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REAL Trending Episode 70: 9/11, Coronavirus, Year End Earnings Reports, Data Tech

Mar 3, 2020 12:05:00 PM

On REAL Trending Episode 70 we're discussing the 9/11 event, Coronavirus, year end earnings reports, and commentary on data tech and data.

Steve Murray:

From REAL Trends, the trusted source for real estate industry news and trends, this is REAL Trending episode 70.

Steve Murray:

We're analyzing the most important trends affecting brokerage companies and their agents. I'm Steve Murray, President of REAL Trends. Today we're discussing the 9/11 event, Coronavirus, year end earnings reports, and commentary on data tech and data. First, a quick message about an upcoming event.

Tracey Velt:

This is Tracey Velt, REAL Trends editor of content. Join me April 29th through May 1st, 2020 at the Grand Hyatt Denver for the premier leadership event of the year. The REAL Trends gathering of Eagles. Steve Murray and I will be interviewing brokers who accomplished the impossible, multiple years of growth no matter what the market. Plus hear from author and leadership expert, Patrick Lencioni on how to build a healthy organization.

After his keynote session, coaches from Lencioni's team will be on hand to lead small group workshops so you can put his practices into play. For the first time ever, we're inviting brokerage leaders and up to three of their leadership team members. Go register at REALtrends.com/events. You won't want to miss this one of a kind event and spaces are filling up quickly. Go engage, go lead, go register realtrends.com/events/.

Steve Murray:

We're often asked what we think about the housing market in 2020 and 2021. Our common answer is absent a 9/11 event or a big change in the national political leadership due to the elections this coming November, we think housing will be steady as she goes. Same problems we've had for some time. Low inventory, challenging affordability, but great demand.

Steve Murray:

Now we come back to focus on the 9/11 event. Today that is the coronavirus outbreak. Now do we think based on everything we've read, which is dozens and dozens and dozens of articles, do we think that it's going to bring the United States to its knees? No, we don't.

And in many regards, the experts seem to indicate that due to steps already taken and those that will be added to steps to protect people, we're unlikely to lose as many people to the coronavirus as we do to the regular flu, which most people don't know has probably already killed over 15,000 people this winter in the United States.

Steve Murray:

Nonetheless, there is a bit of a panic setting in among people around the world and a little bit in the United States. Could this have an impact on the housing market? Yes, absolutely. Why? Because it's having an impact on the world's economy. As you can see recently, it's already had a major impact on U.S. stock markets. As of Thursday, February 27th the stock markets are already off almost 10% in four days due to concerns about the impact from the coronavirus on the world's economy and the U.S. economy.

So do we think this rises to a 9/11? Yes. It very well could rise to that kind of event in terms of the impact on housing sales because of the impact on people's outlook for their jobs, for the economy and is this the right time to be buying a house? Is this the right time to be moving? Is this the right time to be doing all these things in a time of uncertainty?

Steve Murray:

Now you have to understand we lived through 9/11/2001. We represented the largest broker in New York City for sale, Corcoran. It was supposed to close on 9/11 and of course it didn't. In the month of September and October and November, obviously housing sales were down 40, 50, and 60% in New York City. But take heart, almost all of those lost sales were recovered within six to eight months. So do we think coronavirus may cause a hiccup in housing sales? Yes.

It's entirely possible that it may cause people to slow down their activity. We don't know that for sure, but it could. But once the initial wave, if you will, of concern about it and or the incidents of people becoming ill from it in this country, it will pass and housing sales will most likely resume.

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Steve Murray:

Second. Year end reports from the major companies or some of the major companies we've reviewed the year end earning reports from companies like ReMax, Zillow, Realogy, Berkshire Hathaway and Redfin.

Steve Murray:

No big surprises in any of them. ReMax and Realogy both reported relatively flat to slightly down results in their revenues and or their earnings. Zillow and Redfin reported increasing revenues, in fact substantially increasing revenues, but also increasing substantial losses from their growth in the Ibuyer programs particularly.

We also note that Berkshire Hathaway reported in a very small subsection of their overall annual report that their brokerage entity had a decline in brokerage earnings, which was offset by an increase in mortgage earnings that caused overall earnings at Berkshire Hathaway's real estate unit to go up from 2019 from 2018. So basically no big surprises, but added emphasis here.

Steve Murray:

As we wrote last September, companies like Zillow and Redfin are, if you will, goosing their revenue growth by adding the value of the homes they're buying through their Ibuyer programs. They're also experiencing losses of those activities. In fact a lot of losses. Redfin for one saw their operating loss almost double in 2019 from 2018 even though their core business helping people buy and sell homes at Redfin Brokerage actually improved their number of units and the volume of business they did in 2019.

However, operating losses in that unit and in the Ibuyer segment contributed to a widening loss. Zillow, very much the same story. Huge increase in revenues, but huge increase in their operating loss as well, particularly in the new Ibuying segment.

Steve Murray:

What we expect to see in 2020 from each of these companies is likely more of the same. We do think ReMax and Realogy will probably see an increase in their revenues and their earnings in 2020 because they are focused intently now on growth activities and reducing unnecessary costs. Redfin and Zillow as much as said in their annual reports that they expect fast growing revenues and widening losses in 2020.

In fact, Zillow's Rich Barton commented it may be several years before Zillow turns the corner on the operating losses from their Ibuyer program. We have yet to hear from EXP, but we do know they grew their agent counts significantly in 2019 over 2018 and their transactions and their gross sales. We have not yet seen their earnings for year end.

Steve Murray:

We do comment though that EXPs agent growth and transactions growth, when you look at 18 over 17 versus 19 over 18 EXP seems to be at least so far decelerating their growth when you look at 19 over 18.

Steve Murray:

Lastly the data tech and data. We've attended three conferences in the last 10 days. Three of the big national companies. On everyone's mind is not just technology but artificial intelligence and the use of data by agents of brokerage companies to improve their business intelligence and the ability to make decisions. There are some startling developments going on, particularly in the artificial intelligence area when you look at companies like Century 21 ReMax and Keller Williams, and we applaud them for these efforts.

Smarter agents and smarter brokers being able to target buyers and sellers and their needs more effectively, everybody should win from these developments and we think we're at just the front end of how data and artificial intelligence will help create smarter agents, smarter consumers, and smarter brokers. We think the big challenge is not the systems themselves, but how are agents and brokers going to get themselves reeducated and retrained to devote more time to actually using these tools?

Steve Murray:

Learn more about industry trends and success tactics for brokerage firms, agents and teams, as well as listen to past REAL Trending on Apple podcast, Spotify, Google Play, and others. Visit www.realtrends.com/channels/. This has been Steve Murray. Until next time.

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