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There’s no doubt about it: the 2018 housing market has seen its ups and downs.

The year started with sky-high home prices, historically low mortgage rates and a definitive upper hand for sellers. In recent months though, home price growth has faltered, rates have risen to their highest point in nearly eight years, and favor has started to shift from seller to buyer.

Will these trends continue? Will housing experience the same wild ride in the new year? Here’s what experts predict will happen in 2019 real estate market:

Mortgage rates will continue rising.

“Despite steady climbing for the past two years, mortgage rates remain lower than they were during most of the recession and below average for the type of strong economic growth we’ve been experiencing. That will change in 2019, as the 30-year, fixed rate mortgage reaches 5.8% — territory not seen since the dark days of 2008 when rates were racing downward in response to the housing crisis.” — Aaron Terrazas, director of economic research for Zillow

Millennials will keep buying homes — despite those rising rates.

“The housing market in 2019 will be characterized by continued rising mortgage rates and surging millennial demand. Rising rates, by making housing less affordable, will likely deter certain potential homebuyers from the market. On the other hand, the largest cohort of millennials will be turning 29 next year, entering peak household formation and home-buying age, and contributing to the increase in first-time buyer demand.” — Odeta Kushi, senior economist for First American

“Millennials will continue to make up the largest segment of buyers next year, accounting for 45% of mortgages, compared to 17% of Boomers, and 37% of Gen Xers. While first-time buyers will struggle next year, older Millennial move-up buyers will have more options in the mid-to upper-tier price point and will make up the majority of Millennials who close in 2019. Looking forward, 2020 is expected to be the peak Millennial home buying year with the largest cohort of millennials turning 30 years old. Millennials are also likely to make up the largest share of home buyers for the next decade as their housing needs adjust over time.” — Danielle Hale, chief economist for Realtor.com

Link to original article: [Source: www.forbes.com]

Goodbye 2018, hello 2019! Bisnow spoke with several industry execs, researchers and economists to uncover the major trends expected to dominate the commercial real estate industry in the coming year. From the rise of opportunity zones to a slowdown in industrial absorption, these are 18 trends experts forecast for 2019.

1. Opportunity Zones Craze To Persist

As investors await finalized guidance from the Department of the Treasury and the IRS regarding the Opportunity Zone program, the hunt is on for assets and investment opportunities in these designated areas that present the strongest upside potential. Investors are lining up to pour billions into Opportunity Zone Funds, with a report from Real Capital Analytics stating there is more than $6 trillion in unrealized capital gains eligible to be deployed into opportunity zones. While the program was created through the passing of the Tax Cuts and Jobs Act last year to drive economic development in underserved communities in exchange for a hefty tax break, research reveals many of the census tracts classified as opportunity zones have already attracted a substantial amount of investment prior to the launch of the new federal program. Critics of the program worry it will accelerate investment in areas already experiencing a surge in development activity, leading to a convergence of investment into burgeoning neighborhoods already in high demand, and a lack of investment in otherwise blighted communities.

2. Industrial Boom To Continue Thanks To High Demand From E-Commerce Players, Though A Few Headwinds May Surface

Industrial real estate demand soared to new heights this year, and CBRE Head of Industrial Research David Egan expects more of the same in 2019. “I think the market has outperformed this year, at least from user activity. There has been a general expectation for a number of years that this can’t continue, and it turns out that hasn’t been true. We have a massive amount of demand on the market for logistics properties of all types; obviously the Class-A big-bulk warehouses are what get most of the attention, but the demand is very broad-based and extending all the way down to secondary and tertiary markets,” he said. “My expectation in 2019 is that we should see more or less of the same dynamic.” Net absorption resulting from e-commerce growth is expected to average between 75M SF and 94M SF, same as this year, according to CBRE’s 2019 Outlook report, and a lack of new supply has driven vacancy levels down to 4.3%, a historic low. “Based on the demand that we’re seeing from the e-commerce sector — as well as from traditional brick-and-mortar retailers that are entering or expanding in the online space — we can fully expect that e-commerce will continue to drive the market next year,” Bridge Development Partners President Anthony Pricco said. “This is especially true for infill sites proximate to the major population centers. While the rising costs of land and construction could be viewed as emerging market headwinds, the upside of industrial development is still exceptionally strong, as rents have been appreciating at an even faster pace.” Egan told Bisnow he would not be surprised if net absorption tapered off in 2019 due to new supply not keeping pace with robust demand levels. “You can only absorb what’s available,” he said. “While we expect to see supply-demand relatively in check, those growth metrics will still be positive.”

