REAL Trending Episode 32: Game Changers, Purplebricks, Housing Markets

REAL Trending Episode 32

Steve Murray talks about the REAL Trends Game Changers, Purplebricks recent announcements, and latest developments on the housing market. Let’s jump in.

Steve Murray

From REAL Trends, the trusted source for real estate industry news, this is REAL Trending, episode 32. We’re breaking down the trends of the week and showing how they impact brokers and agents. I’m Steve Murray, president of REAL Trends, and today we are discussing Game Changers, a new release from REAL Trends, changes at Purplebricks, and the housing market. What do all these things mean?

Game Changers

Game Changers [was] originally the title of a book that REAL Trends issued in 2014, which identified eight major trends that may affect the industry–along with research and commentary as to why these things were happening, and if they did happen, what impact there would be. We took that one step further and said if game changing or game changers affects business practices, trends in the industry, we should also apply the same thing to leading people in the industry who truly have the ability to, if you will, change the game in 2019.

They aren’t all the most popular, and they aren’t the most prominent in every case, but primarily because of our intense consulting work in all facets of residential brokerage from merger acquisition and valuation, to business operations and analysis, to trends with the national franchises, MLS companies and others, we really dug a little deeper and said, “All right, who are the people that really are going to affect some things for a lot of people in 2019?”

We compiled a list. It’s a fairly short list. Some of the companies and people will be obvious to many people like the leadership of Compass, the leadership of companies like Offerpad and Opendoor, along with, interestingly enough, all of the changes that have taken place at the leadership of some existing national companies. What change is going to happen at Keller Williams with Gary Keller stepping in as CEO and Josh Team as president?

It doesn’t matter that we know what they’re going to do exactly, but whatever they do, it’s going to have an impact on 186,000 plus or minus agents in the U.S. and Canada in 2019. Same thing with Gino Blefari, newly named the CEO of Berkshire Hathaway Home Services. Gino has a unique approach to the business, highly energetic, and very intense. Is he going to change the world? Probably not, but he’s going to change some things, that’s for sure. We came up with a list of just about 50 people that we think will change the game in 2019 and beyond. Game Changers, which is available now, is out there for everyone to view.

Purplebricks

Let’s move on to our second topic, one close to my heart, Purplebricks. Purplebricks announced that they were going to become more like a traditional brokerage with a variety of commission plans for different clients and customers across the U.S. This is the company that announced with great fanfare that they’d raised well in excess of $100 million to attack the U.S. market with a plan to offer flat-fee listing services in Los Angeles, New York, and other key markets. The world seemed to shiver in the U.S. residential market.

Our approach was, okay, they’re offering a flat-fee listing, originally $3,200, subsequently raised to $3,600; our question when we reported on it to our clients and customers was, this doesn’t seem all that different than Help-U-Sell, which has offered this program since 1977 in most markets in the United States, or Assist-2-Sell, who launched in 1987 with a flat-fee listing commission, which could gravitate over time to more of a traditional commission and split. The only real difference is Purplebricks had $100-plus million behind them, they have a very nifty name. Oh, and one thing. They were charging the listing fee up-front, and it was non-refundable.

It is no surprise to us that they are having to amend their plan because one thing we know from our past consumer studies is American consumers, buyers or sellers, don’t like paying real estate commissions or fees until they get a closing. We commented on that several years ago. It’s no surprise to us that Purplebricks has amended their offering to become more like other real estate brokerage companies, although clearly they’ll still offer a flat-fee listing alternative as if discounted commissions have never been offered to consumers in the United States before.

Sorry for the tongue in cheek on this, but it does get a little interesting when we have firm, after firm, after firm that somehow gets the investment community’s attention that they’re going to change the residential brokerage business in the U.S. and beyond the borders forever with their offering simply because they talked some money guys into thinking they could. It takes a lot of knowledge to compete in our business. It takes a lot of experience to know what will work and what doesn’t work. It doesn’t mean there can’t be innovation, but there are some things when you’re going up against the consumer desire to not pay until there’s a closing, one could see this happening.

On a side note, we note that the number of consumers using flat-fee discounted listing commissions or alternatives remains yet a very, very small part of all selling assignments in the United States. We wish the people at Purplebricks all the success in the world with this new endeavor and welcome them to reality in the residential brokerage business, at least in the U.S.

Housing Markets

On a last note, 2018 was the year where the lack of inventory, high prices, and rising mortgage rates all came home to roost in residential real estate sales. NAR reported December ’18 over December ’17 unit sales in the United States of existing home sales were down over 10% year-over-year. December was also down almost 5% just over November 2018 results. This is not news to any broker in the industry. Unit sales have been flat to declining virtually the last nine months of 2018. Once again, we have to talk about inventory problems and shortages, although they’re easing somewhat, in the entry level they’re still acutely short.

Number two, the average price of a home in the United States over the last seven, eight years went up at double, or triple, or quadruple the rate of household incomes. It was only a matter of time before the average home became more and more out of reach for the typical American homeowner. It goes without saying the impact on young home buyers, many of whom, as we’ve commented before, are burdened by student loan debt and the lack of cash for a down payment.

A cooling housing market is actually a good thing right now. Doesn’t mean it’s not painful. A cap on that, we noted a report that said Manhattan real estate, New York City, closed 2018 as the worst year since the financial crisis ended back 2009 and ’10. According to a report, Manhattan home sales fell 14% last year. In the fourth quarter alone, the median price for an apartment in the city fell below $1 million for the first time in three years.

The decline in sales in the fourth quarter was the fifth straight quarterly drop. Ladies and gentlemen, and our friends, and our clients, this is unlikely to be corrected in the first month, or quarter, or half of 2019. It is a good thing that mortgage rates have backed off from their peak last fall, but the fact remains that low inventory and by historical standards sky-high home prices are not going to make it an easy time to see housing sales recover.

How much more will they drop? Some of that depends on the general economy. Some also to a great extent depends on the actions of the most powerful individual in the U.S. housing market. That would be Jerome Powell, the chairman of the Fed. To the extent they hold rates where they are, we’re probably going to be much better off than if they continue to increase those rates next year, which they are projected to do. Nonetheless, we’re not looking at a crash. We’re looking at an adjustment to reality. We’ve got to let inventories rebuild. Buyers will have more choices. Sellers will have to get realistic about prices. Again, as we’ve said before, it is a time to watch very carefully where you’re spending your time and money. Overall, the housing market will still have a very solid year in 2019.

Learn more about industry trends, marketing and technology strategies, as well as listen to past REAL Trending episodes on our website, www.realtrends.com/blog. This has been Steve Murray, till next time.

The Conference for Residential Real Estate Leaders

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