From REAL Trends, the trusted source for real estate industry news, this is REAL Trending, episode 53. We're breaking down trends of the week and showing how they impact brokers and agents. I'm Steve Murray, president of REAL Trends. Today, we're going to talk about America's Best, millennials moving to the suburbs, and changes in the housing mortgage market.
Okay, first let's talk about America's Best: the 2019 report based on 2018 production of the nation's leading individual agents and teams. Amazing year for the top teams and individual agents in the United States. There were over 14,500 who were validated and approved for this year's list and rankings of America's Best Real Estate Professionals. That's up a thousand from last year.
Incredible numbers. Just incredible: 6,800 teams qualified this year. That's up four times from just four years ago. And the average size of teams? Well, they're up almost 40% from where they were four years ago.
There are some incredible new names on the list of America's Best Real Estate Professionals. Interesting enough, a small trend, six of the top 10 individuals by transaction size are from flat-fee, discount brokerage firms. That is, discount flat fee services to consumers. Very, very interesting trend developing there.
If you want to see those rankings, see where you rank, or where your friends rank, go to realtrends.com/rankings/americas-best/. Look at America's Best Real Estate Professionals. Incredibly powerful performance in 2018 by these top real estate professionals.
Some fascinating news that will affect agents and brokerage companies for years to come: Turns out the millennials are starting to move from the cities to the suburbs. According to an article in The Wall Street Journal on July 2nd, 14 of the 15 fastest-growing cities in the U.S. are in suburbia, not the cities. Which is very different from what we've been reading about for years.
Another article in The Wall Street Journal the day before, July 1, noted that demand for rental apartments reached a five-year high this spring. Again, most of those units are being built in the suburbs. And millennials, as they get older, are tending to drift toward the suburbs as opposed to the story that millennials were all going to stay downtown in the major cities.
Now, interesting information about this. In an article in Bloomberg, it points out there are 83 million members of the millennial generation. Makes it the largest generation in history. But what's very interesting is in the same article, it talked about the years 2010 to 2020, being the "decade of the city."
And while the cities' reign doesn't seem to be lasting as long as thought, the cities' rule will be temporary, according to all kinds of sources that we reviewed recently.
It's a very, very interesting trend indeed. In fact, in Bloomberg, they note the following: Economic development in the 2010s emphasized renting over home ownership, and young people over families. And clustered economic activity in urban cores, instead of the outlying areas.
That was the economic development model, according to Bloomberg. It was actually borne out of more out of necessity than choice, according to the report. Housing and mortgage markets were "smoldering craters" by 2008. So home ownership was out and renting was in.
From 1993 to 2007, the number of renting households in the U.S. was flat at 35.1 million. From 2007 to 2016, the number increased by more than 8 million. But now, as noted by NAR's data and other sources, the homeownership rate is now headed back up, and people are looking to buy homes.
The same article went on to say the more population patterns are starting to look like the old sprawling dynamic, serving suburban and exurban demand.
In 2017, the number of home-owning households increased by over a million, while the number of renting households fell. First drop in renting households since 2004, according to Bloomberg.
So what's this all mean for agents and brokers? It doesn't mean that those who have focused on downtown condominiums, cooperatives, and other for sale housing in the cities are going to be scorned and the market is going to die. It means the upward march of demand for big cities and in big cities, and the push on pricing, clearly demographics are starting to say, "That is going to start to subside."
However, what that also means is there will be enormous pressure on the suburbs, where there's already a dearth of inventory. Also in the suburbs, more and more resistance to more home building, because it adds to crowded roads, schools, shopping, and restaurants.
There is a real crash coming between a generation of 83 million people who now will own homes in the suburbs more than ever before – running into that scarcity of inventory problem that we see all over the United States. Whether it's Toledo or Atlanta or Dallas, Texas, or Denver, Colorado, or Seattle.
What this means in general, though, is that housing and home ownership are still very much alive. In fact, the demand for homeownership appears to be increasing as demographers note the shift from renting to owning, and from cities to the suburbs.
Lastly today, just looking in the rear-view mirror just a little bit, all of us who survived the 2006 to 2010 housing debacle, remember that most people were pointing triggers, fingers, swords, and arrows at the banking industry for the absolute cause of all of the housing market's collapse and ills.
In The Wall Street Journal late last week, an op-ed titled “An Obama Housing Bust,” talked about Quicken Loans settling a dubious housing lawsuit initiated by the Obama Justice Department.
According to the op-ed, the real scandal is how the Obama administration extracted billions from mortgage lenders for sloppy underwriting on government-insured loans, while loosening loan standards and setting up taxpayers for the losses.
Anybody who wants to go back and read a better book than The Big Short by Michael Lewis, read a book called Economic Armageddon by Gretchen Morgensen. If you want to read the full truth that extends back into the Clinton White House years, of what happened to housing.
Anyway, it's interesting that most major banks you know – JPMorgan Chase, Wells Fargo, Citigroup and Bank of America – because of the damage done to their reputations and having to write those checks to the federal government have, for the most part, withdrawn from FHA lending. Interesting, right? So who's filled the gap? Nineteen of the top 20 FHA lenders are now non-banks.
Further, a quarter of FHA-insured borrowers have payments that exceed half their income. More than at the peak of the housing bubble. The average borrower credit score has declined to 670 – the lowest since 2008.
And just to add more fuel to that, for one example, the city of Santa Ana, California, last week announced $80,000 in down payment assistance for first-time buyers. Defaults have been declining; that's good news. But that's because wages are rising, while home prices have increased at about 5 to 6% on average for the last five years.
However, if the economy and home prices take a turn down, the FHA's 2.8% capital cushion would certainly not cover the losses, and taxpayers may wind up on the hook again.
It's deja vu all over again, as Yogi Berra was once quoted as saying. All of us need to understand that every time we provide incentives for homeownership, we get closer to the danger level that people that shouldn't have the requirements and the responsibility of homeownership, may end up in homes that ultimately they can't afford.
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