In case you weren’t paying attention, 2017 was an exciting year in real estate. According to Zillow, it was full of record-breaking home price growth paired with an inventory shortage of for-sale homes. The value of the entire U.S. housing stock increased by 6.5 percent in 2017, according to Zillow—the gain in home values was the fastest since 2013 (when real estate was just beginning to recover from the Great Recession of 2007-2009).
Obviously, I don’t have a crystal ball—but after spending decades as a successful real estate investor, I am pretty well versed in reading the tea leaves. So, what does 2018 have in store for real estate investors? Here are my predictions for three trends to watch this year:
- New Buying Patterns
In real estate, it’s always important to know your demographic, and times, they are a-changin’. Consider the following:
The baby boomers who once purchased all the traditional colonial-style homes are now ready to downsize. But they don’t just want less space, they are also looking for ranch-style homes so they don’t have to navigate stairs as they age. What does that mean? Single-story homes will increase in value as demand rises.
Millennials—who, according to Realtor.com could make up 43% of homebuyers taking out a mortgage by the end of 2018—are finally ready to purchase their first homes. Because they are largely seeking affordability and quality of life, they are having to trade in the urban life they crave and head out to the suburbs. In 2017, the undeniable shortage of affordable entry-level properties created a real barrier for this group, nation’s largest buyer segment.
During the Great Recession, more than 10 million Americans were forced into foreclosure—and their seven years of waiting to purchase another property (due to foreclosure law) is over. According to the National Center for Policy Analysis, approximately 1.5 million Americans will become eligible to re-enter the housing market this year. While some might still be licking their wounds, many are sick of renting and itching to own again.
- Inventory Shortages
It’s clear that more inventory is needed to meet buyer demand, which analysts expect to remain strong throughout the upcoming year. Inventory shortages will continue to drive up home prices and serve as a barrier for first-time homebuyers, many of whom have a tough time saving up enough for a down payment.
According to Zillow, there are 12 percent fewer homes to choose from nationwide than there were a year ago—and 51 percent of for-sale properties are in the top one-third of home values (which are out of reach for first-time buyers). Hopefully we’ll start to see an increase in new home builds and ones that are on the more affordable end of the spectrum. Building more starter homes that first-time and lower-to-middle income families can afford will help bring home prices down. Of course, homebuilders are arguing that the high costs of land, labor and materials make it difficult to build inexpensive homes.
- Interest Rates Creeping Up
With a new Fed chair in place and President Trump’s new tax reform in full gear, mortgage rates will probably stay on the lower side for the immediate future. But who knows where they’ll go from there. The likely answer is up.
A panel of more than 100 experts surveyed by Zillow forecasted that rates would rise, on average, to 4.5 percent over the next 12 months.
U.S. inflation came in at 2.1% in January compared with a year earlier, a sign that wages are rising for workers. For investors, faster inflation increases the chances that the Federal Reserve will raise interest rates more quickly this year.
From where I stand, when you couple still-low interest rates with some economists’ predictions that there will be a moderate increase in inventory, it looks like we very well may have a seller’s market in 2018.
So if you’re looking into becoming a real estate investor, 2018 could be a great time to do so. Investing in single-family rental properties may deliver strong returns. How do you begin? Do your research and read everything you can—this will automatically increase your financial literacy. Learn how to invest using other people’s money in order to minimize your risk. Then, take action, so that you can lead the rich life you absolutely deserve.
Robert Kiyosaki is the author of best-seller Rich Dad Poor Dad.
Also time is running out to book at discounted rates for the Business Investor Summit 2018. For just two days Robert Kiyosaki and his team are live in South Africa discussing achieving financial freedom.