Assessing Threats and Opportunities for Brokerage Leaders
What should you be concerned about, and what can you do to thwart threats to the industry?
It’s a presidential election year. Does that matter? Sales were down in 1980 and 1988 from prior years, but up in 1984, 1992, 1996, 2000, 2004, 2012, and 2016. It turns out that there’s no clear pattern, except that when the economy is going in the tank, then housing sales will be down. Otherwise, there appears to be no correlation between Presidential election years and housing sales, so don’t overly worry about that impact.
Most forecasts say unit sales will be flat to somewhat up. Certainly, builders are finally building more, so there will be more new home inventory. Otherwise, the same constraints we’ve been faced with for the past six years or so will persist–low inventory, affordability challenges, etc. Interest rates, for the moment, are stabilizing, but no one knows what will happen next with them. They are unlikely to go up much.
The triple threats of the entrance of massive amounts of capital that’s backing iBuyers, bridge loan services, and rent-to-own investors, the substantial growth of low-cost brokerage models in most markets and the aggressive growth of financially-backed brokerage models that have the benefit of not having to earn a profit will remain. It’s also likely that their investors will begin to look more carefully at models that are 5+ years old with no particular path to profitability, but that probably won’t come home to roost in 2020.
There is still much money piled up in equity markets and with private equity firms to think they will bail in the near term. This is not good news for incumbents fighting a three-front war with little time to carefully adapt.
Real Estate Tech
The land grab for real estate tech platforms will intensify. Investment by national and regional brokerage firms in their tech platforms is not going to subside in 2020 nor the years afterward. Too many large real estate organizations have bet their futures that such tech investment will rescue them from the lack of organic growth in their core businesses. Investing in search of such growth, whether in agent recruitment and retention or capturing more consumers will be at the top of these firms’ agendas for the foreseeable future.
Interestingly, nearly half of the REAL Trends 500 and Up-and-Comers from last year had five-year annual growth in their closed sides when total housing sales were flat to down. This is not only an incredible testament to incumbent brokerage firms (not ignoring the extraordinary growth of Compass and eXp), but it attests to the fact that organic growth is still achievable even in this kind of environment. In a market where 80,000 to 100,000 new Realtors® join the industry (not taking into account departures), there remains ample opportunity for many brokerage firms to recruit and develop new talent.