Industry Experts Predict Residential Real Estate Trends for 2013

November 29, 2012

With many experts proclaiming the real estate market has finally bottomed out, the industry is still holding its collective breath as it looks toward 2013 with great hope and anticipation. Below, Chicago-area real estate experts give an overview of their top real estate trends for 2013.

1.)        The Year We’ve Been Waiting For: According to the Commerce Department, U.S. builders started construction in October 2012 on the most homes and apartments since July 2008, evidence that the housing recovery is gaining momentum and making consistent gains.

“Like other builders, we’re seeing a few things that have allowed us some cautious optimism going forward,” said Jeff Benach, co-principal of Lexington Homes. “Due to signs of improvement in the market, we’ve been able to back off on incentives and discounting at most communities. Also, buyers are not expecting as many promotions or deals as in the past few years. We opened four communities in 2012 and hope to open two or three more in 2013. We’re ready to be running on all cylinders again.”


Brian Brunhofer, president of Meritus Homes, which opened two new-home communities in 2012 and plans to open two more in 2013, reports a similar uptick. “Traffic levels at our communities continue to increase. There’s a sense that buyers want to get on with their lives, and they are ready to purchase.”


2.)           Comeback of the Custom Home: Custom home activity basically fell off the radar over the past few years, but with renewed confidence in the economy and increased demand for high-end housing, semi-custom and custom-home construction has been seeing signs of life.


Case in point, Lexington Homes launched a new custom-home division called Portfolio Homes in October and opened its first custom-home community, Woodleaf at The Sanctuary Club in Kildeer, Ill. “There’s been a resurgence in custom home sales in 2012, due to great values in the luxury market,” said Benach. “Record low interest rates and pent-up demand will continue to fuel luxury real estate sales in 2013.”


Dimitri Nassis, CEO of Tandem Architecture & Construction, is also working with high-end buyers who are tired of waiting for the economy to turn around to build the home they want. “Most of our homebuyers are in their 40s with young kids. This group is willing to take the plunge and isn’t going to settle. They want their dream home and are turning to custom builders to get it.”


Meritus Homes is also tapping into this trend with the launch of Made for You, its new custom-home program. “As a private home builder, we can be more flexible when it comes to where we build our homes, even in infill locations,” said Brunhofer. “We aren’t limited to only building in areas where we have established communities, nor do we only offer a selection of pre-designed plans. Made for You means the buyer gets exactly what they want, where they want it. We can even help buyers find their dream lot.”


3.)           Return of the Second Home: With mortgage rates still low and contractor costs competitive, market conditions in 2013 should be well-suited to those who want to purchase or upgrade a second home. “We’re seeing an uptick in clients remodeling second residences, particularly city condos,” noted Nassis. “While homeowners have saved on the buy side due to depressed condo prices, they are not holding back on investing in the most modern features and finishes for their second home.”


Meanwhile, the influx of new luxury apartment buildings means there will be plenty of options for those who want a second home in the city, but aren’t ready to buy. “Amenities in some of the newest rental properties rival, and even surpass, those in the most upscale condo buildings,” said Randy Fifield, vice chair of developer Fifield Companies. “Before they decide to buy a second home downtown, there are a lot of renters ‘trying on’ downtown living with an apartment – it’s a carefree lifestyle without the commitment.”


4.)           Rental Still Through the Roof: Although home sales continue to improve, 2013 should still be a strong year for rentals. Tony Rossi, president of RMK Management Corp. and M&R Development, said renting will continue to be a popular choice until employment numbers show significant improvement. “People are still recovering from the recession and many won’t feel secure buying until they have more confidence in the job market,” he said. “For them, the flexibility of renting still outweighs any financial benefits of buying.”


“There’s still a level of skepticism among many people who, on paper, are excellent candidates to buy,” said T.J. Rubin, managing broker of Fulton Grace Realty, an apartment leasing and property management firm. “Those who normally would be buying are willing to spend $2,000 to $3,000 a month to get a great rental, which is putting luxury rental units in very high demand. Luckily, there are a lot of high-end condos available to rent as owners are holding onto them and renting them out instead of selling at a loss.”


So just where do today’s renters want to live? “Young renters in particular want to live somewhere with dining, shopping and entertainment right outside their front door, and where they can easily walk to public transportation,” said Rossi, whose firm broke ground in 2012 on Central Station, a new apartment development along the popular Central Street corridor in Evanston and within a few blocks from both Metra and CTA stations.


Fifield agreed and said living downtown has never been hotter, which is why many new rental buildings, like Fifield Companies’ three Los Angeles-area rental buildings and K2 in downtown Chicago, will be outfitted with amenities like Zipcar locations and bike storage areas. Bike rentals through a building’s property manager are also on the table. “Everything is designed to make city living a little easier,” she said.


