The Urban Land Institute predicts there will be two major changes beginning in this new decade in our country that will affect the housing market.

The first is that home appreciation will slow. The report predicts annual appreciation of 1 percent to 2 percent. The second change is that the record-high U.S. homeownership rate will decline from 69 percent to 62 percent.

Four other demographic trends are likely to have an impact as well. Aging baby boomers, those 55 to 64 years old, will keep working, and, some may stay put in their current suburban homes until the values recover. And, just as I wrote about last week, those in this group who do move will look for comfortable, easy homes (first-floor master bedroom), but the report indicates they’ll look for mixed-age living environments that cater to active lifestyles.

The second major demographic trend could impact the second-home market. Those between the ages of 46 to 54 years old, according to the report, are in their prime earning years; however, they lack home equity and may not be able to afford second homes (unlike the older baby boomers).

There are approximately 68-million people that make up Generation Y. This group is even larger than the baby boomers. But the report indicates this group is less interested in homeownership. The author of the report, John K. McIlwain, wrote, “They will be renters by necessity or choice for years ahead.” Not surprisingly, this tech-savvy group places high value on communities—real and virtual—where information and ideas can be shared.

This generation likes walkable, close-in communities. They’re not seeking to escape to the outer edges of town, unless they can’t afford anything nearby. Another big draw—“net zero” homes—green and powered exclusively by alternative energy.

The fourth major demographic trend involves immigrants. This group is often attracted to multi-generational housing in areas that have a strong sense of community. So, larger homes are preferred, if affordable.

Overall, the lasting stability of the U.S. housing market, according to McIlwain, will depend most on the structure and revitalization of the private home mortgage finance system.

"Re-establishing a robust private mortgage market will require both strong market fundamentals and a reformed mortgage securitization structure that eliminates past abuses," McIlwain said. Bye-bye suburbia, study says. Well, not completely. But the study does indicate that several factors are escalating the popularity of urbanization: two-person household growth (including those households without children), fewer baby boomers moving to the suburbs, Gen Y opting/forced to rent rather than own, and public policies that encourage compact development.

However, the author of the study says that urban infill development can’t accommodate all the housing demand from the demographic groups. McIlwain cautions that suburban development "must adapt or it will be obsolete.” A new era is blossoming, “The suburban century is over. This is the urban century."

As many Americans are losing their homes, foreigners are finding that it’s time to go shopping. Not so much for a home but rather a house or property at a bargain rate is what they’re interested in.  News media are reporting that foreigners are finding bargains in our ailing real estate economy.

Foreign investors will be spending more money in 2009 than they did in 2008 and there are strong indications that it will be invested in the U.S., according to the Association of Foreign Investors (AFIRE). A survey released earlier this year, showed that more than 53 percent of respondents ranked the “U.S. as the country providing the most stable and secure real estate investments.” The survey also found that 37 percent of respondents believe the U.S. is the country that provides “the best opportunity for capital appreciation.” Brazil ranks next, followed by China. And the United Kingdom climbed from a ninth place spot to number four, while India fell from third place to fifth.

Foreigners from China, Thailand, Vietnam, Mexico, Europe, and South America are traveling to the U.S. to see what real estate opportunities exist in the U.S. Areas such as Las Vegas, New York, and Miami have been infiltrated with foreigners who are buying now to take advantage of their stronger currency or the opportunity to stash their cash in a dollar-dominated place.

The top cities that foreign investors are interested in are:

1. Washington, D.C.
2. New York
3. San Francisco
4. Los Angeles
5. Houston

What are foreign investors interested in? Here’s the list. The multi-family properties climbed the ladder to number one after two years of ranking second on the list just behind office properties.

1. Multi-Family
2. Offices
3. Industrial
4. Retail
5. Hotels

Real estate marketers are using the old wine-and-dine approach, creating an extravagant buzz to add to the bargain-galore hype. And it seems prospective buyers are eating it up. In some areas, as much as two-thirds of the condo buildings are owned by foreigners.

Interesting tidbit

The green movement also carries weight in investment deals. Survey respondents (11 percent) said that green attributes influenced their decision “significantly so” to purchase a property and while even more (60 percent) said “somewhat so”—because green attributes are worth a greater rental premium.

The survey also found that investors think finding attractive U.S. investment properties is getting easier. The lowest percentage in five years (fewer than 20 percent) reported that it was “very difficult” to find attractive properties. In 2004 the figure was 59.4 percent. And in 2002, the study reported that respondents said “finding attractive opportunities was the greatest challenge to investing in the U.S.” Today, 7 percent of the respondents said attractive opportunities were very easy to find, while 18 percent said they’re “somewhat easy”.

On the whole, according to the survey, look for foreign real estate lenders to increase lending by 54 percent globally and by 58 percent in the U.S. Equity investors will increase their investment activity by 40 percent globally and by 73 percent in the U.S.

The survey was the 17^th annual survey taken by the members of AFIRE.

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