The Counselors of Real Estate (CRE) recently published a report that highlights trends that will impact the real estate market in 2015 and 2016. In part one, we looked at how demographics and urbanization affect the Charlotte real estate market. Now we take a look at some of the other influence factors.
Higher interest rates
The CRE expects mortgage rates to remain near historic lows in the near-term. At the same time, more millennials may enter the market. If sizable numbers of Charlotte millennials purchase homes before rising interest rates become a hindrance, home sales may benefit. By contrast, higher interest rates would likely increase apartment construction and other commercial development.
Interest rates have been near historic lows for so many years now that many people, particularly Millennials, find it hard to remember higher borrowing costs of the past. Yet, the Federal Reserve insists that rate hikes are on the way later this year. Although rates will still be historically low, any increase in rates could signal the beginning of a longer-term trend towards increasing interest rates and significantly impact borrowing behavior. Rising interest rates means that buying a home is more expensive, and qualifying for a loan becomes more difficult. Younger home buyers tend to be impacted the most by increasing borrowing costs, which could be particularly bad for Charlotte’s large under-40 population. Expect to see a slight increase in home sales in the short-term in anticipation of increasing interest rates in the near future.
Technology in real estate
Disruptive innovations will continue to impact an industry in transition. Venture capital accelerates the pace of change. Now, crowd funding increases the flow of capital by allowing smaller investors to fund innovative real estate technologies. One of the reasons that real estate sales and development have such high transaction costs is the availability of information. Technology makes it easier to disseminate information and therefore lowers transaction costs. The business of residential real estate has been changing over the last few years as the Internet and mobile computing technology makes it so much easier to share property information with interested parties. Proprietary data is harder to come by in commercial real estate, but there are more companies specializing in gathering and disseminating data. In addition, crowdfunding allows individuals to invest small amounts of money into large real estate developments. New forms of financing make it easier for new, smaller investors and developers to enter the market and reduce borrowing costs industry-wide.
Changes in retailing
Shifting demographic and wealth patterns will impact retailers. Regional shopping malls must respond to the increasing urbanization and declining buying power of certain demographics. Retailers that combine physical stores with strong e-commerce skills and fast delivery stand to prosper during these times of change.
Changing consumer preferences and behavior are also affecting the market for retail space. The ease of online shopping has seriously impacted in-store sales for all retailers, but so has the general move away from traditional shopping malls. Rather than driving out to a large indoor shopping center, consumers today tend to prefer outdoor, open-air shopping centers or smaller neighborhood centers. New urbanism has drawn the younger and older segments of the population back towards the city centers where neighborhood, walkable shopping is highly desired. This trend will impact the type and location of future retail development in Charlotte’s suburbs and downtown neighborhoods.
In general, Charlotte’s dynamic economic growth and solid corporate base bode well for the future. However, no metropolitan area is immune to the impact of rising interest rates, should they occur. Also, the effect of emerging real estate technologies is often national in scope, so Charlotte will face such changes just like other major metro areas will.