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by: Steve Murray
by: Sue Johnson
HUD Proposal Raising the Bar for Housing Discrimination Claims
The Department of Housing and Urban Development (HUD) proposed a rule on August 16 that would make it harder to bring discrimination claims under the Fair Housing Act for unintentional policies or practices.HUD’s proposal is the latest attempt by the Trump administration to roll back the Obama administration’s extensive use of the disparate impact theory in housing and financial services enforcement. Under this theory, a program can be found to be discriminatory if it has a disproportionate effect on a protected class, even if the defendant did not intend to discriminate.
The Current LawThe 1968 Fair Housing Act makes it unlawful to discriminate in the sale, rental, or financing of homes because of race, color, national origin, religion, sex, familial status, or disability. HUD has the authority to enforce the Act against lenders, housing developers, homeowner insurance companies, real estate professionals, and other participants in the home buying or renting process. HUD’s current disparate impact regulation (adopted in 2013) formalized the Obama Administration’s policy that a disparate impact claim based on a statistical disparity is allowable under the Fair Housing Act. It established a three-part burden-shifting test for determining whether the program has an unjustified discriminatory effect:
- The plaintiff must show evidence of statistical disparities involving a protected class.
- The defendant must then prove that the challenged policy or practice is necessary to achieve a substantial, legitimate, and non-discriminatory interest.
- If the defendant successfully proves a justifiable interest, the plaintiff must show that another policy or practice could serve the interest with a less discriminatory effect.
HUD’s Proposed Disparate Impact TestHUD’s proposed rule would replace the Obama administration’s three-step “burden-shifting” approach with a five-step threshold that plaintiffs must meet to prove unintentional discrimination. Plaintiffs would need to prove the following:
- That the policy or practice is “arbitrary, artificial, and unnecessary to achieve a valid interest or legitimate objective.”
- A “robust causal link” between the policy or practice and the alleged discrimination, and that the policy or practice adversely affects members of the protected class as a group, and not just an individual who happens to be a member of the protected class.
- That the alleged disparity has an “adverse effect” on members of a protected class.
- That the alleged disparity is “significant.”
- A “direct link” between the policy or practice and the discriminatory effect resulting in the plaintiff’s alleged injury.
Impact on Credit Scoring ModelsHUD’s proposed rule also makes it more difficult for plaintiffs to advance disparate impact claims when a scoring model (risk assessment algorithm) is used. When the defendant uses its scoring model, the rule allows a defendant to prevail if it can show that it (or a neutral third party) reviewed the material factors in the model; that the model was empirically derived; that none of the material factors is a “substitute” or “close proxy” for a protected characteristic; and that the model as a whole is predictive of credit risk or another valid objective. When the defendant uses a scoring model of a third party that determines industry standards (such as the automated underwriting systems of Fannie Mae or Freddie Mac), the rule relieves the defendant from liability if it can show that it did not determine the inputs and methods within the model and that it is using the model as intended by the third party.
CFPB Hints at Disparate Impact Rulemaking under ECOAOn a separate front, the Consumer Financial Protection Bureau (CFPB) is considering a regulation to revamp its approach towards disparate impact claims under the Equal Credit Opportunity Act (ECOA), which makes it unlawful for any creditor to discriminate against any credit applicant. The CFPB under former Director Richard Cordray often used the disparate impact theory when exercising its supervisory and enforcement authority under the ECOA. But the CFPB’s Fall 2018 Rulemaking Agenda hinted at future ECOA rule-making activity “in light of recent Supreme Court case law”—an apparent reference to Inclusive Communities. Comments on HUD’s proposed disparate impact rule are due on October 18, 2019. Sue Johnson is the former executive director of RESPRO, the Real Estate Services Providers Council Inc. She retired in 2015 and is now a strategic alliance consultant.
by: Tracey Velt
Nationwide Growth for the First Time in More Than a Year
Midwest, Northeast, South and West Regions all Experience Year-Over-Year Increases, Which Could Mean More Buyer Competition is Likely This Fall.
- U.S. showing traffic saw its first year-over-year increase in more than a year with a 3.5 percent boost in activity.
- All four regions saw positive buyer interest in August compared to the same time last year, the first time all regions have reported increases in traffic since January 2018
- The Northeast Region recorded its most significant year-over-year increase since March 2018
“The trend we saw in year-over-year buyer traffic in previous months continued across the U.S.,” said ShowingTime Chief Analytics Officer Daniil Cherkasskiy. “For all four regions, there were more showings per listing this year compared to last year, making it the most competitive August in the last five years. If this trend continues, we are likely to see even more buyer competition this fall.”The ShowingTime Showing Index, the first of its kind in the residential real estate industry, is compiled using data from property showings scheduled across the country on listings using ShowingTime products and services, providing a benchmark to track buyer demand. ShowingTime facilitates more than four million showings each month. Released monthly, the Showing Index tracks the average number of appointments received on active listings during the month. Local MLS indices are also available for select markets and are distributed to MLS and association leadership.
To view the full report, visit http://www.showingtime.com/showingtime-showing-index.
by: Tracey Velt
The One Thing That Matters in Real Estate is Relationships
A subtle shift back to basics is happening in the industry.In my interviews with team and brokerage leaders and sales professionals, I’ve noticed a move away from discussions about technology and toward relationship building. The shift is subtle; after all, I’m constantly deluged with press releases on new technology and information about what the networks are doing in terms of building and providing a technology platform. Stop me if you’re heard this one: Technology is there to facilitate the offline relationship. But, all too often, real estate professionals use it as a crutch to form “fake” trust. Let me tell you a secret; no one trusts you just because you post on social media and reach out through text messaging. But, social media, text messaging, and online contact can help you build trust quicker once you do meet in person. Brokers work to build trust with their agents. Real estate professionals work to earn trust with consumers. Here are some activities brokers, team leaders, and agents are telling me they are doing to build relationships.
- No lunches alone. For brokers, it means lunch with an agent, manager, ancillary service provider, or recruit every weekday. These one-on-one, or small group lunches, create a culture of sharing, thus building relationships that transcend business.
