10 Real Estate Predictions for the New Year

RISMEDIA, December 22, 2010—The start of a new year is often a time of reflection, as well as a time of anticipation for the future. It’s no different for real estate professionals, many of whom have weathered the recession and are now optimistic about 2011. From the return of new construction to the creation of healthier homes, the following are 10 residential real estate trends they see for the coming year:

1.) Building is back: After three years of little to no new development, John Wozniak of Wheaton, Illinois-based J. Lawrence Homes said the builder is excited about 2011. “After a couple of very challenging years, the market for new-construction housing is showing signs of life. Slowly but surely, homes are selling and new properties are breaking ground, such as the two communities we opened this year in Lynwood and North Aurora,” he said. “We’ve had encouraging sales and I believe they point to an uptick for 2011.”

2.) Apartments continue to thrive: If there has been one bright spot over the past few years in the real estate industry, it has been the rental market.

“People have realized the many benefits of renting, from having more flexibility with your housing commitments to a higher level of finishes and amenities. And, this demand will continue to outpace supply,” said Steve Fifield, president of Fifield Cos. “Appraisal Research reports that Chicago’s Class A downtown apartments are at a nearly 95 percent occupancy rate, and those numbers will continue to stay very strong for 2011.”

3.) Opting for established: The mega-communities in the exurbs are a thing of the past, said Brian Brunhofer of Meritus Homes. Instead, 2011 will see builders move toward smaller neighborhoods or pockets of homes in established communities. “Close-knit communities with respected homeowner associations, mature landscaping and neighbors waiting to greet you – that attractive quality of life is going to appeal to buyers much more in 2011.”

Seconding the movement toward established communities is Jeff Benach of Lexington Homes. “Buyers are looking for a safer investment for their home purchase,” he said. “We won’t see them roll the dice like in the past on a fast-growing town in a far-out suburb. They want a proven area with access to retail development and employment corridors. They don’t want to wait for the surrounding area to be built. They want everything already in place,” he said.

4.) Make it modern: Chalk it up to “Mad Men” or simply a pendulum swing in taste, but either way transitional and warm-modern design will be prevalent in 2011, said Brian Goldberg, a partner in LG Development Group. “Our clients are looking for a cleaner approach to the style of their homes – more mid-century and less traditional with a warm and tailored aesthetic,” he said.

Ray Hartshorne, principal of Hartshorne Plunkard Architecture, agrees. “From the single-family side, our clients are gravitating toward modern design instead of strictly traditional, that is simple, clean line exteriors and open floor plans that are comfortable for the family and versatile for entertaining,” he said. “In the multi-family sector, now more than ever, we are seeing an interest in contemporary-themed and luxurious interior design for lobbies and common areas.”

5.) Buying for the long term: The Census shows the average person moves about 11 times, but Jim Chittaro, president of Smykal Homes, predicts that number will slowly decrease. “Thankfully, the idea of a home as a short-term moneymaker is essentially gone, so when people do buy, they’ll do it with the intention of staying put for closer to 10 years rather than two to three,” he said

This means people will be studying floor plans more closely, to ensure the home will grow with them, Chittaro continued. “Buyers want to be sure the home will suit their needs not only now, but down the road, whether they plan to expand their family or prepare for kids to leave the nest,” he said. “Floor plans that can adapt to lifestyle changes with flexible features like second family rooms should do well in 2011.”

Brunhofer agrees that more buyers will be looking for a home for the long haul. “It’s not just floor plans that buyers are going over with a fine-tooth comb,” Brunhofer said. “Our buyers are very careful about school districts. They want to know they can send all of their children to a school with a proven track record and not have to relocate a few years down the road to ensure a good education.”

The shift to long-term buyers will also put long-term builders in the spotlight. “People are hesitant to buy a home from a builder or secure a mortgage from a lender they don't perceive to be well-established,” said Benach. “Buyers want to know their builder is committed to them and the community, and that it’s not about making a quick buck or boosting a shareholder’s financial interest. That personal connection is really important.”

6.) Upping the ante on amenities: In 2011, developers will continue to create new and exciting amenities to differentiate their properties and keep them relevant in the marketplace, said Tony Rossi, president of RMK Management Corp. “Renters are looking for something special, like an outdoor grilling area or special events like dance lessons,” he said.

But it’s not just enhanced outdoor spaces in apartments that will matter in 2011. Benach thinks condo and townhome buyers will also place a higher importance on outdoor space in the coming year, especially those who live in an urban setting.

