Looking over the Horizon A Review of Trends in Residential Brokerage REAL Trends Consulting
Dec 14, 2015
Looking over the Horizon
The Housing Market
Change in Consumers
The Brokerage Challenge
The Brokerage Opportunity
The Housing Market
Inventory currently running at 11-12 months
Shadow inventory adds from 4-6 months of additional supply
The Housing Market
The thirty year average of home buying indicates that 5 percent of all households buy a home each year
During recession years the rate has averaged 3.8-3.9 percent
The Housing Market
At the current level of households, approximately 115 million and in normal times would equate to 5.75 million new and existing home sales
In recession years at 4 percent the rate would normally be 4.6 million new and existing home sales
The Housing Market
The market is currently running just under the 5 percent rate. Near record low interest rates, extraordinary pricing and the strength of the investor market are keeping the rate higher than would be expected
The Housing Market
These are the forecasts for 2011
Existing New Total
NAR 5.123M .350M 5.473M
Fannie 5.011M .350M 5.361M
RT 4.990M .350M 5.340M
The Housing Market
Projections therefore expect lower unemployment, continuation of affordable mortgage rates and continued growth in the economy.
Not full recovery but measurable
The Housing MarketWild cards
Rising mortgage rates/tightening of credit
Either flood of/or tightening of foreclosure inventory
Economy slides or doesn't recover
Tax hikes to cover state/city deficits
Immigration due to unemployment shrinks further
The Housing Market
Joint Center for Housing Studies at Harvard indicates that 1.1 to 1.3 million new households per year through 2020
Additional stimulus from Gen X and Millennial households who are now living home
The Housing Market
Investors will continue to be >20 percent of all sales for several years
Second home/retirement home sales are .300M per year first half of decade sliding in second half of decade
Changes with Consumers
The Millenials are marrying later, marrying not at all and are delaying entry into housing purchase market
Of the new households that will be created in the next decade fully 71 percent will be minority households
Changes with Consumers
Between 1/5th and 1/4th of all owner occupied households currently have either negative or no equity in their homes
The Boomers and the Millenials are both seeking similar housing – low maintenance smaller more urban quarters
Changes with Consumers
So two groups representing over 70 percent of all potential homebuyers are moving away from suburban housing and crowding into condominiums, townhomes, lofts and apartments
And Generation X, the smallest of the generations, is left to purchase the suburban two story homes
Changes with Consumers
The homeownership rate was 66.5 percent in the fourth quarter of 2010
The homeownership rate peaked at 69.2 percent in 2004
The last time the rate was at 66.5 was 1999
Changes with Consumers
Singles make up an increasing share of all homebuyers. Homeownership rates for single women are higher than for single men (focused on their big screens not homes!)
The Brokerage Challenge
The rate of home sales will likely resume its 30 year average of 5 percent
From the current level and with 1.2 million new households created each year, then home sales will grow roughly at 50-55,000 additional home sales each year
The Brokerage Challenge
That represents roughly 1 percent growth in home sales each year for the next decade
Prices are expected to resume long term trends of 3-4 percent per year with higher levels in certain markets
The Brokerage Challenge
The average commission rate declined from 1991 to 2005 to 5.02 percent then reversed upwards through 2009 to 5.36 percent
We expect it to remain there for a year or two then begin to soften as sales professionals go back to competing for listings
The Brokerage Challenge
The gross margin for brokerage firms has declined for the past twenty years.
The rate in 1990 was 36 percent and in 2009 it was 26.8 percent nationally (lower in western region)
The Brokerage ChallengeCompetition from 1)RE/MAX, 2) Keller Williams
and 3) Virtual and Freedom Brokerage firms has driven competition for sales professionals to new heights
There are no apparent reasons for this to continue (In Canada where such trends are 5-10 years ahead of U.S. gross margins are 17-18 percent)
The Brokerage Challenge
The competition has moved to:
Lead Generation and Capture
Technology platforms
Recruiting systems
Educational programs and training
The Brokerage Challenge
The significant growth in core services (mortgage, title and other settlement) has reached maturity for most firms.
Capture rates do have room to grow but for most firms it is limited
The Brokerage Opportunity
An estimated 60-65 million homes will be bought and sold in the next ten years
The total commission revenue from such sales will between $450 billion and $550 billion
The Brokerage Opportunity
The market is segmenting by type of brokerage
Traditional graduated commission
100 % commission
Capped Company Dollar
Virtual/Freedom Brokerage
The Brokerage Opportunity
There are profitable brokerage firms in each different model
Generally the higher the retained gross margin the more success in core services
The Brokerage Opportunity
Research indicates the following:
20 percent of the agents do 60 percent of the business when comparing only those doing business at all