- Prospecting phone calls. Successful brokers set aside one or two hours each day to recruit new agents. Phone calls lead to in-person meetings which leads to connection. For sale associates, calling five to 10 people from your database each day and offering them information of value shows you care.
- Video emails. I know a broker who sends out personalized BombBomb videos to prospective recruits. In the videos, he addresses the person by name, offers a personal comment, and offers something of value to the recruit. It’s more personal than a phone call and makes it easier to build a relationship.
by: Larry Kendall
5 Elements of a Great Real Estate Business Plan
Help your sales associate finish the year strong and start 2020 on a high note by helping them create an effective business plan.Want your sales associates to finish the year strong and carry momentum into next year? A well-executed business plan is key. We believe a great business plan needs to be in place and activated by November 1. It takes 30 to 45 days for the activities to result in contracts, so your associates will finish the year strong and carry their momentum (pending contracts) into next year. A great business plan has five elements.
- Learn from Last Year. What worked? What didn’t work? Where did business come from? How many listings and sales did I have? How can I improve? Unfortunately, many sales associates never take the time to evaluate their business and progress. They drift from year to year as on-accident real estate professionals. They don’t have ten years in the business; they have one year ten times.
- Set Goals for Next year. Set goals in four areas: Your Why; Your Life List; Your reasons for living. What is the rocket fuel that motivates you to get up and go to work? Your Financial Goals. Your Why has to be funded! Your Net Worth Goals. Do you want financial freedom someday? Real wealth comes from income-producing net worth, not ordinary income. Your Database. Do you have enough relationships to achieve your financial goals? A good measure is one household for every ,000 of Gross Commission Income.
- Gratitude, affirmations, and positive reading to get your positive energy going.
- Showing up for work and time-blocking your day and week, so you stay on your agenda.
- Writing two personal notes
- Focusing on your Hot List (people who want to buy or sell in the next 90 days.)
- Concentrate on your Warm List (people who may want to buy or sell in the next year.)
by: Guest Contributor
Creating Clarity With Your Company Playbook
Lessons learned from Organizational Expert Patrick Lencioni.As we head towards 2020, your entire team must understand and fully buy into your organizational purpose, values, goals, and the shared roadmap for success. A Company Playbook can ensure company-wide clarity and alignment and will pave the way for scalable growth. In his book, The Advantage, Patrick Lencioni insists that leaders answer these six questions in their Company Playbook:
- Why do we exist?
- How do we behave?
- What do we do?
- How will we succeed?
- What is most important —right now?
- Who must do what?
by: Steve Murray
Leaders, What Are Your Three Priorities?
Most leadership experts have one piece of advice they all repeat over and over. Are you following it?As with most leaders in the brokerage world, we read and follow many of the finest management and leadership thought leaders — individuals such as Jim Collins, Darren Hardy, Patrick Lencioni, and Simon Sinek. We have been blessed to have both Lencioni and Collins address brokerage leaders at our Gathering of Eagles (GOE) conferences in the past few years. In fact, Lencioni is coming back with new thoughts to share at the GOE in April 2020. We’ve also heard from great teachers from within the industry like Tom Ferry, Larry Kendall, and Mike Staver. These smart and experienced leaders have something in common that they’ve shared through their writings and their teachings.
It boils down to something Collins says succinctly, which is, “if you have more than three priorities, you have no priorities at all.” It begs the question for all of us, which is, “What are your priorities?”At times of high stress on our businesses, it pays to heed this advice more than ever. Rather than give in to the psychosis of worrying, find a clearer focus on the fundamentals of your business? We’ve found that, for our small consulting and publishing company, such a focus is not only good for business, but it is refreshing. Rather than being a mile wide and an inch deep, isn’t it better to master fewer basics which lead to success? When listening to such great teachers as Ferry, Kendall, and Staver, for instance, one hears over and over that indeed not much has changed in residential brokerage. Brokers still need to focus on recruiting and developing talent. Agents need to focus on their customer databases and build relationships with their past, current, and future clients. Or, as Gary Keller has said to agents, “Your database is your business—without one, you have no business.” Again, it’s vital that leaders read, listen, and learn from what’s going on in the industry, but evidence shows that doing so can distract a leader from focusing on their priorities. Want to do yourself a favor? First, develop that list of your three key priorities. Second, build a plan to execute on them. Finally, build a system for measuring results and hold yourself and your team accountable for those results. There is no other way to succeed in an environment where there’s so much noise.
by: Steve Murray
Brokerages and Teams Are Adapting to Challenges
While it’s essential to pay attention to what’s going on, for the most part, leaders need to ignore the noise and formulate their plans for remaining viable and competitive going forward.I don’t recall a time when there were more challenges to the residential brokerage industry, nor when more broadcasters were talking about them constantly. Among the big topics: The advance of technology and the massive amounts of capital flowing into real estate tech; the rise of the iBuyer phenomenon; the moves by Zillow and Realtor.com away from an ad-based revenue model to referral-fee based systems; litigation in the form of challenges to the ‘cooperation and compensation system,’ as well as continued challenges to the independent contractor system for the employment of agents; the rapid growth of teams, and the challenges of low inventory and reduced affordability leading to declines in existing home sales. In our 33 years of reporting on real estate brokerage industry trends and news, I don’t recall this much noise all at once. Not that the noise is unimportant, for these issues are having impacts on the brokerage business, but it does seem that too many brokerage leaders are following that old maxim of “when all is said and done, more is said than done.” There is too much talk and not enough focus on how to adapt to these challenges. I have heard numerous experts who are far smarter than I share with audiences of brokerage leaders, agents, and teams, that the fundamentals haven’t changed that much. From our research with Harris Insights, we know:
- Housing consumers still prefer using agents, even Millennials and Gen-X.
- The majority of housing consumers still find and select an agent based on a relationship, whether direct or via referral.
- Housing consumers respect the commission-based compensation system where everyone gets satisfied when a closing happens.
- Not all agents make their decision on where to work based on what the commission split or fee system is (otherwise they would all work for the lowest cost brokerage.)
