REAL Trending Episode 30: Flipping Home Decline, Govt. Shutdown & Compass’ Report

REAL Trending Episode 30

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 the fact that fewer Americans are flipping homes, how the federal government shutdown may affect housing, and a few comments on the year-end message out of Robert Reffkin, CEO of Compass.

Let’s jump in!

Steve Murray

From REAL Trends, the trusted source for real estate industry news, this is REAL Trending, episode 30. We’re breaking down the trends of the week and showing how they impact brokers and agents.

Fewer American’s Are Flipping Homes

According to ATTOM Data Solutions, one of the premier data sources in the country, the number of homes being flipped in the United States has declined three quarters in a row, indicating some weakness or softness in the housing industry. Now certainly the number of homes being flipped probably has to do too with the fact that prices have gone up rapidly, and because they’ve gone up so rapidly far in advance of the incomes of the normal American household unit sales are starting to decline. So, a little bit of the froth is out of the housing market. Now one understands that flipping homes between say $100,000 and $200,000 in most American markets those are still going to be incredibly attractive homes, and in fact, ATTOM’s report talks about the fact that those still have the highest return on investment for people who are flipping those homes. That’s very understandable. But you move up that price chart and those homes even if they need work done are primarily being gobbled up more and more by people who just want to live in them. The flippers would have to get there early with cash, with a full-price offer.

In a Denver market where we live and work $300,000 to $400,000 homes rarely stay on the market even a day or two with multiple offers, even though the upper half of the market in Denver has slowed down considerably. But it is interesting they correlate the percentage of homes being flipped and the numbers with signaling maybe a housing recession. And while we already know unit sales are down, which indicates we already have a housing recession, the fact that flipping is down would seem to underwrite and corroborate that signal that’s saying, “Geez, housing is slowing down.” Whether you see flipping as a good thing or not is another story altogether. And certainly if the market slows down further then flipping will pick up.

Federal Government Shutdown

According to a report out of Bankrate, the government shutdown is disrupting the mortgage and housing businesses. Now, first of all so everybody’s clear on this, Fanny Mae and Freddie Mac are still processing your loan because they’re not owned by the federal government, they’re privately owned corporations. However, when Fannie or Freddie need to use outside services that are provided by the federal government it may be that your loan many be slowed down, or it may be stopped if they can’t get access to certain information provided by the federal government. FHA loan closings could be delayed but fortunately not VA, and according to Bankrate, USDA loans will not be processed until this is all over.

On other points, federal flood insurance is not affected despite what you may have read. If you need transcripts or information from Social Security or IRS you’re going to get delayed, nothing’s going to happen. The people that are there to provide information resources or transcripts are not going to be available and that could affect loan processing and closings. One of the things they seem to talk about, however, in the report is more it’s a psychological issue that people are concerned, and nervous, and worried that the federal government shutdown will affect the whole economy.

Certainly incomes of nearly half a million federal workers who were going to miss a paycheck this Friday unless they open the government back up could put a damper on their activities in the housing market. But this editor believes that they’re stretching it a bit to say that the whole country is agonizing over the federal government shutdown and that, that will affect people’s choices to buy homes or sell homes. We think that’s really a stretch to say that that will happen. This isn’t the first time we’ve been through a shutdown although it’s closing in on being the longest one, and the economy is not that much affected. People go about their daily lives and unless they are an unfortunate person who works for the federal government, and we feel for every one of them who is not getting paid and the concerns and the worries they may have providing for their families, making mortgage payments, and other things, we pray that they settle this and get it fixed, and get the federal government open, but to say that it casts a pall over economic behavior in the United States, we believe is stretching it quite a bit.

Compass’ Year End Report

On a last note, we received a copy from Compass of an end of the year report from Robert Reffkin, CEO of Compass. Now it goes without saying, Compass has been a big newsmaker in the residential brokerage industry for the last 12 months if not the last three or four years. In his letter to employees, Reffkin takes credit for the fact that perhaps they didn’t make all the right decisions on technology, which by the way is a lot more than many industry leaders in the brokerage side of things would ever admit to. That, “Oops we screwed up on the technology, it wasn’t ready for prime time. We’ll get it right the second time, give us a chance we’ll get it right.” You haven’t heard too many brokers or technology executives for that matter ever admit to such a thing, ever in our industry. So, congrats Bob, that you would even admit it in a what has I’m sure by now become a public document. But you know, this is a company that according to Mr. Reffkin has grown from 62 to 238 offices, from $370 million in annual gross revenues to a run rate approaching $900 million, and from $15 billion in sales at the start of the year to an estimated run rate of $35 billion is a heck of an accomplishment in 12 months, and one that I don’t believe has been done before in the industry.

We may not applaud their methods. We may not like the fact that they’re impacting a lot of incumbent traditional brokers, many of whom are our clients and friends, and we understand it’s disruptive, and we understand it’s very uncomfortable. And in fact, it just makes some people plain mad. That’s the nature of competition and it’s more fierce today likely than at any time in our 32 years, but the challenge for all brokers in the face of Compass and other new forms of brokerage are to adapt and succeed in different ways.

More on this later from REAL Trends. 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 time.

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