REAL Trending Episode 20 : News Corp/OpCity, Economic Factors Affect Housing Slump & Strengthening Your Brokerage

 REAL Trending Episode 20

In this episode we are breaking down the trends of the week and showing how they impact brokers and agents. Steve Murray, President of REAL Trends discusses News Corp closing on the acquisition of OpCity, Why are all the economic factors so positive and yet housing sales are slumping?  And What are the steps to strengthening your brokerage company?

Let’s jump in! Listen to the audio or continue to read below. 

News Corp Closed on OpCity

 

What does this mean for News Corp? Well, it means News Corp moved one step further towards the brokerage industry itself. We, in the past, have called this the ‘last mile’. That challenge that people like Zillow and Realtor.com have, which is they provide a delightful online web experience, information and analysis and tools. Then, when the customer goes to find an agent, the response level is frankly abysmal. Much like Zillow launched the concierge’s program a short time ago, a couple of years now, Realtor.com, rather than do nothing, has now acquired a company that’s the next step, which is curating and nurturing and contacting and responding to leads and has built a very good track record of doing so and improving capture rates of delivery to agents and brokerage companies.

Now, one could get really scared and say, “Well, that’s one step closer to being in the brokerage business,” and that would be a true statement. Not that I believe or anybody else I know truly believes that people like Realtor.com and Zillow will become full blown brokerage companies, but don’t be surprised if both of them, one way or the other, they move in some areas away from a pure ad model to a mixture of an ad model and referral fees.

As the industry has been so accustomed to paying referral fees for years-and-years-and-years, this shouldn’t trouble anyone. We gladly pay referral pays to all kinds of companies. Relocation management companies, online marketing companies, affinity group companies, mortgage companies and to each other.  Broker-to-broker referral networks have been around 50 years. Somebody refers you a good lead, you pay for it. Yes, I know the argument. “Well, we gave them all our listings and now they’re selling leads back to us.” 

And, again that’s true, but look at the money they {Zillow, Realtor.com} spend around those listings to attract consumers, delight them with their offerings, and now they’re both spending tens, if not hundreds of millions of dollars to build systems that nurture and respond to those leads because our industry hasn’t figured out how to do it as well as it needs to be done.  This is not a criticism of the whole industry. It’s just the fact that agents are not accustomed to responding to every lead promptly as they need to be.

Realtor.com and Zillow both taking similar, but different approaches. One in-house, the other through acquisition to how do we provide one more step to take care of our customers who have come to our sites, enjoyed their visitation, if you will, and then want an agent to talk to. So, this is a natural progression. Do I think that this means they’ll be in the brokerage business per se? No, I don’t. I don’t think that they would want to do that at all. But, do I think they might move one step closer to monetizing the work they do and the leads they create by charging referral fee in addition to ad fees? Entirely possible. I have no inside information that tells us one way or the other. That’s just speculation based on what I understand about them and the business.

Interesting enough, in a study we have not formally released yet that we did with the California Association of Realtors on the economics of teams, we found that there is a 50 point gap between what a regular brokerage has to pay its agents on a national average, which is today, 85% of the commission dollar, and teams who provide prospects and leads to their own agents, and they’re only paying 35 out. The difference between 85, what typical brokers pay, and 35, what teams pay, is a 50 point gap. Think about that. At least we now know the value of a good prospect, 50%.

Housing Sales in the Presence of Good News

 

Delinquency rates have fallen to 15 year lows. Unemployment is at 50 year record low unemployment and expected to probably go lower. We heard this last week there are now more jobs available in the United States than people looking for work. It’s an amazing confluence. GDP growth in the second quarter, was 4.2. It’s the highest it’s been in 10 or 15 years. They’re expecting third quarter may well come in at 4%. Another hugely strong quarter of economic growth.

Household incomes are rising. Stock market, despite some frilly actions last week, seems to be holding tight in the face of higher rates, but housing sales have now declined seven of the last eight months. Probably the reason for housing are two factors.

