and Beverly Hills to hold steady,” he said. “In uncertain times, people tend to want to own a primary residence with as little debt as possible, as evidenced by the 2008-2010 recession. Secondary markets like Napa, Cabo and the Hamptons will remain more discretionary, and while values will likely plateau, we do not expect them to fall. As an influx of inventory becomes available in primary markets, we also foresee luxury home buyers becoming more discerning and eco- and health-conscious, and as a result, there will be continued growth in the wellness real estate sector.”
The New York market
“Right now there’s a lot of political uncertainty, both locally and nationally, causing buyers to be weary of the real estate market as a whole,” said Andrew Barrocas, chief executive of the brokerage firm MNS. “Some events in the past year, many of them politically motivated, have shown that New York is not as pro-business as it should be. Employment rates have a direct correlation to the real estates market, especially on the rental side. If more jobs are created, the rental market is stronger and vice versa.”
Michael Rossi, CEO of Elegran, added: “We are seeing a slowdown in new rental developments in Manhattan, a reduction in concessions and the beginnings of rental price increases for the first time in years as sellers are staying put and would-be buyers are choosing to rent. The rental market will strengthen, and as rental prices increase into next summer, the market will start to tilt in favor of buying. We may see the standoff between buyers and sellers begin to dissipate by the end of 2020.”
Caribbean real estate is hot
“The Caribbean has come back stronger than ever since the 2017 hurricanes,” Mark Durliat, chief executive and co-founder of Grace Bay Resorts. “ In Turks and Caicos, the demand for real estate is as high as it’s ever been. The entire island is essentially for sale. The market here in Turks and Caicos is up 16% over last year in dollar volume and average home price is up 30%. With no restriction on foreign ownership, now is the time to invest in the islands.”
Boutique accommodations
Roadside motels will become a more coveted piece of real estate, according to Johnathan Capps, vice president of revenue for Charlestowne Hotels. “With their unmatched locations and connection to localized, unique travel experiences, developers are continuing to look at roadside motels as an opportunity to create design-oriented, stylish boutique accommodations,” he said.
Capps also believes universities will become more directly involved in hotel development. “We’ll see a rise in universities co-developing boutique hotels as a sophisticated extension of the campus experience with out-of-classroom educational experiences, elevated alumni gathering offerings and even opportunities to donate hotel profits back to university scholarships.”
South Florida market
The Miami market will continue to see buyers from high-taxed states, according to Jim Cohen, president of residential development at Fontainebleau Development. He said, “We expect to continue to see high-taxed state residents migrate down to South Florida in 2020, such as Northeast residents, despite there being no significant changes in the market. Any slowdown we see from these buyers is simply a reflection of the overall state of the U.S. real estate market. Buyers are sitting on the sidelines waiting to sell in order to relocate and invest down South. There is still a big demand to be in South Florida.”
Hispanic homeownership to fuel housing market
In the next decade, Hispanic Americans will for the first time gain more home equity than white Americans, predicts Redfin real estate brokerage. That’s because the majority of new homeowners are Hispanic, and home values in Hispanic neighborhoods are increasing faster than in white neighborhoods. There are more Hispanic homeowners in Texas than in any other state, and Texas cities are likely to experience strong gains in home values over the next decade as people move there from more expensive places like San Francisco and Los Angeles. Over time, this will improve economic equality for Hispanic Americans.
Southeast cities to lead in home price growth
Affordable Southeast cities like Charleston, South Carolina, and Charlotte, North Carolina, are attracting an increasing number of migrants from expensive cities, which will drive up home price growth in these areas, according to Redfin. Charleston saw a 104% annual increase in the number of Redfin users looking to move in, relative to the number of users looking to move out, in the third quarter of 2019, and Charlotte saw a 44% increase. Migrants are attracted to the growing economies of Charleston and Charlotte—Microsoft is spending $23 million to expand its Charlotte campus, and in Charleston, the new Volvo plant is adding thousands of jobs.
Luxury multigenerational housing
Mark Durliat, CEO and co-founder of Grace Bay Resorts, said multigenerational housing has been gaining steam in the states within the past few years, with 20% of the U.S. population living with two or more adult generations in a single household (compared to 12% in 1980). “In 2020, I anticipate luxury developers will start to get into the game as well,” Durliat said. “Rock House, Grace Bay Resorts’ new luxury residential resort in Turks and Caicos, will include one home in The Reserve that can be purchased as one unit and separated into four separate living quarters—perfect for larger families.”
Punitive approaches to homelessness on the rise
A new report by the National Law Center on Homelessness and Poverty shows that cities throughout the country are adopting more laws that punish homelessness. “Many people experiencing homelessness have no choice but to live outside, yet cities routinely punish or harass unhoused people for their presence in public places,” the report states. “Nationwide, people without housing are ticketed, arrested, and jailed under laws that treat their life-sustaining conduct—such as sleeping or sitting down—as civil or criminal offenses. We refer to these policies—laws that restrict or prohibit different categories of conduct performed by homeless people—and their enforcement collectively as the “criminalization of homelessness.”
Remembering famed architects
I.M. Pei, one of the most revered architects in the world, died May 16 at his home in Manhattan. He was 102. Pei designed such well-known structures as the Kennedy library, a wing of the National Gallery of Art in Washington, D.C., the glass pyramid at the Louvre, the Museum of Islamic Art and the Rock & Roll Hall of Fame.
Noted architect Phil Freelon died July 9 at age 66. “Phil was a trailblazer in the architecture community and a pioneer of public spaces,” said Robert Ivy, executive vice president and CEO of the American Institute of Architects. “His contributions to the design of the National Museum of African American History and Culture, notable projects in communities across the United States as well as his positive influence on the profession and our society will be felt for years to come.”
For a look back at more great architects, designers and curators we lost in 2019, read here.