5.)           Laissez-Faire Landlords…All Over the World: Many homeowners have become landlords by default, as they have been forced to rent as they relocate for a job or move up to a new home. Look for more companies to cater to these homeowners who do not care to be landlords, especially those that live abroad.


Fulton Grace Realty has an increasing number of clients living internationally, which has spurred its property management systems to move online. “We now handle all rent collection and rent payment distribution to owners online,” said Rubin. “Everyone wants it taken care of seamlessly, especially international owners. Mailing checks to clients in places like South America and China isn’t as efficient.”


Rubin said maintenance also becomes an issue for international clients. “We also offer handyman services, which is of particular benefit to international clients who aren’t around to fix a leaky faucet.”


REO-to-rental specialist MACK Companies, the largest owner of single-family investment properties in Chicagoland, is also seeing increased interest from international clients. Prior to June 1, 2011, almost 95 percent of MACK Companies’ investors were from the Chicago area. Today, out-of-towners purchase 80-85 percent of the firm’s single-family rentals, with international investors purchasing 22 percent of the firm’s investment properties.


“One of the reasons non-local investors like MACK Companies is because we serve as the property manager for their investment. To be a successful real estate investor, property management has to be a priority,” said Jim McClelland, president of Tinley Park, Ill.-based MACK Companies. Not only does MACK oversee all maintenance and leasing needs for its investors’ properties, but the firm also hand-collects rent checks. ”Our turnkey investments make owning a rental property as easy as going online to check your statement and view your direct deposits from MACK.”


6.)           Units Shrinking, Amenities Swelling: As more renters choose to live alone, apartment developers are building smaller units designed to accommodate singles. At the same time, new rental buildings are featuring an unprecedented amount of space devoted to common areas and amenities. “Renters’ preferences have changed over the years regarding the size of their home,” said Fifield. ”Going forward renters will continue to prefer smaller, sophisticated residences if they know that means they’ll have fabulous building amenities, like outdoor pool decks and multiple entertainment rooms, like what we’ll have at K2 when it opens in downtown Chicago next year.”


Rossi noted his company’s latest development, 73 East Lake in Chicago’s Loop, will feature two full amenity floors, including an indoor pool and spa, a yoga/Pilates studio and a sundeck with cabanas and a BBQ area. “The bar has really been raised in terms of amenities renters expect, especially in high-end buildings,” he said.


7.)           Honing in on Design: Renters are joining homebuyers in their ever-increasing appetite for high-end features and finishes by tapping websites like Houzz and Pinterest for design ideas and inspiration.


Fifield Companies, which is developing multiple Los Angeles-area and Chicago luxury apartment properties, is seeing an increase in discerning renters looking for luxury finishes and features. “There’s a shift from some of the standard finish stalwarts of the past decade,” said Fifield. “For example, quartz countertops are now more popular than granite due to their low maintenance. Renters also are looking for features like built-in charging stations for electronics. You have to consider every aspect of how residents will use their home and try to anticipate the next big thing.”


Meritus Homes also is seeing a similar resurgence in demand for high-end finishes at its multiple new-home communities. “Homebuyers are increasingly savvy and come in to the sales center with photos, knowing what they want and willing to spend money on upgrades or custom features,” said Brunhofer. “It’s more about how the home works for them, instead of its square footage.”


8.)           Sizzling Singles: As demand has begun to outpace supply in single-family rentals, investors will continue to be bullish on this new asset class and absorb single-family home inventory. A recent report by CoreLogic found more than half of all rental housing in the U.S. consists of single-family houses.


MACK Companies completed 102 investment sales during the firm’s last fiscal year and is on track to eclipse that number in 2012. “As mortgage rates remain low and rental rates continue to climb, the market will continue to reward investors in 2013 with outstanding returns in single-family rental homes,” said McClelland. “Both institutional and individual investors will continue to pursue single-family homes.”


The upcoming year should also see an increase in single-family homes sold through short sale auctions as banks try to sell non-performing assets before they become REOs, said Diana Peterson, executive vice president with Chicago-based Auctions by ATG.


“Yet while auctions can be a very effective selling and purchasing tool, the industry does face hurdles with investors who question the transparency of the transactions,” said Peterson. Look for more firms to follow Auctions by ATG’s lead in developing transparent and dynamic auction processes so online bidders can view live-streaming video of an auction and see bids cast live, allowing them to electronically raise their bids in real-time. “With tools like this, we predict that investors will purchase single-family homes via online auction more often in 2013, as it can deliver significant financial rewards,” said Peterson.


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