  • One, the rise of interest rates. It can’t not have a negative impact on housing sales. First, because it makes homes tougher for young families and low income families to afford homes. When rates go up, monthly costs go up, cost of financing goes up, cost of housing goes up. You’re going to take the ability for many young and low income families to buy their first home.

 

  • Secondly, you have millions of homeowners who have mortgages that are 3, or 3 ¼ , or 3½ %, and they’re not likely to buy, unless they have to or need to, trade up, trade down, or trade sideways if the mortgage rate now, for a similar product, is 4¾ to 5, and likely going higher.

I’m one of those people. I’ve got a 3½ % mortgage. I’d have to really want to move or downsize, to have to pay 4¾ to 5% versus my current 3½. So, you have a double impact on housing sales.

It’s interesting that unit sales have fallen, but not catastrophically so. The sales declines are 1 to 2% nationally. There are markets where the declines in unit sales have been far more drastic. New York City, for example.  We expect the Fed will continue to raise rates and from our point of view, it’s the responsible thing to do. The two big crashes we’ve had, in my career span, were caused when the Fed allowed money and the cost of money to remain too low for too long.  When those kind of things happen, people tend to speculate in all kinds of things that they wouldn’t normally do.

Exotic investments if you will, instead of investing in the bond market where maybe you can only get ½ to 1%.  Now, with the 10 year at 3.2%, all of a sudden, investors, pension funds and others, they look at the returns in the bond market a little differently. It may also explain why the stock market appears to have some jitters.  The fact is, this will continue for a while because the Fed is going to keep raising. They’ve said so despite whatever the President has said about the Fed. The Fed will continue to raise rates. They publish the fact that it is likely two, if not three more hikes will occur over the next six to nine months.

Yes, we could see mortgage rates at the 5½ % rate for a 30 year benchmark. So, it’s not that there’s anything fundamentally wrong with the general economy. It’s just that housing, which had reached a 10-year low in affordability, has priced itself out of a lot of families.  Mortgage rate increases have now doubled down on that trend, and so there’s a certain exhaustion and certain imbalances in the marketplace demographically. Boomers wanting to trade down, but not wanting to give up their mortgage rate.  Millennials and Gen Z wanting to get into housing, but it’s too expensive and now mortgage rates are high, so we should consider to see softness in housing sales for the foreseeable future. I don’t want to go out on a limb and say for how long, but it’s going to be longer than six months to a year, certainly.

What Steps Can Brokers Take to Strengthen Their Brokerage?

 

We are apt to say and have said many times, both in print and in our podcasts, to succeed in residential brokerage, you only have to do three fundamental things. You have to recruit talent. You have to develop that talent, and you have to spend less money than you have coming in.

To strengthen your brokerage, also means you need to strengthen your culture and your ties to your people. As several brokers who not only survived the 2006, 2010 downturn, several of those who grew their businesses told us, “If you think you’re close to your agents, get closer.” Nothing could be more important right now with all of the disruptive new, low cost models, running around the brokerage industry, recruiting agents at higher splits for the agents or lower costs for the agents, principals and managers and leaders need to reinforce their cultures. You need to reinforce your relationships with your existing people. You need to treat them like you’re re-recruiting them, so to speak.  And, then if I were in the business, I’d get my general ledger out with my outside accountant or inside finance people, and I would examine every single item that I spent money on the last six or 12 months, and unless it directly affects recruiting talent, increasing productivity, or lowering costs, I’d stop spending that money.

We’ve seen this kind of market before with stagnant housing sales and soft prices. It was a time when the best brokers got their costs in order and focused on the activities that led to recruiting, listings and sales and nothing else and they reduced their costs severely, but they also spent inordinate amounts of time building stronger, more powerful relationships with their leadership teams, their staff and most importantly, with their sales agents and teams. That’s how you’re going to strengthen your brokerage company.

Learn more about industry trends, marketing and technology strategies as well as listen to past REAL trending episodes on our website.

This has been Steve Murray, until next week!

 

New REAL Trending Podcasts Are Released Every Tuesday!

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