“How’s the real estate market doing these days?” is a question almost as common as asking about the weather. And if you’re thinking of buying a rental property for the first time this year, you need the answer. To have the ability to make confident, smart real estate investment decisions, a little bit of knowledge on the state of the current housing market is a must. Today’s trends may even affect how profitable your investment property will be in years to come! Therefore, real estate investors should research and educate themselves on the trends that affect the ebb and flow of activity in the real estate market before committing to a rental property. To help you out, we’ve compiled 5 current trends that beginners need to keep an eye out for before investing in real estate in 2019.
#1 Real Estate Property Prices
If you’ve been keeping an eye on the US real estate market, then you’ve heard that home prices made a giant jump in the course of 2017 and 2018. This year, however, may be a different story. Home prices are still estimated to rise in 2019, but at a much slower pace than the previous two years according to the National Association of Realtors®. As Lawrence Yun, chief economist at NAR, said in his presentation on the 2019 housing market forecast:
“Ninety percent of markets are experiencing price gains while very few are experiencing consistent price declines”
Moreover, the 2018 Housing and Mortgage Market Review predicts that home prices will keep rising for the next couple of years with annual increases of 2 – 6%.
This has already had an effect on home sales in the current housing market. The number of home sales is expected to flatten as potential homebuyers may stay out of the market due to affordability problems. What’s causing this problem? Well, part of it is due to increasing mortgage interest rates and the other part is because of overall economic uncertainty. That combination is enough to discourage homebuyers who are on the fence about purchasing a home.
Our Tip for Beginner Real Estate Investors:
If you find an investment property for sale, don’t hesitate to make an offer! The best time to buy a rental property for real estate investors is when everyone else is not buying. Sellers are not getting many offers, meaning not only will you face less competition, but sellers are motivated to accept offers below asking price. In addition, this current housing market trend indicates that more people will be looking for rental properties instead of homes to buy since renting is more affordable. This means that if you buy rental properties in 2019, you can expect to find strong rental demand in many parts of the US.
To make sure you’re buying a real estate property at a fair price, however, we recommend checking comps in the area. Real estate comps show you the value of similar properties in the area, either recently sold, currently listed or whose listings have expired. This helps you fine-tune your budget and ultimately make you confident that any offer you make is competitive yet reasonable. You can ask a real estate agent for comps or, better yet, find them yourself here at Mashvisor!
To start looking for and analyzing real estate comps in your city and neighborhood of choice, click here.
#2 Mortgage Interest Rates
After years of being at a standstill, mortgage interest rates are on the rise. Based on research, our current housing market forecast for 2019 estimates that interest rates will rise to an average of 5% for a 30-year, fixed mortgage. It’s been seven years since mortgage interest rates were this high. As mentioned earlier, this is part of the reason why potential homebuyers are staying out of the market right now. A mortgage is a big commitment, and higher interest rates make many buyers pause.
Nonetheless, the increasing mortgage interest rates don’t mean the US economy is in trouble – it actually means the opposite! The Federal Reserve increased interest rates in order to stabilize the strong economy and rising inflation during the past few years. And, according to Kiplinger’s latest forecast on interest rates, the Fed will likely hold off on raising interest rates until at least June 2019.
For more information, read: Investment Property Mortgage Rates in 2019: All You Need to Know
Our Tip for Beginner Real Estate Investors:
Even though mortgage interest rates might reach their highest point by the end of the year, they’re still relatively low at the moment! As a real estate investor, you still have time to get approved for a mortgage loan at a reasonable rate to buy an investment property before June. In addition, remember that interest rates differ by state in the US and are driven by local competition and business costs. Of course, your credit score also affects the interest rate you can get for a mortgage loan in the current housing market. So, it’s still important to learn how to improve your credit score before applying.
#3 Housing Inventory and Supply
In 2018, buyer demand outpaced the number of homes for sale at the national level and inventory fell by 11%, according to NAR. While the current housing market is still dealing with low inventory, sources suggest that hope is on the horizon. According to Realtor.com‘s 2019 National Housing Forecast, the numbers of homes being put on the market or newly constructed has increased slightly in the majority of markets. And since home sales have slowed, this has helped stop the inventory decline.
However, the majority of new constructions have been in upscale homes. This is creating issues since most homebuyers want entry-level price points while newly built homes tend to have higher prices. In addition, issues with zoning to allow for new homes to be built and labor shortages in the construction industry are slowing the process down. The bottom line: builders have a challenge meeting the demand in the current housing market.
