The 2016 real estate market: Looking back on 9 major trends

After making our predictions for what the 2017 housing market will bring, we wanted to take a moment to look back on the biggest real estate headlines of 2016. It’s no easy task, nailing down the most noteworthy stories. There’s been so much happening in the real estate market—from municipalities’ crackdown on home-sharing sites like Airbnb, to a spike in interest rates post-election. We’ve done our best to round up a few real estate market trends and headlines that have stood out this year.

So without further ado, here we go…

9 Top Real Estate Market Trends in 2016

#1: The Infusion of Foreign Capital in the U.S. Real Estate Market

From turmoil in the Middle East to Brexit, 2016 has been a year steeped in global turmoil. As a result, foreign investors have continued to pump capital into the U.S. real estate market, which is considered a safe haven compared to the uncertainty of markets abroad. The bulk of investment in multifamily properties continues to be in markets like Boston, New York City, and Los Angeles. The uptick in cross-border capital has pushed many domestic investors into secondary and tertiary markets, with renewed interest in Class B/C properties that offer value-add opportunities. For more information on this trend, check out this article.

#2: Declining Homeownership Rates

Just 12 years ago, the national homeownership rate was a staggering 69.2%. Today? Well, homeownership rates haven’t just declined—they’ve fallen off a cliff. In 2016, the homeownership rate plummeted to just 62.9%. The U.S. has become home to more renters than ever before. We recently took a deep dive into this trend: Part I includes some sobering statistics about the decline in homeownership, including the impact on the rental market. Part II looks at what’s driving these trends.

#3: The Credit Crunch

Even though interest rates have hovered at record lows, many would-be homeowners are still renting because they can’t meet today’s stringent credit requirements. The 2007-2008 collapse of the housing market ushered in a host of new regulations that have made it harder than ever for the average American to secure a loan for their new home. Coupled with declining affordability, it’s easy to see why the demand for rental housing was so strong this past year (and why it will be for the foreseeable future).

#4: Rising Interest Rates

What a difference a few weeks can make! The average 30-year fixed mortgage rate was up to 4.18% on December 15, a 21 basis point increase from the week prior, and up from just 3.51% the month before. Real estate investors will notice a bigger increase, with rates now hovering around 5% for non-owner-occupied investment properties.

Rising rates have already slowed the real estate market, according to Lawrence Yun, Chief Economist at the National Association of Realtors. “The budget of many prospective buyers last month was dealt an abrupt hit by the quick ascension of rates immediately after the election,” says Yun. “Already faced with climbing home prices and minimal listings in the affordable price range, fewer home shoppers in most of the country were successfully able to sign a contract.” In November, pending home sales slowed to their lowest level since January.

#5: The Crackdown on Home-Sharing Sites

In November 2015, San Francisco voters shot down Prop F, an initiative to restrict private, short-term housing rentals like those booked on Airbnb. However, that hasn’t stopped policymakers across the country from trying to crack down on home-sharing sites in other ways. It was already illegal to rent out an entire New York apartment for less than 30 days, but now it’s illegal to even advertise such a rental, with fines up to $7,500. In June, Chicago enacted a complicated 58-page home-sharing ordinance that levies special taxes on home-sharers and forbids people from renting property if they don’t live there. By the end of 2016, Denver will require all short-term rental hosts to be licensed.

Even Airbnb joined the fray, banning commercial operators in San Francisco and New York from using their platform to advertise short-term stays. This was part of an agreement with these cities, who were trying to impose burdensome regulations that would hinder Airbnb’s growth.

Platforms like Airbnb have shaken up the hotel industry in recent years; but over the past year, their impact has had an impact on the broader housing market as well.

#6: The Return of House-Flipping

The house-flipping that became so prominent in the lead-up to the financial crisis has officially made a comeback. A recent Wall Street Journal article attributes it to a combination of skyrocketing home prices, venture-backed startups, and Wall Street cash. “The floodgates have opened,” says one investor in Oakland, CA. Indeed, the number of investors who flipped homes in the first 9 months of 2016 reached a new high—and a third of the deals in Q3 2016 were financed with debt, the highest level since 2008.

#7: Slowing Growth in Hot U.S. Markets

Home prices in cities like San Francisco, New York, and Boston have experienced double-digit growth for the last several years—but it appears that this trend may be coming to a close. Home prices in the nation’s hottest markets are finally leveling off: New York had the nation’s slowest year-over-year growth in October 2016, up just 1.7% from one year prior.

#8: The Suburbs’ Resurgence in Popularity

It seems like the last few years have been dominated by headlines about young professionals and baby boomers moving back to the urban core. In the 2016 real estate market, however, we witnessed a shift in buyer preferences. Suddenly, the sleepy suburbs are back on the map. Most attribute the reversal to the high cost of both renting and buying a home in urban centers; but nonetheless, more than half of today’s buyers are looking for single-family homes in the suburbs. Of note: Among those moving to the suburbs (renters and buyers alike), there’s a notable preference for inner-ring suburbs with city-like amenities, like vibrant downtowns and access to public transit.

#9: The Evolution of Resident Amenities

Providing an on-site fitness center and in-unit laundry no longer cuts it. In order to stay competitive, multifamily developers are turning up the heat by providing a new breed of resident amenities. Mixed-use developments are focused on providing more “experiential” shopping, dining, and entertainment destinations on site. More traditional multifamily housing developments are upping the ante by hosting free yoga classes, happy hours, and other events tailored toward young professionals; as well as amenities like on-site medical offices, geared toward Baby Boomers who have recently downsized.

2017 Housing Market Predictions

What does 2017 have in store for the U.S. real estate market? We recently took a look at the trends we think will take the housing market by storm next year—and give a rundown of what these predictions mean for you. Check out this article for more information—and have a happy new year!