- A majority grew their closed sides over the past five years above the rate of growth of existing home sales.
- Many did so organically—that is without an acquisition.
- Through our extensive valuation work, we know that, while brokerage gross margins have declined, they don’t have much further to go downward.
- Profit margins have shrunk but remain positive for leading brokerage firms.
by: Steve Murray
Residential Real Estate Firms: The Truth About High Valuations
An analysis of recent financial reports and valuations of firms.We’re aware of a real estate services company with gross revenues that grew nearly 40% over the past 12 months. Unfortunately, their gross margin declined by 25%, their interest expense from operating credit facilities grew from nothing to over million. They did not have a profit in the prior year, and the loss more than doubled over the last 12 months. They burned through a significant portion of the cash they had on their balance sheet. There are actually two firms exhibiting these characteristics. The valuations of these two firms seem to defy normal valuation models and metrics. Meanwhile, we know of two other national real estate services firms that, although they lack material growth, currently have high gross margins and their cash flow margins are substantial. They both have debt, but at levels that seem manageable. Their valuations are barely above the EBITDA (Earnings before Interest Taxes Depreciation and Amortization) multiples that most local and regional real estate brokerage firms have carried in the past. Most brokerage firms that we are handling as of August 2019 are trading in a range of 3.0 to 4.0 times trailing 12-month EBITDA. A few of the largest brokerage clients are trading at a multiple of 5.0 today. The first two companies above are Redfin and Compass. The second two are Realogy and RE/MAX. How can one company, Compass, have equity market value of more than the other three combined? As of this writing, Compass’s internal pricing (as of their last round of funding) was .4 billion, while the equity values of Realogy, Redfin and RE/MAX together are less than billion. Redfin alone has an equity value of more than Realogy and RE/MAX combined, yet these latter two companies generate more than 0 million in annualized cash flow.
Balance Sheet Vs. IncomeWe also observe that Redfin and Zillow are counting the prices paid for homes in their iBuyer programs in their revenues. To many, this seems absurd. Isn’t this a balance sheet item rather than an income item? These companies are booking the values of the homes they buy as an income item and offsetting that with the receipts from the sale of the same homes. It jazzes their revenue growth but doesn’t seem like the right way to book these transactions. Then again, we assume their auditors are looking at these transactions carefully.
How to Understand These ValuationsThere are a few simple answers. First, according to an article in The Wall Street Journal, there’s more than trillion of excess cash sloshing around the world looking for a return. This excess liquidity was and is still being generated to keep various economies from sinking. Think about the U.S. where Federal deficits are again running more than trillion a year in the red continuing to provide liquidity to an economy that shouldn’t need it.
Here’s Our TakeInvestors are looking for growth stories, and Compass and Redfin are telling good growth stories right now—so is Zillow (which is worth more than all four companies listed above combined). So, having a piece of the American residential real estate business is seen as an attractive bet, and that is what it is, one of many chances that investors make with their funds. Wall Street and Silicon Valley love a great disruption story. They’ve seen many industries disrupted with high returns from early investments in companies that threaten to disrupt large fragmented industries—of which we are a big one. Wall Street and the global investment community love anything related to technology. Again, many have made solid returns from investing (betting) on technology-based companies. Some investors think that Redfin and Compass are more technology firms than brokerage firms. They think they are great disruptors or have the potential to be great disruptors. Keep in mind that these investors are betting billions of dollars on a wide range of companies fitting their profile of acceptable investments. It’s not as if they are betting the ranch on Redfin or Compass. These two companies are just two of likely dozens of companies that they are invested in. It’s not that they know something about the industry that makes them want to bet the ranch. These same investors don’t see Realogy and RE/MAX the same way. They’re not new or interesting, nor do they (so far) have new or compelling technology or disrupting story. Nor are they growing at 20% to 40% a quarter. So, while Compass and Redfin get the press for their growth, Realogy and RE/MAX don’t. Investors like the story of Compass and Redfin, along with firms like Zillow and eXp—growth, disruption, and technology.
Forget the Stock PricesForget about what’s happening with the stock prices of any of these companies. Their prices are not determined by fundamentals of what their gross margins or profit margins are at this time. It could be years before we know how Compass or Redfin perform from a more traditional story of growth and earnings. They could be home runs or duds. No one knows for sure, currently. The only thing that should matter to brokerage owners and leaders is that they have to compete with firms that have access to significantly more capital than incumbent realty services firms and that. Also, while the incumbents are measured on growth and earnings, some of these firms don’t have to worry about earnings—just growth, disruption, and technology. At least, that’s what’s happening today
by: Peter Gilmour
UAE Developments: Residential Areas in Abu Dhabi Open to Foreign Residents to Buy Freehold Property
The residential real estate market in Abu Dhabi received a boost this year with stimulus packages and relaxed business regulations.The United Arab Emirates is an oil-rich country on the Persian Gulf and the Gulf of Oman in the middle east and is known for its entrepreneurship. It has taken many positive steps to increase foreign direct investment to enable its economy to diversify. Over the last 15 years, massive amounts have been spent on infrastructure and construction of apartments, single-family villas, and commercial and retail districts. Its population is nearly 10 million, of which almost 90% are expats. It has 30,000 square miles with a GDP nearing the 0 billion per annum—similar to the GDP of Argentina and Austria. It has two major cities, namely Dubai and Abu Dhabi, which have become known as centers for high-end residential real estate developments like Dubai Marina, The Palm Jumeirah, and Burg Khalifa. As a developing country, UAE embraces change, and while many countries are currently resisting immigration and an influx of foreign residents, the UAE is leveraging the opportunities that this brings for real estate and welcomes people from all across the globe. Dubai airport is now the busiest airport in the world and supports a healthy initiative to increase tourism. Foreign residents have been able to purchase freehold homes in Dubai since 2002, and changes in legislation this year will enable the same to happen in designated residential areas in Abu Dhabi.
