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Realatrends Market Updates

January – Real Estate Newsletter

January Real Estate Newsletter

“A huge wave of Generation Y’ers, who have delayed home buying, are emerging into their key buying years. They are predicted to keep home sales and condo sales strong well into 2020…” — National Association of Realtors

TOP STORY: “Surban” The Best of Two Worlds

Surban. No, It’s not a spelling error: It’s a newly coined word. Surban refers to the growing trend in home building and community planning. A combination of urban and suburban, surban is the trend of combining some of the best features of city life, including walkable streets, neighborhood-serving shops and transit access, while also offering at least one of the most sought after advantages of the suburbs: home affordability.

“An increasing number of Millennial and baby boomers love the urban lifestyle, close to entertainment, restaurants and transportation, but can typically only afford housing in the suburbs,” says a Chicago-based architect. “In response, new developments are being established in surban locations throughout the U.S.”

This novel amalgam of urban and sub­urban life has already become a national phenomenon, with newly “surbanized” communities to be found in both new communities and aging suburbs in Arizona, California, Colorado, Florida, Maryland, Ohio, Minnesota, Virginia, Texas and Washington, according to Urban Land Institute, a non-profit trade group of real estate developers.

The idea of surban neighborhoods is particularly attractive in crowded urban areas like Los Angeles, Sari Francisco, Santa Monica and Seattle, where housing is expensive and commuting by car is slow and frustrating.

America’s Love Affair with Suburbia

The rising interest in surban development (which some planners call transit-oriented developments or TODs) is the blending of two different historical trends in American life: The first is the American preference for suburban living, which took hold after the end of World War II. The other is the current popularity of big-city life among young people.

The suburbs were “the boomtowns of the second half of the last century, the repositories of the post-World War II American dream, where ample space and strong consumer appetites com­bined to generate an unparalleled prosperity,” according to Shifting Suburbs, a recent publication by Urban Land Institute.

Downtowns Become Neighborhoods

More recent generations have rediscovered the pleasures of city life, however. Not surprisingly, most neighborhoods cited for their outstanding walkability can be found in existing urban places like Berkeley, CA and Cambridge, MA.

That marked preference among Millennial for urban life, in turn, has convinced many employers to move back into cities like Atlanta, Dallas, Denver, Miami Beach and San Francisco.

In more recent years, both home builders and buyers have re-discovered and re-vitalized many downtown areas. In an age of rising population, booming land values and bumper-to-bumper congestion, downtown areas seemed attractive because they were close to the workplace.

Employers Follow Millennials

In Seattle, for example, Amazon announced six years ago plans to create a 5 million-square-foot corporate campus in the centrally located South Lake Union district. At last report, other big “tech” tenants like Google and Apple are following suit, and looking for large- scale offices close by.

At the same time, Seattle home prices quickly climbed to levels comparable to those in Los Angeles and San Diego. Housing in or near downtown areas became largely unaffordable. So, where could first time buyers, such as newly married couples planning to start families, find affordable homes? The answer, it turns out, is the same as it was in their parents’ generation: in the suburbs.

Some aspects of suburnia are changing, however, such as the supremacy of the automobile and the willingness of commuters to put up with a slow-moving line of cars. Accordingly, light rail and other transit modes are very attractive to Millennials, even if many of their parents preferred the car. In congested Seattle, about 70% of downtown office workers rely on a wide variety of transit options, including buses, light rail, long-distance rail, street cars and ferries.

Best of Both Worlds

Smart home builders have recognized that many young urban dwellers want the best of both worlds: They want to live in walkable environments, where they can shop, socialize and ride their bikes in a culturally rich setting. At the same time, they need a mortgage that does not consume more than half their income. And again, they want transit choices.

Many older communities and neighborhoods, such as “first-range” suburbs, can benefit from new investment and homebuilding. Candidates includes major roads or retail strips that are looking tired. In some cases, empty lots or parking lots for shuttered businesses line the street, contributing to a “down and out” look. Factories or school buildings left vacant can attract vagrancy and vandalism, while depressing local home values. Empty fields that look untended are also problems.

The solution to tired-looking, underdeveloped areas is to convert them to new uses that attract people both day and night. If the surrounding community has a high number of households with mid-level incomes, these neglected areas can be made profitable to developers. The “formula,” so to speak, means filling in empty spaces with a continuous row of buildings, some new and some fixed up, with income-producing potential: Stores, office space, light industry (sometimes called “clean industry”) and new homes, to provide the foot traffic and shoppers that support local businesses.

Success Stories and Lessons Learned

Here’s a brief survey of some newly built, surban communities:

  •  The Cannery, Davis, CA

Built on the site of a former food-packing plant, this rural-themed development features its own commercial center (still under construction) with neighborhoods within walking distance of the entire development. Another unusual aspect of The Cannery is the inclusion of a 7.4-acre community farm, where homeowners can grow some of their own food.

  • Old Town Pasadena, Pasadena, CA

The original downtown area of this old suburb north of Los Angeles is a picturesque set of buildings from the late 1800s and early 1900s. The once-fashionable area, however, went into decline in the 1930s. Using its redevelopment authority, the city of Pasadena organized an Old Pasadena district in the 1980s, and negotiated with developers to rehab the buildings and find new tenants.