“People may realize they don’t need to live with as much square footage inside their home, so to compensate they’ll want a place to call their own outside their home,” said Benach.

7.) High-tech takes over: Running your home entertainment system, appliances and lighting from a centralized control panel is old news. Going forward, we’ll see more homeowners want a smart phone app that can control their residence remotely, noted Goldberg.

“Each year, the demand increases for home technology that makes homeowners’ lives easier,” he said. “We’ll get to a point, and some of our clients are almost there, where homeowners can leave work and by activating an app on their phone have all of their home electronics queued up when they walk in the door – the oven is preheated, lights come on and a TV show turns on when motion sensors recognize they’ve walked into the room. It may sound like a movie, but some of this technology we can build into homes now.”

8.) Smaller homes stay the course: The average size of a new home decreased for the first time in decades from 2008 to 2009, and that trend will continue into 2011, said Benach.

“This trend is fueled by first-time buyers with smaller budgets, requiring smaller homes,” he said. “New buyers will have to be more conservative with their mortgages and will need to pay a higher percentage for a down payment, which means they’ll need a home with a smaller price,” he said. “People won’t be buying more than they need. So to meet their needs, we’ll see builders continue to trim the size of their homes and look for new ways to make square footage work harder.”

9.) Green and gorgeous: As the green movement continues to grow, high-end builders and developers have found ways to make homes both green and gorgeous. “The old mind set was that a green home couldn’t also be stylish and sophisticated. It was as if the two concepts were mutually exclusive,” said Hartshorne. “But new products and forward-thinking design have proved that today’s homeowners can have both. Also, building a green home doesn’t have to break the bank. We are constantly being introduced to attractive, sustainable building materials that are more cost effective than in the past.”

10.) Healthy homes: When you consider a study by the National Institutes of Health that found the number of people with allergies is as much as five times higher than 30 years ago, the trend toward building homes with a healthier environment will also gain ground in 2011, said Goldberg.

“Indoor air quality, low VOC paints and adhesives, and all-around healthier materials are becoming more and more of a concern for people building homes – especially for those with children,” he said.

Rick Croce, from Wheaton-based Smykal Renovations, said this trend applies to existing homes, too. “Due to the economy, many people have decided to stay put in their existing home, which means they’ll be investing in changes to make it look better and live healthier,” he said. “We expect to be pricing out more jobs that include installing HVAC systems with better filtration, using low-VOC materials and even replacing old doors and windows to safeguard against exterior pollutants.”

Preparing to Buy..Fixing credit scores

.There are lots of purchases that are highly prone to impulse buying: shoes on sale, puppies at the pound, and carrot cupcakes with cream cheese buttercream frosting come instantly to mind. (But that's just me.)

But houses? Not so much. Savvy, regret-free homebuying can take weeks or months of financial and lifestyle research and planning. If you want 2011 to be the year you become a homeowner, here are 5 things you should be doing, as we speak.

1. Minimize your holiday spending and save your cash. Instead of using the holiday sales to acquire a new winter wardrobe of cashmere sweaters, hold the discretionary spending down so you can give yourself the gift of homeownership! If you are serious about buying a home next year, don't run up additional credit card debt on gifts this year. Instead, make homemade cards or write holiday letters this year for everyone except the kiddos. And even for the kids, consider scaling back on the stuff, spending more of your time with them than your money, and getting started now saving toward your home purchase. (I don't think too many folks would argue that a less materialistic holiday season would hurt anyone, at any age.)

Kickstart your 2011 homebuying resolution by starting a "Home" savings account at an high-interest, online bank (the discipline-boosting goal is a bank that isn't super easy to transfer funds out of when you run low on cash), and set up an automatic deposit into it every payday. To get specific about your savings goal, if you're cash-flush, obviously a 20% down payment will get you top notch interest rates and provide you with the maximum ability to manage your monthly payments. If you're going to be more of a bootstrapping buyer, an FHA loan might be right up your alley - they offer a down payment of 3.5% of the purchase price.

All buyers should plan to have at least 3 percent of the purchase price saved up for closing costs, even if you want the seller to chip in. The lower-priced the home you want to buy, the more percentage points you should be willing to chip in for closing costs. It's easy for closing costs on an $150,000 FHA loan to run as high as $4,000 or more, considering transfer taxes, inspections, appraisals and mortgage insurance fees. So, even the scrappiest buyer should have a savings target somewhere around 6.5% of their target home's price. To buy a $200,000 home, for example, that would mean a savings target of $13,000.

Local real estate and mortgage pros can help you clarify realistic "cash to close" expectations and savings targets for your area - ask them, on Trulia Voices.