Giving Real Estate A BoostThe residential real estate market has received a boost this year with the UAE Cabinet designating more than half its annual budget to education and social development. Also, it introduced several residence visas linked to the purchase in cash of residential real estate ranging from 0,000 to .5 million. They’ve also added many stimulus packages and relaxed business regulations to boost business and consumer confidence in the country.
Downturn ContinuesAfter peaking in the second half of 2014, UAE residential property prices have been declining and are now approaching the levels last seen in the 2009-2010 property recession. The downturn is likely to continue for the rest of 2019 and is expected to stabilize in 2020 with meaningful recovery only expected in 2021, according to rating agency Standard and Poor. One of the main drivers of the recovery will be the Expo 2020 held in Dubai. This event will generate billions of dollars of building projects and over 250,000 new jobs. Due to the current oversupply of residential units, prices could decline 7 to 10% this year and a further 5% in 2020 as the market absorbs the oversupply. In Dubai, both real estate prices and rentals have fallen by almost 25% since 2014, resulting in the margins obtained by large developers dropping as they offer incentives and payment plans to move their stock. Notwithstanding this fact, Abu Dhabi announced two major residential and commercial projects worth over billion in Jubail Island and Lea, a waterfront residential project on Yas Island. Industry insiders are predicting that with an uptick in oil prices this year, there will be a steady increase in demand for real estate in the UAE over the next five years from foreign buyers.
by: Sue Johnson
The CFPB Moves to End the GSE PatchThe Consumer Financial Protection Bureau (CFPB) recently announced that it plans to terminate the GSE patch, a safe harbor under its Ability to Repay requirements for loans eligible for purchase by Fannie Mae or Freddie Mac, on its scheduled expiration date of January 10, 2021, or possibly after a short extension. The announcement has triggered consternation within the industry over how the removal of Qualified Mortgage (QM) status for GSE loans with debt-to-income (DTI) ratios of over 43% will affect credit availability throughout the country. It also launches a rulemaking that ultimately could lead to a revamping of the QM regulation.
The Reasons WhyThe CFPB adopted the temporary GSE patch in its 2013 QM rule because it believed that as the mortgage market recovered from the prior decade’s mortgage crisis, it would rely less on the patch and shift to standard QM loans or non-QM loans for consumers with DTI ratios above 43%. It now finds that these predictions were overly optimistic. It said in its Advance Notice of Proposed Rulemaking (Notice) that, contrary to its expectations, loans within the GSE patch represent a ‘large and persistent’ share of conforming mortgage originations. It also noted that lenders generally offer a QM loan under the GSE patch exemption even when a standard QM loan could be originated. “As long as [the GSE patch] continues, the private market is less likely to rebound,” it said. The CFPB requests comment on how to minimize the disruption of the GSE patch expiration and on other portions of its QM rule, which are due 45 days after the proposal’s publication in the Federal Register.
The Potential ImpactIn its Notice, the CFPB notes that Fannie Mae and Freddie Mac purchased nearly 52% of all closed-end first-lien residential mortgage loans made in 2018 and that 31% of these loans had DTI ratios that exceeded 43% - meaning that the loans would not qualify as a standard QM. It identifies three possible results of the GSE patch expiration for consumers with DTI ratios above 43%: (1) some will seek FHA loans; (2) some may be able to obtain loans in the private market; and (3) some may not be able to obtain loans. CoreLogic, a housing analytics firm, has posted its three-part analysis of how the expiration of the GSE patch can affect credit availability, based on data involving borrowers with DTIs of over 43%. Its findings include the following:
- Roughly 16% of the total 2018 mortgage origination volume was QM-eligible solely because of the GSE patch.
- Younger millennials and retirees (borrowers aged below 33 and over 65) are likely to be impacted disproportionally by the removal of the patch.
- The impact is likely to be pronounced for Non-W-2 wage earners (the self-employed, retired, seasonal, and part-time workers), 37% of which had DTI ratios of over 43% in 2018 compared to 32% for W-2 borrowers.
- The impact will be more evident for African American and Hispanic or Latino borrowers, who were 1.6 times more likely to have a DTI of over 43% in 2017 than non-Hispanic white borrowers.
- Low-income borrowers are more likely to be impacted by the removal of the patch since they are more than twice as likely as the upper-income borrowers to have over 43% DTI.
Opportunities to Comment on GSE Patch and Other QM IssuesThe CFPB solicited comments on how to lessen the impact of the GSE patch’s January 2021 expiration by posing numerous questions, such as:
- Should the CFPB continue only to use a DTI limit to measure a consumer’s personal finances, or should it replace or supplement the DTI limit with another method?
- Should the DTI limit remain at 43%?
- Should the CFPB grant QM status to loans with DTI ratios above a prescribed limit if certain compen-sating factors are present?
- Should the CFPB consider any other changes to the Qualified Mortgage regulation? This question provides an opportunity for the real estate industry to urge the CFPB to eliminate the provision in the QM rule that discriminates against affiliated companies by counting affiliated (but not unaffiliated) title and other charges towards the 3% points and fees cap imposed on Qualified Mortgages.
Author BioSue Johnson is the former executive director of RESPRO, the Real Estate Services Providers Council Inc. She retired in 2015 and is now a strategic alliance consultant.
by: Tracey Velt
Northeast Region Sees Third Consecutive Month of Increased Buyer Traffic
Midwest, South and West Regions Report More Moderate Year-Over-Year Declines
- Showing traffic in the Northeast Region was 2.7 percent higher year over year, continuing a trend that began in May
- July showing activity across the U.S. was down 0.6 percent year-over-year, the smallest decline in a year
- Year-over-year buyer traffic declined more moderately than in prior months in the West (4.1 percent), the Midwest (3.3 percent) and the South (1.1)
“Buyer traffic has a lot of seasonal variation, so we need to compare last year’s numbers to understand the trend,” said ShowingTime Chief Analytics Officer Daniil Cherkasskiy. “While spring buyer traffic per listing was down sharply compared to 2018, from April onward we’ve seen a steady rebound. In July, national traffic was already roughly in line with last year’s numbers, and if the current trend continues, listings on average could see more showings this fall than what we saw in the fall of 2018.”The ShowingTime Showing Index, the first of its kind in the residential real estate industry, is compiled using data from property showings scheduled across the country on listings using ShowingTime products and services, providing a benchmark to track buyer demand. ShowingTime facilitates more than four million showings each month. Released monthly, the Showing Index tracks the average number of appointments received on active listings during the month. Local MLS indices are also available for select markets and are distributed to MLS and association leadership.
