Real Estate in the Next 10 Years

Where will the next big impacts on housing come from?

By Steve Murray and reprinted from CEO Daily

In a recent session at the Association Executive Institute entitled “Real Estate in the Next 10 Years,” REAL Trends shared some thoughts about where some of the big impacts on housing and brokerage will come from. Here are some trends from that presentation:

  1. The Advent of Driverless or Autonomous Cars

Americans spend an average of $9,100 per year on their cars. In total, $1.7 trillion was spent on buying, driving and repairing cars. Over $152 billion is spent on property and medical damage claims annually. Nearly 40,000 deaths and 4.4 million personal injuries were recorded in 2015, and that is just in the United States. And, virtually these deaths and injuries and claims were the result of driver error of some kind.

Yet, on average, a car sits unused 96 percent of the time, and nearly 76 percent of all drivers drive alone.

Imagine then, for the average driver who drives about 12,000 miles per year being able to have the same mobility at $.40 per mile—perhaps lower. That same driver would then save over half of the annual cost of having a car—$9,100 versus $4,800 per year for the same miles and destinations. Now think about that extrapolated over the whole population and the savings would be on the order of $800 billion per year!

Here’s the question: Where would Americans spend that extra money? Would it be on entertainment, food, travel, clothes—or would some extra go into housing? When you can work while in a car driven by someone or something else, do commute times matter that much anymore? Couldn’t you live further out and have that place in the country? What about disabled Americans, wouldn’t they be able to get around easier? And, how would such a change affect their choice of housing?

So, while there may be no direct effect on brokerage (imagine agents focusing on their clients while in the car instead of driving), there could be a profound impact on how much consumers can spend on housing and how and where they might choose to spend it.

  1. The Lengthening of Life spans

We are on the verge of enormous changes in life spans due to advances in what we call bio-genetics. Such changes allow doctors to grow your own replacement organs and limbs, solving the issues of the aging of our cells and their ability to replicate as we age—all are experiencing material advances.

What happens to housing should our life spans increase 10-15-20 years? What changes happen in our work lives, with the housing we chose and where we end up when we are healthy and living well into our early 100s? How will that impact housing and housing choices? We already have tremendous growth in elderly and assisted housing but, clearly, it won’t be enough if this happens—which most experts believe it will.

Where will the money come from? How will Social Security and Medicare survive if you add 10-15-20 years to people’s life times? These are questions that are going to plague America in the years ahead, and housing will be right at the heart of the challenges. We already are building enough for Boomers to downsize—how will the new supply be created?

  1. The Securitization of the Equity Side of Housing

Total mortgage debt at the end of 2015 was about $8.4 trillion dollars. For the most part, it has become securitized or it can be. But what about the estimated $13 trillion worth of housing equities (this was one estimate and it could be far larger)? Could it be securitized? Co-ops in New York are but one small, localized example where someone doesn’t own a home but rather shares in a corporation that permits them to occupy a unit.

There are approximately 22 to 24 million, one- to four-family homes owned by investors today. An estimated 400,000 are owned by publicly held investment companies. There are a growing group of companies buying more and some who are outright offering to buy homes directly from sellers.

It is entirely possible that a new class of homeowner will emerge. An investor-owned class where rather than owning or renting, someone could buy shares in a company and choose to occupy the home of their choice. Think it’s crazy? Remember that the Case-Shiller Index was built originally to enable investors to bet on the direction of the housing market.

The transaction costs of the current fee-simple title way to acquire the right to live in a home are around $170 billion a year. Smart money is betting on a change that reduces these costs and where investors can participate in the housing market through these vehicles. Don’t doubt that there are some smart investors looking at this right now. After all, $13 trillion is a lot of money to have tied up in equities in one market.

  1. The Shift from Relationship-based Agent Selection to Online Selection

This one poses the biggest change to the way our business operates. There are three foundational parts of the Realtor marketplace—the use of agents in the purchase or sale. This remained remarkably consistent for 30-plus years. Second is how consumers find and choose agents for the purchase and sale of houses. Again, this has remained consistent for 30-plus years where consumers use a prior relationship to make their choice. Thirdly, the view by consumers that the commission-based method of compensation is fair to both parties.

It is the second where change is going to take place first. Increasingly, consumers are using ratings and review sites to make their final choices. In our 2014 consumer study, over 55 percent of Millennials, 36 percent of Gen-X and 26 percent of Boomers used such a site before making their final agent choice. Of those who did visit a site, their decision was either reinforced or changed by what they found—or didn’t find.

This will increase in the years to come as Gen-X, Millennials and even Gen-Z make up more of the buyers in the market. They will increasingly go to such sites, more often before they even think of using a referred source. Today, almost two-thirds of the agents are chosen based on a relationship; in the future that could fall to half or even fewer in the next 10 years. This will transfer market share and power to the more experienced, higher-performing agents and teams. This is particularly true of those with great expertise in marketing online.

Such a shift will further alter an already strained financial situation for brokerage firms; will make it far harder for new agents to get a foothold in the market, and raise the cost of high-producing agents beyond where it is today. While this is not likely a Tsunami-level event, consider it a large tidal surge—one that keeps on building, slowly but surely.

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