3. Rising Interest Rates: Interest rates have been at near-historic lows – and the general view is that they will stay that way, for a while longer. But savvy investors and homebuyers alike are preparing for rising rates. When it happens, it will devalue future cash flows, thereby devaluing assets. An interest rate rise could spur short-term commercial development and slow home sales. Rising rates will cause higher mortgage payments, thereby decreasing homebuyers’ choices. But if millennials jump in and buy before interest rates rise too far, it could create a second wind for the residential market.
4. Global Instability and Currency Devaluation: The U.S. dollar remains strong but the global economy is being affected by currency devaluation in many other countries. Investment from non-U.S. sources helps fuel the U.S. real estate market, but event risk should be considered–“hot spots” of conflict are continually in the news, as is cyber security–and the global economy is psychologically linked. Investors and consumers alike should take such factors into consideration as they make real estate decisions.
5. Urbanization: Urban population growth is a global phenomenon. An increasing desire to reside in “live-work-play” and “walkable” communities is not limited to young professionals; older generations are also drawn to such locations, which affects housing choice for all age groups. Shopping malls must adapt; many have skewed to one of two successful models, luxury or discount offerings. Urban vertical shopping configurations are gaining traction. Some suburbs are feeling residential pressure, with home resale not easy when younger families don’t want the kinds of homes that are in plentiful supply from a past generation of suburbanites. The past few years have also seen a rise in corporate relocations to cities from the suburbs as a strategy to attract younger, urban professionals.
6. Energy:
Oil price drops this year due to increases in non-U.S. oil production
have negatively impacted large and small U.S. producers. Workforce reductions, and the associated
decrease in residents’ buying power — while primarily occurring among workers
in oil exploration and production – impacts the greater community, from retail
to housing to professional services. Last year’s “boom towns” are now
the opposite; the length of this duration is unclear. As a result, alternative energy forms are
becoming more attractive. Investors are
rethinking their energy investment plans, but the high demand for energy in
Japan may change the dynamics.