To view the full report, visit www.showingtime.com/index.
About ShowingTimeShowingTime is the residential real estate industry’s leading showing management and market stats technology provider, with more than 1.2 million active listings subscribed to its services. Its showing products and services simplify the appointment scheduling process for real estate professionals, buyers and sellers, resulting in more showings, more feedback, and more efficient sales. Its MarketStats division provides interactive tools and easy-to-read market reports for MLSs, associations, brokers and other real estate companies, as well as a recruiting tool for brokers. ShowingTime products are used in more than 250 MLSs representing nearly one million real estate professionals across the U.S. and Canada. For more information, contact us at [email protected]
by: Tracey Velt
All Real Estate is Local: Analyzing the Post-Recession Housing Market at the State and Metro LevelHome price growth began falling just before the start of the Great Recession and continued declining rapidly throughout 2008 and 2009. Over the past decades, state and metro housing markets have experienced numerous highs and lows in terms of home price and overvalued markets. The latest CoreLogic special report looks back at some of the areas hardest hit by the housing bust and how they’ve fared throughout the current economic expansion.
Home Prices, Population Growth, and Unemployment in Select StatesIn 2009, home prices dropped by 11.2% nationally, with North and South Dakota being the only states to see an annual growth that year. Meanwhile, Nevada experienced the largest decline at 25.5% - followed by Arizona (-21.3%), Florida (-19.7%) and California (-14.5%). While California’s home prices grew considerably from 2013 to 2018, affordability issues in the state have since hampered growth with the state’s average annual home price dropping from 7.4% in 2018 to 4.9% in 2019. However, other western states are seeing the opposite. Between July 2017 and July 2018, Idaho and Nevada not only became the fastest-growing states, but they also led the country in annual home price growth. During this same time, New York, Connecticut, and Alaska were three of only nine states experiencing population decreases. Connecticut has been one of the slowest-appreciating states for the past five years with home price growth varying from 2.4% in 2014 to 0.9% in 2019. New York and Alaska have also experienced similar modest growth over the past few years. In May 2019, when the U.S. unemployment was at 3.6%, both New York and Nevada’s unemployment were above the national average at 4%. Idaho had the fifth-lowest unemployment (2.8%), while Connecticut’s was just slightly higher than the national average (3.8%) and Alaska’s took the spot for the highest unemployment rate in the nation at 6.4%.
Affordability and Millennial HomebuyersThe CoreLogic Market Condition Indicators (MCI) categorizes home prices in individual markets as undervalued, at value or overvalued, by comparing home prices to their long-run, sustainable levels, which are supported by local market fundamentals (such as disposable income). According to CoreLogic MCI, 32.4% of the 392 metro areas analyzed were overvalued in May 2019. This number more than doubled in September 2006, during the last expansion, to 70.2%. The largest increase in the share of overvalued metros occurred between 2012 and 2013 when the average annual share jumped from 9.9% to 15.8%. Millennial homebuyers are moving away from overvalued markets and toward more affordable areas. Of the top 10 metros for millennial buyers in May 2019, four were undervalued (Pittsburgh; Rochester, New York; Wichita, Kansas, and Grand Rapids, Michigan), five were at value (Buffalo, New York; Milwaukee; Albany, New York; Provo, Utah and Des Moines, Iowa) and only one was overvalued (Salt Lake City).
What Can We Expect Next?With current economic expansion being the longest in U.S. history, and with local housing markets stabilized from the aftershocks of the Great Recession, it’s only natural to wonder about what comes next. While some experts remain split on if there is another recession in the near future, most signs are positive.
“We expect the housing market to enter a normalcy phase over the next 24 months,” said Ralph McLaughlin, deputy chief economist for CoreLogic. “With prices neither rising too fast nor too slow, and with a growing stream of young households looking to buy homes over the next two decades, the long-term view looks healthy.”
Click here to read the full report, The Role of Housing in the Longest Economic Expansion (June 2009 – July 2019 and Counting).
by: Tracey Velt
U.S. Home Value Growth Strong, but Slowing
Home value appreciation has slowed each month this year and is at its lowest level since 2015.
- The rate of year-over-year home value growth has fallen in each of the past seven months. The median U.S. home is worth 9,000, up 5.2% from this time last year.
- Rents grew 1.9% on an annual basis. The median monthly rent in the U.S. is ,592.
- For-sale inventory grew 1.3% year-over-year, and new listings are up 5.7% from a year ago.
“As talk builds of a potential recession in the next year or two, housing remains fairly stalwart,” said Zillow Director of Economic Research Skylar Olsen. “The slowing appreciation is ultimately a good sign that the market is adjusting in response to the growing unaffordability of down payments, while low mortgage rates are keeping those with the required savings interested despite softer growth out the gate. The uptick in the rate of homes coming onto the market – a good and true increase in supply – should be a boon to those inventory-starved home buyers still searching near the close of the home shopping season. While buyers are catching a break, renters have seen prices continue their steady upward climb, presenting yet another obstacle in the quest to save for that down payment.”The median U.S. rent rose 1.9% year-over-year to ,592. For the eighth consecutive month, rents rose the most in Phoenix (up 6.1% from a year ago), followed by Las Vegas (up 5.9%). Rents fell in only three of the 50 largest markets – Houston, Buffalo, and Baltimore. Inventory grew 1.3% annually, reversing four straight months of declines. There are 19,978 more homes for sale than this time last year. New listings drove the inventory growth in July, up 5.7% from a year ago. Mortgage rates listed on Zillow fell lower in July. Rates ended the month at 3.72%, down 23 basis points from July 1. Zillow’s real-time mortgage rates are based on thousands of custom mortgage quotes submitted daily to anonymous borrowers on the Zillow Mortgages site and reflect the most recent changes in the market.