Our Tip for Beginner Real Estate Investors:
At this point, it’s a matter of waiting to see whether construction is able to rise in enough markets to make a difference. Real estate investors should keep tabs on construction and see if it correlates with the supply of homes for sale on the market. Moreover, if you’re still planning to buy a rental property in a market with low supply, we’ve got 3 tips for you:
- Take a look at the local homes-for-sale inventory statistics. Find out how many homes are for sale, how long they’ve been on the market, and the median asking prices. This allows you to see how your local market is performing in relation to the national average.
- Be aware of your competition. With fewer offers from homebuyers, you want your offer to really stand out from others competing for the same investment property. Some buyers will offer low numbers, but sellers are always waiting until they get the highest offer.
- Don’t rush into a purchase that doesn’t make financial sense. Find out how much you can afford and stick to your budget. After that, crunch the numbers with our Investment Property Calculator to figure out the potential returns from this property. If the numbers don’t add up, the real estate property is probably not worth your investment.
Click here to start your 14-day free trial with Mashvisor to use our Investment Property Calculator and subscribe to our services with a 20% discount after!
#4 Best Places to Buy Rental Property
The main question on your mind as a beginner real estate investor is probably “Where should I buy a rental property?” Investors have long considered urban cities a great bet, but according to the PwC’s Emerging Trends in Real Estate® Report, the suburbs and 18-hour cities provide excellent investment opportunities in 2019. This is mainly due to the fact that the rental demand there keeps growing. Researchers are seeing that millennials and young adults have started to make inroads into the suburbs.
Stats from the US Census Bureau show evidence of this current housing market trend. Over 2.6 million people annually moved from urban cities within metropolitan areas to the suburbs in 2016 and 2017. These millennials are getting older and looking for stability, so they choose to rent single-family homes in the suburbs rather than a downtown apartment. For them, the suburbs offer larger and more affordable homes, good schools, and outdoor space. In addition, the majority of the PwC’s markets to watch are 18-hour cities like Atlanta, Nashville, Denver, and Raleigh.
To learn more about these cities, read: 10 Best Places to Invest in Real Estate in 2019
Our Tip for Beginner Real Estate Investors:
Of course, we recommend investing in these 18-hour cities and their surrounding suburbs. However, don’t forget to perform a real estate market analysis! Remember that real estate is very local, so even if you’re buying rental properties in a good city, there might be some bad neighborhoods within this city. Smart property investors know how to research the local housing market to identify whether real estate investment opportunities are actually profitable or not.
Don’t get caught up trying to find an investment property for sale in a bad location. So, check the market’s average cap rate, occupancy rate, home prices, and rental rates and run a real estate market analysis to see if the numbers add up. To help you out, Mashvisor’s Heat Map Tool will provide you with this data for the city of your choice and gives you a visual analysis of the current housing market there! To learn more about our investment tools, click here.
#5 Technology and the Current Housing Market
While there are things that affect your investment property that you can’t control (like home prices and inventory), there are things that you can. In a competitive real estate market, one way to set yourself and your rental property apart from the rest is the use of smart home technology. Millennials are used to living in the age of high-tech. So, traditional amenities and services don’t cut it anymore for millennial renters. They’re looking for energy-efficient homes with smart appliances. If you don’t have them, they’ll look elsewhere.
Smart home technology has become a game changer and very common in the current housing market. A large portion of residential real estate properties in the US have been or are being upgraded to facilitate the lives of residents. According to a recent study, over 80% of Americans expressed an interest in owning homes equipped with smart technology over a comparable home that is not. Meaning, these types of rental properties are definitely in demand in 2019.
Our Tip for Beginner Real Estate Investors:
For real estate investors, adding smart technologies to your rental property offers some big benefits. The biggest advantage is that rental property with smart technology will have a higher value than a comparable property that does not. In addition, because smart homes are in demand in the current housing market, you’ll attract more potential tenants when installing smart technologies. Moreover, since your investment property will have a higher value, this means you can charge higher rents – and tenants will be willing to pay! Thus, our tip for real estate investors is to jump on the smart home technology bandwagon in 2019.
The Bottom Line
Understanding the current housing market is a basic first step in getting your first investment property. However, as mentioned before, real estate is very local as a result of wide differences among home prices, interest rates, and housing inventory that differ from state to state. So, after understanding these trends that affect the national market, you need to study the trends in your local market to understand how it’s performing and where to find the best properties for sale there.