What are the top challenges affecting real estate?

Challenges affecting real estate

While housing marches to the slow, steady drumbeat of recovery, the grass is getting greener and optimism is creeping back into the hearts and minds of both real estate professionals and homeowners. But the wild ride isn’t over, and hiccups remain as the sector struggles to find its footing yet again.

At the National Association of Realtors (NAR) Conference and Expo currently under way in San Francisco, real estate consultant Scott Muldavin outlined what he believes the top 10 issues affecting real estate currently are, and by issuing a statement to the press on the topic, the NAR agrees.

Top issue: interest rates

Muldavin indicated, and our recent news coverage supports, that the top issue affecting real estate is interest rates. They were historically low for so long, that as rates begin to rise, capitalization rates are likely to follow, which could spark anxiety about investing in real estate.

Additionally, Muldavin notes that as the population ages, there will be greater demand for senior housing, requiring a change in the configuration and size of available housing, and for greater medical care, resulting in an expansion in medical facilities.

The capital market resurgence has positively impacted real estate – credit has become less restrictive for the commercial sector and transaction volume is up, and while underwriting remains a challenge for residential markets, interest rates are low and affordability remains high.

Future housing demand from echo boomers, the 80 million Americans born between 1982 and 1995, will also impact real estate markets, he said. “We are the only developed country that has had an echo boom and that’s a positive thing if the country can react and respond to it,” said Muldavin. This segment of the population prefers an active urban lifestyle, rely on public transit, and often choose location over size – suburbs are catching up, Muldavin notes, with better mass transit, new bike paths, and the like.

Climate change and more extreme weather patterns will also continue to have a strong impact on coastal homes and many other properties across the country. Muldavin cited the impact of recent storms like Hurricanes Katrina and Sandy, and how property owners in these markets are now dealing with changes in code and zoning standards and paying significantly higher insurance premiums.

Like weather and geologic events, major global events can also impact real estate markets, such as acts of terrorism, war, global debt crisis and financial and economic downturns, he said. “The risk of future events is high, and while it’s always hard to anticipate these risks, they need to be considered because their impact is often great,” Muldavin opined.

Variables also include energy, globalization, and tech

Natural gas and oil production is on the rise in the U.S., and while this is creating greater employment opportunities and reducing U.S. dependence on foreign oil, it’s also contributing to climate change, environmental degradation and contamination.

Muldavin also cited globalization, foreign investment, and the economies of other countries as variables that will continue to have a greater impact on the U.S. economy and real estate market.

Another issue is how technology will continue to impact office spaces. Muldavin said many corporations are employing work-from-home policies and other mobility solutions that are allowing individuals to work when and where they want, significantly reducing office space requirements.

“Many people are replacing physical items with electronics and free or virtual products, such as e-books and smartphones enabled with cameras, GPS and flashlights. This means businesses will continue to require less retail space, so I believe the trend in the future will be for fewer and smaller stores,” he said.

Muldavin said the impact of the Internet on bricks-and-mortar retail stores is also a growing issue. He said retail demand is down across the country due to an increase in Internet sales, which are expected to rise from the current 6.5 percent to nearly 15 percent by 2020.