|Metropolitan Area||Zillow Home Value Index, July 2019||ZHVI Year-over-Year Change, July 2019||ZHVI Year-over-Year Change, July 2018||Zillow Rent Index, July 2019||ZRI Year-over-Year Change, July 2019||Inventory Year-over-Year Change, July 2019|
|New York, NY||2,800||3.2%||5.5%||,279||2.3%||4.8%|
|Los Angeles-Long Beach-Anaheim, CA||0,600||0.9%||6.3%||,599||1.3%||11.3%|
|Dallas-Fort Worth, TX||3,500||5.1%||11.8%||,439||1.5%||12.3%|
|Miami-Fort Lauderdale, FL||4,300||3.2%||8.2%||,851||2.2%||3.8%|
|San Francisco, CA||8,100||-1.1%||9.4%||,166||1.2%||21.5%|
|Minneapolis-St Paul, MN||2,000||4.3%||6.6%||,494||0.6%||4.9%|
|San Diego, CA||1,500||1.1%||6.1%||,519||3.1%||6.0%|
|St. Louis, MO||7,700||3.5%||5.5%||,009||1.3%||-15.0%|
|San Antonio, TX||5,600||5.0%||5.7%||,215||0.3%||17.9%|
|Kansas City, MO||1,900||4.7%||9.5%||,121||1.0%||N/A|
|Las Vegas, NV||9,100||5.1%||13.6%||,329||5.9%||53.5%|
|San Jose, CA||,144,800||-10.5%||24.0%||,338||0.5%||32.6%|
|Virginia Beach, VA||9,800||1.5%||2.8%||,335||1.1%||-9.6%|
|Oklahoma City, OK||8,400||4.0%||2.9%||7||1.8%||-11.5%|
|Louisville-Jefferson County, KY||4,400||5.5%||5.7%||,087||1.4%||-1.2%|
|New Orleans, LA||6,000||2.7%||0.0%||,274||0.5%||0.4%|
|Salt Lake City, UT||3,200||9.4%||11.3%||,494||1.7%||20.3%|
by: Larry Kendall
Build a Culture of Trust
Find out the eight management behaviors that foster trust.As a leader, what can you do to increase productivity, profitability, and retention? According to The Neuroscience of Trust published in the Harvard Business review, focus on building a culture of trust. Neuroscientist Paul J. Zak found people in high-trust organizations are 50% more productive, 76% more engaged, have 13% fewer sick days, 74% less stress, and 106% more energy at work.
How to Manage for TrustDr. Zak identified eight management behaviors that foster trust. These behaviors are measurable and can be managed to improve performance.
- Recognize Excellence. Recognition has a significant impact on trust when it occurs immediately after a goal has been met, when it comes from peers, and when it’s tangible, unexpected, personal, and public. Public recognition not only uses the power of the crowd to celebrate successes but also inspires others to aim for excellence. It gives top performers a forum to share best practices so that others can learn from them.
- Induce Challenge Stress. Challenging but achievable goals release positive neurochemicals that intensify people’s focus and strengthen social connections. But this only works if the challenges are attainable and have a concrete endpoint. Vague or impossible goals cause people to give up before they even start. Leaders should check in frequently to assess progress and adjust goals that are too easy or out of reach.
- Give people discretion in how they do their work. Autonomy is the norm for sales associates. For salaried employees, once they are trained, allow them to manage their project whenever possible. Being trusted to figure things out is a big motivator. Autonomy also promotes innovation.
- Enable job crafting. When you have special projects, allow team members to choose the projects on which they want to work. People love to focus their energies on what they care about most. When the project wraps up, do 360-degree evaluations so that individual contributions can be measured.
- Share information broadly. Only 40% of employees report that they are well informed about their company’s goals, strategies, and tactics. This uncertainty leads to chronic stress and undermines teamwork. Openness is the antidote. Organizations that share their “flight plans” with employees reduce uncertainty about where they are headed and why.
- Intentionally build relationships. Neuroscience experiments show that when people intentionally strengthen social ties at work, their performance improves. Trust and sociability are deeply embedded in our nature. It can’t be just about the task at hand. Lunches, after-work parties, and team-building activities build relationships and trust. When people care about one another, they perform better because they don’t want to let their teammates down.
- Facilitate whole-person growth. High-trust organizations help their people develop personally as well as professionally. Numerous studies show that if you are not growing as a human being, your performance will suffer. High-trust companies adopt a growth mindset when developing talent. Investing in the whole person has a powerful effect on engagement and retention.
- Show vulnerability. Leaders in high-trust companies ask for help from colleagues instead of just telling them to do things. Asking for help is a sign of a secure leader—one who engages everyone to reach goals. Asking for help is effective because it taps into the natural human impulse to cooperate with others.
The Return on TrustA survey of 1,095 working adults in the U.S. found that companies scored lowest on recognizing excellence and sharing information. Most companies could enhance trust quickly by improving in these two areas—even if they didn’t improve in the other six. Is it worth the effort? What is the return on trust? People in high-trust organizations experience 106% more energy at work, 50% higher productivity, 60% more job satisfaction, 74% less stress, and 40% less burnout. Trust works!
by: Steve Murray
Price Differentials: Are iBuyers the Relocation Management Businesses of the 1970s?
The costs of iBuyers and relocation management are eerily similar. Here’s an analysis.I reviewed an analysis of iBuyer activity researched and published by Collateral Analytics published on August 7, 2019. In it, the Ph.D. researchers looked at up to four markets where iBuyers have been relatively active for some time. They examined the fees paid by sellers who took advantage of such programs. They also examined price differentials between the market as a whole and homes acquired by iBuyer companies. They found that not only are the iBuyers charging convenience fees of between “6 to 9.5%,” but the prices they are paying indicate an average discount of “2 to 6.5%.” Thus, the authors state that the actual cost for the convenience of using an iBuyer is 13 to 15% of the purchase price. Compare that to normal selling times and costs, and they are somewhat comparable. Brokerage companies’ commission costs, closing costs, carrying costs (beyond the few days of the iBuyer purchase) and fix-up costs likely average between 9 to 11% given the average time on market for homes in the iBuyer target range.
