The Real Deal: Market Snapshot of Regional Real Estate, Both Residential and Commercial, in 2016

The Real Deal: Market Snapshot of Regional Real Estate, Both Residential and Commercial, in 2016

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By Lisa A. Lewis

It’s a phrase that has become the official motto of the real estate industry: “location, location, location.” Indeed, location is the single most important factor in determining property value. But while location remains a constant in real estate, the market is dynamic—continuously changing due to various factors, including the economy, financial security, demographics, lifestyle changes, and individual needs and preferences. Obviously, it’s critical for buyers and sellers to follow the market closely. So What’s Up? Media delved into the world of real estate and consulted several experts to analyze residential and commercial activity for 2016. The following is a snapshot of some trends—as well as an exciting new opportunity in residential real estate—both in Anne Arundel County and on the Eastern Shore, which indicate the current state of the industry and what to expect during the year.

Residential Real Estate Trends

A significant trend that will affect the market in 2016 is an increase in the demand to own homes and more sales taking place. And this is not a new trend. In fact, the home sales market has shown some signs of recovery in recent years and became significantly more active in 2015. Maryland was hit especially hard by the recession, and it took a long time to recover. But now that the economy has improved, buyers feel more confident and are ready to purchase a home. It’s also not as difficult to qualify for a mortgage, and more programs are available to assist first-time buyers. In addition, the timing is ideal for homeowners who have been waiting to sell. Since they have regained equity since the recession, they are more likely to make a profit—or at least recoup their investment—if they sell their home. Overall, the situation has improved for both buyers and sellers, and, as a result, activity in the housing market will continue to increase in 2016.

“We’re going to continue to see an increased number of sales and an increase in the number of homes going on the market,” says Jonathan Hill, vice president of communications at MRIS, the local multiple listing service. “Homes will also sell at a faster pace. For the Eastern Shore, 2015 saw Days on Market decrease 8.5 percent compared to last year as we headed into the fall. The third quarter had the lowest Days on Market of any quarter since 2006. That is a strong sign that demand for homes is back and shows no signs of receding. Other indicators suggest the same thing: Year-to-date, the total sales dollar volume is up 21 percent, and the number of sold transactions is up 26 percent. Very similar trends are taking place all across the region. In Anne Arundel County, the total dollar volume of sales increased by 14.5 percent through October 2015. The overall number of sold transactions has increased by 17.6 percent for the same time period. These combined gains on both sides of the Chesapeake Bay bode well for 2016.”

Interest rates are also playing a significant role in the decision to purchase a home. Since the Federal Reserve recently (this past December) decided to slowly increase interest rates in 2016, buyers who have been waiting are seeking to buy as early in the year as possible, so they can lock in a lower rate. As a result, the buying season may start earlier than usual.

Although more buyers coming into the market is a good sign, it may also result in lower inventory—and higher prices. The holiday season and the approach of the winter months, coupled with a rush to buy due to an increase in interest rates and buyers flooding the market, cause inventory to decrease. So at the start of the spring buying season, inventory could be very low. Sellers may or may not have to wait longer to obtain their price, and buyers may have fewer choices as the inventory decreases.

“The Eastern Shore is seeing an increase in the number of potential buyers, and properties are selling at a faster rate than they have in previous months,” says Sheila Washburn, associate broker at Benson & Mangold Real Estate and Mid-Shore Board of REALTORS® president. “However, there is a disconnect between what sellers believe the value of the home is and what buyers are willing to pay. This gap is a problem that is keeping home prices lower, and it will be well into 2016 before we see prices increase.”

In addition to the increase in the sales of homes in both Anne Arundel County and on the Eastern Shore, another noteworthy trend that will continue in 2016 is the strengthening of the second home and retirement home markets on the Eastern Shore. After the recession, the Eastern Shore was not as quick to recover as Anne Arundel County, which created a lack of demand in these markets. But now that the economy has improved, home sales are increasing.

“We are seeing signs of recovery in second home and retirement home markets on the Eastern Shore,” says Anirban Basu, CEO of Sage Policy Group, Inc., an economic and policy consulting firm in Baltimore. “This is due in part to an improving stock market since 2009, and better economic performance in nearby metropolitan areas like Washington, Baltimore, and Philadelphia.”

Rent-to-Own Programs

In addition to the trends taking place in the residential market, 2015 also marked the comeback of rent-to-own programs. According to an article in The Wall Street Journal entitled “Rent-to-Own Homes Make a Comeback,” the programs offer an ideal way for consumers with less-than-perfect credit to purchase a home: rent first with the option to buy later. Home Partners of America™, one of the fastest-growing rent-to-own companies, saw a need for programs to assist consumers who would otherwise be excluded from the housing market. In order to fulfill this need, rent-to-own programs, which were popular during the 1990s, are making a comeback.

