5 emerging real estate trends from 2016

As the year comes to a close, it’s a great time to reflect on some of the strongest real estate changes and surprises in 2016. Let’s look at five trends that homebuyers and sellers should take note of as they look to the future of real estate transactions in the U.S.

1. Flipping homes is still hot.

The second quarter of 2016 hit a six-year high for flips, according to ATTOM Data Solutions. The organization fused nationwide property data to produce the latest U.S. Home Flipping Report. While figures fell slightly in the third quarter this year, down to 5.1 from 5.6 percent of all single-family and condo sales, the market is still ripe for flippers, especially in markets with low inventory and rising home prices. However such a tight market produces fewer deals and stronger competition, which may pose a serious challenge for those new to flipping a home.

2. First-time and millennial buyers surged.

The segment of the future buying pool that identified themselves as first-time homebuyers grew from 33% in Q3 of 2015 to 52% in the same quarter a year later, according to home surveys from Realtor.com. Older millennials (age 25 to 34), which dominate this fragment of the market, say they have specific goals when purchasing a home. Sellers should be aware of these purchasing priorities: privacy, family needs and wealth accumulation through home ownership. The features they want most in a home? Quality construction, larger yards and safe neighborhoods.

3. Tight inventories continue.

One of the toughest developments for buyers is a continued short supply of homes on the market, which according to Lawrence Yun, chief economist for the National Association of Realtors, is poised to continue for a few more years. As of the close of October 2016, there were just over 2 million homes listed for sale in the U.S. That represents a little over a 4-month supply, when the market requires closer to a 6- or 7-month supply for balance. Limited inventory reflects lower new-home construction offset by the number of older, uninhabitable homes that are removed each year. Unfortunately reduced supply means home prices continue to outpace Americans’ income growth, a trend that may continue for some time.

4. Sellers market makes buyers savvier.

By now people have become accustomed to a stunted supply of homes. But that doesn’t mean U.S. buyers are willing to wait to find the home of their dreams. In what’s clearly a seller’s market, buyers are now forced to become savvier about purchasing strategies. Surviving in a market where sellers have the power means serious homebuyers must be “on call” at all times with paperwork, including mortgage pre-approval and proof of funds, in hand. Other rules for homebuyers include avoiding the lowball offer, which sellers are under no pressure to take; limiting the number of contingencies with an offer on a home; and considering new compromises, such as looking at properties outside of priority or prime locations.

5. Outdoor remodeling showed big returns.

In the homeowner category, upgrading “outside the box” gained traction in this year. According to the 2016 Remodeling Impact Report: Outdoor Features, improvements outside the home lead to strong emotional and financial rewards. Not only do curb-appeal projects continue to increase resale value, but they also seem to boost the happiness factor of people planning to stay in their homes. Lawn seeding, a routine law-care program and upgrading existing landscaping with sod lawn were among the most cost-effective outdoor remodels.

These are just a few of the macro trends that will continue to shape the future real estate market. We’ll be watching how these shifts continue to play out—and impact homeowners, investors, buyers and renters—in 2017.