A Similar Business ModelIt brings to mind my experience in the relocation management business in the late 1970s. Our region was buying 80 to 100 homes a month in six states, then reselling them and charging a corporate client for the costs of buying and selling. Of course, there was a management fee on top of the cost of sales. Back then, our property group was tasked with keeping the total portfolio costs under 12% for all the costs of buying and reselling those homes being purchased from relocating employees. I don’t know what it is in 2019 and 1977-1979 was a long time ago. However, the data suggests that the costs of both are eerily similar. And this initial research indicates that the iBuyers of today are about as capable as the relocation property managers of yesterday. Lastly, this research shows the real cost of the iBuyer programs to sellers for the convenience of quickly liquidating their homes. The premium looks like it is in the range of 2 to 3% of a home’s value. The question is: Do homeowners understand this and can most of them figure it out?
by: Steve Murray
The Real Estate Industry’s Greatest Challenge— Trust
When it comes to giving up consumer data, agents don’t trust the brokerage.Most national, regional, and local brokerage organizations have some form of CRM and other consumer-facing technology to offer their agents. However, a majority of agents don’t use their company’s CRM. They use their own. What gives? We think the issue is one of trust. Agents don’t trust their brokerage with customer data. Brokerage firms don’t trust their franchiser with their agent’s customer data. Many brokerage firms and their agents don’t necessarily trust the outside technology vendors with their customer data. These are widely known facts about our industry at this time. The national franchisers are pouring vast sums of money into CRMs, big data, and artificial intelligence capabilities. They’re also beginning to realize that unless the agents of their affiliates trust them with their customer data, adoption rates will remain abysmal. Brokerage firms deploying their own CRM (whether contracted for or built in-house) will have similar results.
What About Outside Vendors?Then, there’s the issue of using outside vendors for critical CRM technology. Look what just happened when Contactually, a well-liked and -used CRM, was purchased by Compass. The brokerage firms that compete with Compass now were faced with the possibility that Compass would have access, or could have access, to their agent’s customer data. We heard from many who immediately began looking for alternatives. Regardless of the outcome, it now becomes apparent that brokerage firms have to be leery of using an outside CRM or other customer-facing technologies. After all, with the stroke of a pen, that external tech supplier could be owned by a firm with competing interests. This creates yet another trust issue. So, we have an industry rushing to deploy consumer-facing technologies and reap the benefits of competing in the new environment but handicapped by the lack of trust among the sponsors of these systems, whether they are built-in offerings from brokerage firms, national franchisers or external suppliers.
What Needs to Happen to Build Trust?At the national level, Gary Keller and Josh Team of Keller Williams International Realty have announced that the agent owns their customer data. If the agent leaves Keller Williams, they can take their customer data with them. Further, KW agrees that they will not communicate directly to the agent’s customers without the permission of the agent. As a result, they are making significant headway with the agents of Keller Williams in their adoption of the KW platform. At the local level, we are aware of a few large regional brokerage firms who made that same promise, both in writing and verbally, that the agents own their customer data and may take it with them when or if the agent leaves the brokerage. These brokerages are also assisting agents with inputting the data into the CRM. One brokerage reported to us that their agents have already shared over 250,000 customer profiles. This particular firm thinks they will get to 500,000 before the end of the year. To overcome the lack of trust, brokers must make and keep promises. For any national, regional or local firm to make the best use of their CRM, agents must trust that their brokerage will keep their customer data safe; that it may not be used without their permission, and that it will not be manipulated to the disadvantage of the agent. Also, if the agent leaves the brokerage or national franchise system, their customer information will be immediately returned to them and not retained by the brokerage or franchise organization. Given what we have learned thus far, brokerage firms will need to make these promises in writing and verbally and do so consistently and regularly. It will take time to overcome many years of mistrust. Even then, all participants must know that there will be many agents who will not easily share their customer databases to anyone at any time.
by: Peter Gilmour
What May Happen to Real Estate In The United Kingdom
October 31 is the deadline for the U.K. to leave the European Union. What impact will it have on real estate in the area?The next few months are going to be important for the real estate market in the U.K. as the discussion to leave the European Union (E.U.) moves quickly towards the October 31 deadline. Prime Minister Theresa May, who guided the first period of negotiation, resigned. It would appear that the ruling party is united in its decision to leave the E.U. on October 31, even without an agreement in place. According to the U.K. publication, The Week, wages in the U.K. are growing faster than the rate of home price inflation. The job market remains buoyant, offering hope to prospective home buyers. According to the latest Rightmove Property Index, U.K. wage growth currently stands at 3.4 percent compared with house price growth of nearly 2 percent. London is the largest market in Britain and has seen average house prices drop by almost 4 percent over the last 12 months, according to the Office of National Statistics. This is the biggest drop since the recession of 2009. Conversely, some areas in Northern England, Wales and Northern Ireland experienced year-over-year price increases of more than 5 percent. Since the announcement of Brexit some years ago, the housing market has been marked by volatility and supply constraints, which has sustained prices in many areas. The question everyone is asking now is, “What would the impact of a no-deal Brexit be on the real estate market?”
