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Top 3 Challenges in the Real Estate Market

It should come as no surprise that the real estate industry is one which has been met by a myriad of challenges this past decade. However, as the housing market rebounds and optimism creeps back in, it is important to take a moment to reflect on how those challenges may be changing. Looking forward to potential bumps in the road will let the savvy professionals adjust to trends in a proactive way, and will be a key component of future success. Many of the top challenges facing the real estate market today are trends which can be anticipated well in advance, so there is no need to be caught unawares. Below we will outline just a few of the challenges facing the market today, and in the foreseeable future.

1

FINANCIAL CHALLENGES

Even with the Great Recession drawing to a conclusion and a resurgence in home prices, there are still many financial factors to be aware of in today's real estate market. Overall, while the continued growth in the capital market means that credit is still more readily available than it has been in the recent past, be on guard for the inevitable end of the honeymoon period. While interest rates rates remain historically low, their eventual rise might cause anxiety and make consumers wary of taking on new loans.

In the housing market, high amounts of student debt, and debt in general, are also making people hesitant about taking out new loans. Whereas in the past young professionals would look to purchase a home, today they are already managing large student loans and may choose to put off buying. Financial concerns are also affecting more experienced buyers. The recent financial crisis had a profound impact on many people's investments, and those close to retirement are likely to find that their retirement accounts are underfunded. This can lead to older buyers putting off the purchase of a retirement home, or to home downsizing.

In the commercial market, one of the greatest financial factors is the glut of overpriced commercial property combined with a lack of liquidity for new commercial loans. There are billions of dollars in commercial loans that will need renewing in the next ten years, and there are fewer lenders willing to take the risk on new loans. Despite this, commercial properties in desirable markets have been seen as good investments and the prices have been driven up, perhaps higher than the market can actually support long term.


2

CULTURAL CHALLENGES

Culturally, there are many changes happening in today's society which may have a profound effect upon the real estate market. The overall demographics of the United States are in flux, with the Baby Boomers retiring and Millennials starting to make up the majority of the workforce. Beyond the differing financial concerns facing these groups mentioned above, they simply have different preferences and needs which must be taken into account. For example, today's young professionals tend to prefer a more active urban lifestyle and will favor locations which are pedestrian friendly, with good bike lanes and public transportation. A growing senior population also means the need for multi-unit senior living and health care facilities will increase.

The focus on sustainability is also starting to become a key cultural challenge in real estate. Increasingly companies are becoming concerned with creating more healthy workplaces for their employees and the environment. Millennials are also more concerned with sustainability and look for the same water and power conservation in their own homes.

Finally, overall global change and uncertainty combined with political gridlock at home has led to a lot of generalized anxiety which will almost inevitably impact the real estate market.


3

TECHNOLOGICAL CHANGES

The rapid advance of technology is the third major challenge facing the real estate market. As companies find better and more efficient ways of doing things, their office space needs are also changing. Telecommuting is also becoming a more viable option in many industries, with employees working from home instead of a centralized office. The result is companies are needing less space for workers, and less space for each individual worker. The types of commercial spaces needed are also changing. Brick and mortar retail enterprises are being replaced by online shopping, which means more office spaces and less malls and strip malls.

The real estate profession is also being profoundly impacted by technology in other ways as well. There is increasing pressure for realtors to have a strong online presence, with available tools for their customers. The costs of implementing technological solutions are a factor in this, as well as the rapid proliferation of various options to choose from and advances to keep up with. Unfortunately, with these online tools available customers may find less value in the services of a realtor.