Read full article [Source: www.bisnow.com]

That’s the prediction from an increasing number of experts. The chance of recession was raised from 19% to 23% by the CNBCFed Survey as of 12/18/2018. (https://www.cnbc.com/2018/12/18/cnbc-fed-survey-chance-of-recession-rises-to-23percent.html)

One of the metrics used to determine overall expectations of the economy’s future health and growth is the yield curves of treasury bonds. The expectation in a growing economy is that a longer-term bond, like a 5-year bond, would pay more than a shorter-term bond, like a 3-year bond. This is one of the principles of economic progress: we expect the economy to be better in a year than it is currently.

However, the yield curve between 3 and 5-year treasuries inverted at the beginning of December. The 7 and 10-year treasuries have been approaching inversion all year. This means investors expect the economy to be in a worse position in the long term (5-years) relative to the short term (3-years).

Yield curve inversions have preceded all seven of the previous recessions. The good news is that not all of these inversions immediately preceded recessions. The inversion for the most recent recession from 2007-2009 happened in 2005, about two full years before the point when experts commonly agree that the Great Recession started.

The bad news: this likely means a recession is coming in the next few years. The good news: we still have time to prepare for it.

In the world of real estate investments, a recession is not as bad as it is to the general economy. Some things we should expect from a recession:

• Decreasing home values
• Increased foreclosure
• Increase in the % of renters
• Decrease in the number of home buyers entering the market
• Interest rate decreases as the Fed tries to stabilize the economy, and drive borrowing and spending

All of these can be helpful to a real estate investor looking to expand their portfolio. House prices will be lower, there will be increased supply, and a decrease in competition from owner occupied buyers.

Hopefully, this means open season for investors who are struggling with finding a deal that works for them.

However, keep in mind that financing options might change in the coming years during and following the recession. During the recession, from 2007-2009 and in the years since, banks tightened their requirements for lending, especially on investor properties. This is part of what lead to the rise of private lenders since about 2008-2010. I expect this to happen again during the coming recession.

This recession will not be the death of private lenders, but there is a shift coming. Plenty of investors currently work with small, local private lenders. This is a great strategy currently, because returns are high for both the investor and the private lender, while the risk is comparatively low. However, expect many of these private lenders to leave the industry or leave the market, as their risk will rise during the next recession. Some of their existing loans may go unpaid, and many of them may lose the liquidity of constantly making loans. If they have a $3M portfolio they can lend out, and three $200k loans go bad, they’ve likely lost their profit for the year. It becomes much riskier for them to continue business. Many of these lenders operate in the market in order to leverage funds for retirement.

Overall the coming recession means more deal options, but fewer financing options in the coming years. The good news, is that private lending will not die. The bad news is that it will go through a metamorphosis.

Lenders like RCN Capital will still be able to make loans during that time frame, and we won’t have the same restrictions that banks will.

Currently, RCN lends on 1-4 family non-owner-occupied properties, 5+ unit apartment buildings, condos, townhomes, and mixed-use properties. For a full view of the programs RCN can offer, you can view them all at this link: https://www.rcncapital.com/loan-programs/

RCN’s interest rates, closing costs, and leverage will adapt to a new market, but business will stay the same in concept.

In the spirit of preparation, reach out to private lenders now. Form the relationship with a private lender that will allow you to keep your business operating during a downturn. If RCN is a good fit for your business, you can reach out to me to get started, but if we’re not, still make sure to reach out to another lender who works better for your business.

*Article sponsored and written by RCN – https://www.rcncapital.com/