Worst Case Scenario?A no-deal Brexit remains the default position if no agreement can be reached. The Bank of England predicted that, in the case of no-deal Brexit, the worst-case scenario could see average home prices drop by up to 30 percent, but there’s no way of telling yet. Surrenden Invest’s Jonathan Stephens said that the housing market would react slower than the stock exchange, and he expects a slowing in the market without a largescale fall in prices with low unemployment and stable mortgage rates sustaining housing demand. Banks may be less willing to lend in a no-deal scenario as the economic outlook would become riskier. It’s expected that in a no-deal situation, the pound may fall sharply in value, which may give investors some opportunity to make strategic purchases. A no-deal Brexit would leave the U.K. with no agreements on trade, customs, travel, or citizens’ rights. Plus, there would be no transition period to give U.K. businesses and organizations time to respond to changes. We will watch developments with interest.
by: Sue Johnson
Part Two: Marketing Services Agreement
Dramatic changes since Cordray’s tenure means more opportunities for marketing service agreements (MSAs). Find out what three attorneys have to say on the matter.Just a few years ago, a cloud of regulatory uncertainty hovered over Marketing Services Agreements (MSAs) after Consumer Financial Protection Agency (CFPB) Director Richard Cordray expressed his opinion in a 2015 MSA Compliance Bulletin that any settlement service arrangement anticipating future referrals was suspect under the Real Estate Settlement and Procedures Act (RESPA). The guidance was vague and confusing, but one thing was clear, the CFPB believed that MSAs were inherently illegal, and you had to prove that yours was not. Since then, CFPB leadership has changed hands and the D.C. Circuit Court of Appeals, in CFPB v. PHH Corp., rejected Cordray’s view that payments made by one settlement service provider to another in a referral arrangement violate RESPA even if they are for the fair market value of the services provided. So, what does this mean for companies considering or reconsidering real estate MSAs? Here’s what three leading RESPA attorneys, Phil Schulman of Mayer Brown, Richard Andreano of Ballard Spahr, and Brian Levy of Katten & Temple had to say about today’s regulatory lay of the land.
A Dramatic Change, But RESPA Still There
“The change is really dramatic,” Levy said. “The PHH ruling was strong. When RESPA states that nothing in RESPA shall be construed as prohibiting market value payments for services, nothing means nothing. The PHH case effectively gutted the CFPB’s 2015 MSA Compliance Bulletin.” “You see folks reconsider MSAs,” Andreano noted. “You no longer have a CFPB director who is hostile to MSAs regardless of what the law says. But, all the PHH case said was that RESPA says what we thought it said. You still have to structure an MSA in a compliant way.”
The Compensation Must be ReasonableThe attorneys all emphasized that to be RESPA-compliant payments under an MSA must be reasonably related to the fair market value of the marketing services. It should not be based on the expected volume or quality of business, and any periodic adjustments should not be based on results.
The Marketing Services Must be “Actual, Necessary and Distinct”Marketing services that are compensated should be actual, necessary, and distinct from the services that the real estate broker or agent typically performs in the course of their job. There should be no payments for nominal services or for services for which there has been a duplicative charge.
No Payments for Marketing to IndividualsThe attorneys unanimously advised against payments for direct sales pitches by real estate brokers or agents to individual customers. HUD’s 2010 Interpretive Rule on home warranty company payments to real estate brokers and agents spells out why: RESPA prohibits payments for referrals, which are oral or written actions directed to a person which has the effect of “affirmatively influencing” their selection. Homebuyers and sellers are more likely to accept a real estate broker/agent’s recommendation of a provider, so the broker/agent is in a “unique position” to “affirmatively influence” their selection. Therefore, compensation to a real estate broker/agent to market to individual customers is an illegal payment for a referral. What does this mean for MSAs? “It’s OK to pay for marketing to the general public, but it’s not OK to pay for real estate agents’ email promotions,” Shulman said. “Real estate brokers shouldn’t encourage individual marketing by pressuring their agents to refer business to the MSA partner, or require people to get pre-qualified by a mortgage partner.” Andreano recommends focusing on more traditional forms of advertising, such as banner ads or signs. “The real estate agent shouldn’t be chatting [up] the [MSA partner’s] services,” he said.
Regular Monitoring is EssentialBoth MSA partners also need to ensure that the services identified in the MSA are performed through data collection and regular reporting requirements. “MSA partners have to keep on top of the real estate broker and be ready to debit payments if five services are paid for, but only four are done,” Schulman said. “You also should do annual on-site reviews.”
The MSA Should be DisclosedLevy advised that the MSA be disclosed to the consumer, even in the absence of a specific disclosure requirement in RESPA regulations. “If you’re hiding an illegal relationship, RESPA’s one-year statute of limitations could be equitably tolled to extend the liability for violations past one year,” he said. “With disclosure, any claim, regardless of merit, can be limited to the one-year RESPA time frame. There also could be a UDAP [Unfair and Deceptive Acts and Practices] issue under state or federal law that is generally minimized through disclosure.”
Consult with a RESPA AttorneyFinally, and most importantly, remember that RESPA is still being enforced by the CFPB, plaintiff’s bar, and state regulators. Legal analyses of MSAs can be fact-specific, so it’s essential to consult with an attorney with RESPA compliance experience when creating your agreements. Sue Johnson is the former executive director of RESPRO, the Real Estate Services Providers Council Inc. She retired in 2015 and is now a strategic alliance consultant.
by: REAL Trends
June's Northeast Region Buyer Traffic Shows Modest Improvement
Demand in Other Areas Remains Sluggish, Consistent with Seasonal PatternsKey Points:
- The Northeast Region reported a 0.9 percent year-over-year increase in showing traffic, the first time it has recorded two consecutive months of increases since March 2018 – April 2018
- As a whole, June showing traffic across the U.S. was down 1.8 percent year-over-year, but it was the smallest decline since August 2018
- Year-over-year showing activity declined in the West (5.8 percent), the smallest drop in the region since May 2018; in the South (1.5 percent), and in the Midwest (3.9 percent)
“Year-over-year showing traffic continues to stabilize, as June’s overall activity was in line with June 2018 while the Northeast Region recorded a modest increase,” said ShowingTime Chief Analytics Officer Daniil Cherkasskiy. “Activity in the South and Midwest remains slightly slower than in 2018, though there is more buyer activity in the lower price quartiles of the market. Pricier homes continue to see less traffic compared to the same time last year.”The ShowingTime Showing Index, the first of its kind in the residential real estate industry, is compiled using data from property showings scheduled across the country on listings using ShowingTime products and services, providing a benchmark to track buyer demand. ShowingTime facilitates more than four million showings each month. Released monthly, the Showing Index tracks the average number of appointments received on active listings during the month. Local MLS indices are also available for select markets and are distributed to MLS and association leadership. To view the full report, visit www.showingtime.com/index.