To serve their clients and provide a way for them to achieve their goal of owning a home, Berkshire Hathaway HomeServices PenFed Realty has partnered with Home Partners of America™ to offer the Lease with a Right to Purchase Program (the RTP Program), which allows consumers to rent a home with the option of purchasing it for a predetermined price within three to five years. It’s one example of a rent-to-own program offered in our market. In order to participate in the program, applicants must meet all of the criteria and be approved. To qualify, the household must have an annual income of $50,000, and applicants must have stable employment with no history of previous eviction or a pending bankruptcy. In addition, all members of the household must pass a criminal background check.

Once approved, consumers work directly with their local realtor to choose a home that meets the RTP Program’s purchasing criteria. For example, the home must be located in an approved community (based on the local high schools and other factors that affect property value), must be listed between $100,000 and $550,000, and must be a single-family home. Home Partners then purchases the home and leases it to the consumer. There is no obligation to buy the home, and consumers can opt out if they are having financial difficulties or if they change their mind. However, there is a one-year financial commitment in which the monthly rent must be paid as specified in the terms of the lease.

“I believe that rent-to-own programs are making a comeback because there were many people affected by short sales and foreclosures, which damaged their credit,” says Janice Hariadi, Annapolis branch office manager of Berkshire Hathaway HomeServices PenFed Realty. “The Lease with a Right to Purchase Program allows people to rent with the option to purchase the home they desire while they are rebuilding their credit. It’s a great way for people to achieve home ownership.”


Commercial Real Estate Trends

Like the residential market, commercial real estate is also showing signs of progress. Lifestyle changes are the driving force behind the trends and will continue to play a significant role in the use of commercial space in 2016. As the workforce evolves and advancements in technology change the way people conduct business, companies are taking up less space. Gone are the days when all employees worked “traditional” jobs and commuted to the office every day. Trends toward telecommuting and more flexible work schedules are allowing for smaller offices and shared desks. Indeed, collaborative work environments decrease the amount of square feet required per person. And the use of electronic medical records and cloud-based technology is reducing the amount of space that professional and medical offices need to store records. In addition, another trend that will continue to shape the market in 2016 is the influence of Millennials on the use of commercial space in urban areas, such as Anne Arundel County.

“Millennials are a driving force behind current commercial real estate trends,” says Trish Farrell, vice president of MacKenzie Commercial Real Estate Services, LLC, who negotiates transactions in Anne Arundel County, the Baltimore/Washington Corridor, and on the Eastern Shore. “Millennials embrace the ‘live, work, play’ mindset and want to be close to everything: vertical multi-family housing apartments and condominiums, public transportation, restaurants, bars, and other amenities. More companies are basing real estate decisions on this [mindset] as a means of attracting the talented Millennial workforce, which, in turn, fuels a steady movement towards mixed-use oriented urban and town center locations.”

In general, the trends in commercial real estate are taking place in both Anne Arundel County and on the Eastern Shore. However, the Eastern Shore doesn’t have the infrastructure to support the transportation, vertical multi-family housing, and town center “live, work, play” commercial opportunities because it’s more rural/suburban. But even though the Eastern Shore may lack the commercial activity driven by the Millennials, it’s definitely experiencing growth, which is expected to continue in 2016.

“Commercial real estate on the Eastern Shore is coming into its own,” says Lawrence L. Davis, CCIM (Certified Commercial Investment Member) at Benson & Mangold Real Estate, who works exclusively in the commercial division. “We see a lot of moves from the Northeast to the Shore, partly due to our proximity to major markets, such as Philadelphia, Baltimore, D.C., and Annapolis. Another factor is that the cost of real estate on the Shore is less than the major markets. Plus, it’s a great place to live. In addition, I have to give credit to Governor Hogan’s program ‘Maryland is Open for Business’ as a contributing factor in increasing interest in Maryland.”

And, of course, interest rates will play a role in the commercial real estate market in 2016. Just as the increase in interest rates by the Fed is influencing buyers’ decisions to purchase a home sooner than they may have planned, an increase in rates may also affect activity in the commercial sales market.

The General Consensus

Both residential and commercial real estate markets in the region should continue to experience progress in 2016. In fact, when asked to describe the market in 2016 in just one word, most of the experts that What’s Up? Media consulted responded with the same word: “improving.” Hill and Hariadi both chose “healthy,” and Farrell responded with an enthusiastic “robust.” Indeed, the markets are experiencing a period of stabilization after years of struggling to recover from the recession. Hopefully, 2016 will be a good year for real estate and a precursor to more improvement in the years to come.

* This article first appeared on WHAT’S UP? MAGAZINE website.

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