REAL Trending Episode 64
The housing market in 2020, what is really ailing the brokerage industry, and the Gathering of Eagles 2020.
From REAL Trends, the trusted source for real estate industry news, this is REAL Trending, episode 64. We’re breaking down trends and news of the week, and showing how they impact brokers and agents. I’m Steve Murray, president of REAL Trends. Today, we’re discussing the housing market in 2020, what is really ailing the brokerage industry, and the Gathering of Eagles 2020. What does this all mean? First, a quick message about an upcoming event.
2020 Housing Market
The housing market in 2020. Housing unit sales are projected, by a number of sources, to be up slightly, mainly due to three factors. The remaining low interest rates, in the 3.5 to 3.75% range, on the benchmark 30 year fixed mortgage, will continue to drive housing sales above where anyone thought they would be a year ago at this time, as we went into 2019. So, look for unit sales to be up in 2020 in most markets around the country. The exception is going to be in the high end of most markets, where inventory is beginning to accumulate and prices are softening, and we expect that to continue throughout 2020.
Low interest rates, that’s one reason. Better inventory. The home builders, for one, are now producing 120 to 130,000 more units annually, than they were a year ago at this time. That may not seem significant, but it is very significant, as their permits are up and they expect that to continue to be up in the next three to six months. So, we will have some more inventory available. Prices will continue to go up, although most forecasters do not believe they will go up as rapidly as they have in years past. Lastly, the job market and household incomes continue to strengthen, even in the face of international trade problems and some obvious slowing in the farm and manufacturing economies.
Overall, we expect a very solid year in 2020. In unit sales, the average prices of those homes being sold, with the exceptions that we’ve already pointed out, 2020 will be a solid year. What are the wild cards? Well, as we know, anything can happen in a presidential election year. It could be much better for housing, it could be no impact, it could be negative impact. It is very much an unknown at this time. However, it’s worth noting that we looked at the presidential election years, going back to 1980, so 80, 84, 88, 92, 96, 2000, 2004, 2008, 2012, and 2016. Almost every one of those years, with two exceptions, being primarily 1980 and 1988, unit sales were up in presidential election years, from the year prior.
What Is Really Ailing The Brokerage industry?
Secondly, what is ailing brokerage? To put it simply, in the last 40 years, the brokerage industry has been forced to adapt to new competition throughout that period of time. Whether it was the entry of Merrill Lynch and Sears in the late seventies, early eighties, followed by the savings and loan, followed by the entry of the internet, followed by the entry and the growth of new models. In the 80s, it was Remax. In the early 2000s, it was Keller Williams.
What is different today, is the brokerage industry is being assailed, if you will, by multiple attacks from multiple new kinds of competition, all at the same time. Historically, these new competitors would come in, the industry would resist and then adapt to the impact of the new business models, but generally, they had three to five years and they only had one type of new competitor. Now, at this time, we have what we consider three different kinds of new competitors all coming into the industry at the same time, all potentially having some marginal to measurable impact on brokerage.
What are we talking about? We’re talking about… on the one hand, we have the iBuyer phenomenon, and not just iBuyers, but we have multiple financial companies that are offering to buy homes from sellers or invest in homes with sellers or to help people, first time home buyers and move up or downsizing buyers and sellers, to create liquidity and to remove friction from a transaction. It’s reminiscent of the entry of the relocation management companies in the 1970s, when the agents and brokers detested the fact that some new entity was getting between them and their customers. Well, this is déjà vu all over again, with iBuyers and related companies who are helping people move up, move down, first time home buyers, rent to own, et cetera, et cetera. So, you have that group.
The second group we’re talking about is low cost brokerage companies. And there are many of them, and we’ve had them in the past, but never so many that are well financial backed organizations at a time of constant change. Who are we talking about? The better known ones, people like Realty ONE Group, HomeSmart, Fathom, United Real Estate, JP & Associates, Rutenberg, eXp. There’s a multiple number of these companies that are lower cost than the incumbents, for the most part, and they are coming after the agents.
The last group is what we call the venture backed, or private equity backed, entities who are coming after the brokerage company and don’t suffer from the handicap, at least currently, of having to show a profit, attacking the industry and disrupting the industry. Of course, we’re talking about Zillow, Redfin, and Compass, the three primary ones. They are rapid growth, they have enormous capital behind them, they have enormous technology investments behind them, and they don’t seem to be compelled by their investors or backers to make any money.
Now, it’s one thing to consider that we’re talking about Compass, which has really only been around five or six years, give or take, but you look at Zillow and Redfin, who have never reported, on an annual basis, any real measurable earnings, but they seem able to raise capital to continue to disrupt and dislocate the business. So, what does this have to do with brokerage? The brokerage industry is now faced with three different simultaneous attacks from new models, many of which are backed by hundreds of millions of dollars, with no apparent requirement that they be profitable. It is a trying, difficult thing to deal with, particularly when most of the brokers understand they’re not going to have three to five years to adapt, as in the past. They have to adapt now. That creates all kinds of new challenges. More on how to address those in a later REAL Trending episode.
Gathering of Eagles 2020
Lastly, and on a brief note, the Gathering of Eagles in 2020 will be one of the last of its kind in two fashions. One, we’re going to change the whole format of our conference to reflect what people really want and will enjoy, going into the future. Number two, we’re going to shift the timeframe. More on those details later, for future Gathering of Eagles, but at this one, it’s important for people to know, if you want to know the facts and the truth of how this brokerage industry has performed over the last 5, 10, and 20 years, and how different models and different brands and different structured brokerage companies have truly performed in the last 5, 10, and 20 years, against each other and against the market, which will lead us to understanding who has been growing and who hasn’t, then the Gathering of Eagles is the place to come. We’re going to add to that, the real life experiences of four key CEOs who have actually been among the top 10 fastest growing firms in the country in the last five years. And how did they do that? And they’re not all one brand, and they’re not all one model.
Lastly, Patrick Lencioni, one of the foremost leaders, coaches, and teachers about creating strong, durable, healthy organizations, will be with us. And, as a special add-on, some of his coaches will be with us in small breakout groups, to actually talk to our guests. How do you implement some of the things that Patrick recommends? Look forward to the opportunity that you will be with us at the 2020 Gathering of Eagles in Denver, April 29th to May 1st. So remember, go to rtgoe.com, take a look at the agenda, and register.
Learn more about industry trends, marketing and technology strategies, as well as listen to past REAL Trending on Apple Podcasts, Spotify, Google Play, and more. Visit www.realtreads.com/channels. This has been Steve Murray, wishing all of you a wonderful, happy, warm, and safe holiday season.