The city also built several new parking structures, which encouraged people to walk, resulting in increased foot traffic and support for new merchants and restaurants. Today, Old Town Pasadena is a regional attraction, with high-end shopping and crowded sidewalks. The Gold Line light rail connects Old Town with downtown Los Angeles and the rest of the region.

  • Shoreline, WA

Immediately north of Seattle, the city of Shoreline started a comprehensive overhaul of its main street, Aurora Avenue, in 2005. Recently completed, the refurbished commercial street has seven-foot-wide sidewalks on each side, while overhead utility lines have been relocated under­ground. New street lighting and public plaza further enhance the friendly look of Aurora Avenue, while the median lane of the street has been landscaped.

HOME BUYING INSTITUTE’S PREDICTIONS FOR 2017

  1. Home prices nationwide to rise 3%-5% over next 12 months.
  2. California’s red-hot housing markets will cool significantly… Buying a home has become cost-prohibitive in many parts of the state.
  3. The hottest markets will continue to be in the Pacific Northwest.
  4. Mortgage rates will rise gradually in 2017 but stay below 5%. The Mortgage Bankers Association expects 3.7% by the end of 2016, and to continue rising throughout 2017.
  5. FHA and conforming loan limits could rise in some metro areas…. These loan limits are based on median home prices… and since prices have risen sharply…we could see some higher loan limits in 2017.– Homebuyinglnstitute.com

2017 “A HOT YEAR FOR HOME SALES”

“We can expect a hot year for home sales in 2017, per recent forecasts from the National Association of Realtors, the Mortgage Bankers’ Association, Freddie Mac and Fannie Mae, and\more…. NAR is predicting existing- home sales to reach 6 million in 2017, higher than its 5.8 million forecast for this year. But other entities are even more bullish. MBA is predicting home sales to eclipse 6.5 million next year, while Fannie Mae and Freddie Mac are both predicting 6.2 million.” -Realtor.com

The region’s Rapid Ride bus service pro­vides a transit connection to Seattle and other surrounding areas.

  • Belmar, Lakewood, CO

Located in an older suburb of Denver, CO, Belmar is intended to be the new downtown of a suburb that previously lacked one. The entire development occupies the 103-acre site formerly filled by a regional mall. A new set of streets, arranged in a grid pattern, contain 22 city blocks and 800 new homes, a mix of single – family homes, townhomes, condos and apartments; a new ice-skating rink is a popular regional attraction. It also includes large – scale development of office space and new shopping centers. Buses connect commuters to a light – rail station two miles away.

  • West End, St. Louis Park, MN

This 14 – acre site started out as an underdeveloped piece of land at the meeting of two highways. Today, the West End is a compact, pedestrian – oriented mixed – use project with 119 new rental apartments, 14 acres of new office space with a large-scale lifestyle shopping center and many additional small shops scattered throughout. To make the development friendly to both pedestrians and cars, the developer built new roads, sewers and electrical lines.

Walkability was a priority for West End, so developers located parking garages out of the way, either underground or at the edges of the development. “A new road – West End Boulevard – was designed as a winding, pedestrian – friendly promenade running through the property from east to west, with sidewalk cafes, street furniture, and green spaces,” according to the Urban Land Institute.

Kevin Tappan, a landscape architect with the project, adds that West End “gives you that sense of place, that opportunity to stroll down the street, to gather and mill around.”

Revitalization of a Dallas Suburb

Richardson, Texas. This Dallas suburb used a transit station as the starting point for the creation of a pedestrian- oriented community. Covering 27 acres, Galatyn Park offers a performing arts center, public plazas, 283 apartments, shopping and a large hotel. Blue Cross/ Blue Shield also built a corporate headquarters on a neighboring site.

Following up on that success, the Spring Valley Station in the same city saw the opening of a 500-unit rental complex, plus 140 townhomes and 300 condominiums. The development of transit stations in Richardson shows that transit can attract both jobs and new homes.

Changing a tired suburb into a bustling, mixed-use suburban center full of shoppers and new residents is not a snap of the fingers, however. The process is complex and can take many years.

Success Requires Cooperation

Many cities and government agencies must be involved, and each has its own rules to follow. Sometimes, getting local homeowners to cooperate can be an even bigger challenge, especially if people believe that an increase in density would result in traffic congestion or otherwise harm property values, despite evidence to the contrary.

When people shop for homes, they are also checking out the neighborhood. In growing cities, buyers are often looking for a short commute to work, plus convenient shopping and places for recreation. When property owners and city officials can agree on a plan of action, something good can happen to local property values, especially home prices.

Using the surban strategy of housing plus commercial businesses plus transit, older communities can find a way of attracting new investment while adding value to existing homes. Studies dem­onstrate that housing located near light-rail and bus lines tends to appreciate, which makes sense, because people have the option of an easier commute.

So, let’s get used to saying that silly sounding new word, surban. The more you say it, the better it sounds.

INVENTORY SHORTAGE CONTINUES

“Inventory is still an issue for existing- home sales… Less inventory means somewhat larger price increases and lower sales of existing homes as fewer people put their homes on the market in colder months. Buyer traffic in most states is strong, while seller traffic is weak in many – one of the several indicators of low inventory of existing homes. Inventory decreased 6.8% year-over-year in September. Meanwhile, new-home construction isn’t growing fast enough to meet demand.” – Rbdrigo Sermeno, Kiplinger’s

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