Adversity does breed creativity -- at least where real estate is concerned. Housing experts have summed up 2012 as the year of the bottom, with national-level home prices finally beginning to rise as sales activity bounded and both inventory levels and mortgage rates plunged. They expect the so-called recovery in housing to continue in 2013, with inventory diminishing and prices gaining. But that’s only part of the housing story.
A bevy of unusual, innovative, and in some cases unprecedented, trends have been emerging in the housing sector that are likely continue affecting everything from architectural design to buyer behavior this year. We rounded up a list of 12 market trends to keep track of in 2013.
Starting with financing. With the Federal Reserve buying up $40 billion worth of mortgage-backed securities per month, lending rates will continue to hover near record lows. Those miniscule rates -- a 30-year fixed-rate mortgage currently totes a 3.35% rate – have enticed qualified prospective buyers and will continue to do so. Still, lending has remained relatively tight, a dynamic that has led to a proliferation of nontraditional financing options that, despite projections that lending from private lenders will start to ease this year, will continue in 2013.
Some home buyers have tapped into the bank of mom and dad, receiving gifts or loans from family members. (A 2012 National Association of Realtors survey found that 30% of first-time home buyers received funding from relatives for downpayments.) Many others have pooled together funds to pay all-cash, fueling about 30% of all home sales in the past year compared to about 10% a decade ago, according to NAR. All-cash sales have proliferated in large part thanks to foreign buyers and investors -- but Baby Boomers who believe brick and mortar real estate is a good place to seek a relatively high yield on money have contributed to this trend too.
For investors, alternative options have come from regional real estate firms willing to underwrite loans in return for lofty interest rates. New Jersey-based Procida Advisors, for example, offers a Fix ’Em & Flip ’Em program that provides up to 70% of the cost of buying and fixing a home, typically at 12% annual interest. MACK Cos, a Chicago-based firm that buys, fixes, rents out and then sells single-family homes to passive investors, offers its buyers 60% financing with a five-year balloon mortgage.
Nontraditional lenders are also funding large-scale projects. “There’s a lot of new development coming and it’s being financed by Wall Street, not commercial banks,” says Jonathan Miller, chief executive of Miller Samuel, a New York-based real estate appraisal firm. “It’s coming from hedge funds, sovereign wealth funds, and other non-traditional sources that have recognized an opportunity since the commercial banks are still grappling with the legacy of bad lending decisions in the past and playing defense.”
In terms of that new development, builders are getting increasingly creative with the extras. It’s becoming increasingly common to see new luxury residential offerings paired with high-end hotels in mixed-use high rise buildings. From the Ritz Carlton Residences at LA Live to the up-and-coming One57 in New York to the planned Faena project at the Saxony Hotel in Miami, developers have incorporated hotels into their new towers that allow residents to enjoy year-round travel amenities like fitness and spa services, room service, and housekeeping.
Some buildings are taking pet-friendly to another level, boasting service centers for four-legged residents. In New York City, for example, the massive MiMA development's Dog City will walk, groom and arrange play dates for residents' dogs, while the Caledonia has a separate canine entrance where dogs can be cleaned up after a session outside. The Pierre even offers a pet food-centered room service menu.
Growth in the home remodeling industry is expected to clock double-digit gains in the first half of 2013, according to the Leading Indicator of Remodeling Activity. While kitchens and bathrooms always top owners’ lists of rooms to remodel, several other areas of the house are now getting attention. Starting with closets. “Not just closets, our clients want decked-out closets. It’s now a special space that we have to fully detail just like a kitchen,” says Kevin Harris, a high-end home builder in the Gulf Coast region and fellow of the American Institute of Architects. “They have become showrooms for all of your clothes.” Closet planners like LA Closet Design have cropped up in recent years to capitalize on the closet-cum-boutique craze.
Energy efficiency has become a huge draw for buyers too. Green home building is projected to encompass as much as 38% of the U.S. residential market by 2016, according to a study by McGraw-Hill Construction and the National Association of Home Builders, up from 17% in 2011. Spending on green home technologies (everything from energy-efficient windows to foam insulation to on-site renewable energy generation) is expected to rise to as much as $114 billion from $17 billion. Energy efficient appliances and windows, foam insulation, heating and cooling systems powered by geothermal, solar panels, and wind mills have all quietly begun invading new construction, particularly in the luxury end of the market.
“Green construction is a major selling point. So are smart homes,” says Erik Coffin, chief executive of Gotham Capital Management, a Los Angeles-based real estate firm that works with high-net worth clients on their real estate investments.
Smart homes, or residences wired with home automation, have been around for years. But the newest systems utilize Apple products like iPhones and iPads to automate living spaces more effectively -- and for less money. Home builders say smart home technology is one of the most commonly requested amenities among clients and developers have begun incorporating systems into new condo and rental projects. The global industry is projected to surge to $35.6 million by 2016 from $16.9 million in 2011, according to MarketsandMarkets. Even telecom giant AT&T is testing out a home automation and security business called Digital Life, with hopes of rolling it out nationally later this year, according to Forbes' Connie Guglielmo.
In general, the real estate sector has been slow to adopt high-tech options. That’s finally changing. A variety of tech startups geared toward the sector have cropped up since the mid-2000s, promising an array of disruptive services sure to make homeowners’ lives simpler. Online real estate search sites have become immensely popular, propelling sites like Zillow.com and Trulia.com to IPO on U.S. stock exchanges, as more prospective buyers turn to the internet to begin their house hunting. Expanding upon that buyer behavior, an even more convenient trend is catching on: online real estate brokerages. Online brokerages are digital real estate firms that source listings from local multiple listing services, aggregate them for users and then offer in-house agents to broker deals. These one-stop shops are catching on: Estately says it will more than double the number of major markets in which it operates this year, according to Inman News, and Redfin estimates it racked up $50 million in revenue in 2012.
Another tech-fueled housing trend: real-estate-centric social networking sites. Houzz, a design and home remodeling site that allows users to create image-driven idea books and source contractors, has arguably become the largest player in the digital home design space, tallying up 10 million monthly users in the final months of 2012. With both home remodeling and new home construction projected to rise in 2013, it’s likely the site will continue to expand. Another site gets hyper local. Nextdoor.com focuses on neighborhoods, allowing its users to connect with fellow neighbors and both quickly exchange information about the area and arrange neighborhood events.
The online brokerages are using social media aggressively too. Redfin recently launched its Collections section, allowing users to compile and share photos of for-sale homes on a Pinterest-style platform. Click on a photo and you can go to the listing – even put an offer on it.
NOTE: An earlier version of this story incorrectly labeled the home automation industry a multi-billion dollar industry; it is not. Growth is projected to surge to $35.6 million by 2016.
–
You can follow me on Twitter or subscribe to my Facebook profile. Read my Forbes blog here.