2. Research financing, areas homes, prices, agents and online. Smart homebuying takes a lot of research and knowledge-gathering. Since most buyers find it much harder to qualify for a mortgage than it is to find a home you'd love to live in, start with studying up on home financing and what it will take for you to get a home loan (note: FHA loans are preferred by the average homebuyer on today's market who has less than a 10% down payment, so start your research there).

If you're considering relocating next year, now's the time to start narrowing down states, cities and even neighborhoods that may or may not work for you. Take into account the job market, housing and other costs of living, and income and property tax rates, as well as the critical lifestyle inputs that vary from state-to-state, like weather and whether the place is a personality fit for you and the life you want to live, be it urban sophisticate or outdoors adventurer.

Also, start to develop a feel for home prices in a what-you-get-for-your-money type way, and start narrowing down the home styles and even neighborhoods that might fit your aesthetic preferences and lifestyle. If you're one of those rare buyers-to-be who is not already obsessively house hunting, hop on Trulia and start regularly checking out homes and neighborhoods, making sure to take advantage of the neighborhood ratings and reviews feature, which empowers you to surface what other folks think and say about an area.

3. Rehab your credit, if you need to. Go to AnnualCreditReport.com and check out your credit reports - from all 3 bureaus - for free. (Note - these will not give you your credit score for free - that costs extra, but it will give you the actual detailed credit reports.) Audit them for errors and do the work of disputing inaccuracies to have them corrected. Pay particular attention to: accounts that are not yours/you never opened, derogatory information that should have "aged off" your report by now (i.e., 7 years for late payments, 10 for bankruptcies) and balances or credit limits that are inaccurate (i.e., your credit card balance is listed at $2500, but you actually only owe $250.) These are the errors most likely to foul up your financing, so follow the instructions each bureau provides to correct them, stat. While you're at it, don't close any accounts, even if you are able to pay some down or off - actually, check out these tips for getting the bank to give you the best possible home loan, without unintentionally making your score worse!

4. Run your numbers. In the past, some overextended homeowners complained that they felt pushed into a mortgage they couldn't afford. Pundits blamed that on the real estate and mortgage industry, but I have witnessed firsthand many a homebuyer push themselves or their spouses into buying too expensive of a home. Eliminate this issue entirely by doing this - run your own numbers, before you ever even talk to a salesperson or start looking at homes beyond your means. (I assure you, once you see the million dollar home you think you can afford, the $250,000 home you can actually afford will be underwhelming.)

Get your monthly finances in order, and get a clear read on how much your monthly bills are - outside of housing. Decide how much you can afford to spend every month for housing, when you buy your home. Get clear on exactly how much cash you plan to have at hand to put into your transaction up front. When, in the next step, you begin working with a mortgage broker, you'll want to share these numbers with them, early on in your conversation, to empower them to tell you what home price you can afford - not based on their rubrics, but based on what you say you want to spend every month and what you want to put down.

5. Talk to a real estate and mortgage broker (1 of each). Trulia is a great place to find an engaged, communicative, tech-savvy real estate broker or agent in your area. You can use our Find a Pro directory or simply start participating in the Trulia Voices Community, asking your questions and tagging them for the town where you plan to buy a home, and paying attention to the agents who give timely, thorough responses to your questions, and communicate in a language you understand.

Drop one (or a few) an email, letting them know you'd like to work on putting an action plan together for buying a home next year, and would like to talk with them about what action steps need to go on the list. Ask them to brief you on the timeline of a transaction in your local market, and to point out for you things like when along the process you'll need to bring money in, when you'll need to miss work and come into their office or the closing office, whether they offer conveniences like digital document signing, and generally the local standard practices about which buyers you'll need to know. Depending on your target home purchase timeline, they might even want you to take a spin with them and look at a few properties to reality-check your expectations or narrow down a broad wish list.

In addition to chatting with them about timing your purchase vis-à-vis your other life events and plans for the year, make sure to ask for referrals to a local, trustworthy mortgage broker or two - preferably one that has worked with them and closed a number of transactions with their clients. (In fact, many busy real estate pros will want you to talk with their trusty mortgage partner before they get too involved in your planning process. You may think you only need a month to get ready to buy, but once the mortgage folks weigh in, it might turn out that you actually need a few.) When you do get in touch with the mortgage maven, if you're serious about buying, you will want them to actually pull your credit report, check the actual FICO scores that come up on their system and give you their professional recommendations for what final tweaks you can do to your debts to get your credit score where it needs to be.