REAL Trending Episode 37: Home Ownership Rate, Relationships, GDP, Housing Outlook

 

REAL Trending Episode 37

 

From REAL Trends, the trusted source for real estate industry news, this is REAL Trending episode 37. 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’re discussing the home ownership rate, the importance of relationships, and the GDP and outlook for housing. What does it all mean?

 

The Home Ownership Rate

The home ownership rate was announced this morning, had hit 64.8%, which is the highest since before the downturn, which began back in 2006. REAL Trends has been tracking this data since 1980, and when we look back at this, we see that from 1980 almost uninterrupted through 2003, the home ownership rate was between 63.5 and about 65. The fact that we’re back to 64.8 is good news. We’re now back to basically what the 40-year average of the home ownership rate has been in the country.

Putting that in perspective, if you look back to 2002, ’03, ’04, and ’05, it was above 68 to 69% home ownership rate. Let’s say this. Today at 64.8, in 2004 it was about 69, the difference being a little over 4%. Put it in actual numbers, with approximately 130 million households in the United States, 4% of those would be and represent 5.2 million additional homeowners had we still had a home ownership rate where it was in 2004 when it was 69%. One wonders what would have happened had federal government policy as it was in the early 2000s so over-weighted to get people into home ownership, and we had 5 million more people owning homes. I mean, here’s the real challenge. We don’t have that many homes in the country to sell anybody, or for them to live in at this current rate.

It is good news, not only for the 64.8, but for the fact that the 35- to 44-year-old group, the Gen X if you will, the younger end of the Gen X generation, the home ownership rate jumped nearly three points since a year ago. That’s really good news that that age group and those young families have been able to get back into home ownership. Also, it noted that the rate for 35 and under, millennials and even some Gen Z, that their rate also ticked up, not as dramatically. Just by 6/10 of one point.

This all goes to reinforce what we have said in prior writings, blogs, and podcasts. Those people who, five, 10, 15 years ago said, “Oh, millennials will not want to own homes because they’ll want to be urban apartment dwellers,” they totally missed the point. Americans love owning their castle. That’s good news, very good news. The passion for owning one’s own home is unabated.

We know there are challenges for young families to get into home ownership. Our prior reports indicated that, actually, it was down payment that was one of the biggest struggles, not student loan debt. That, there were indications that family were stepping up to help young generations to get into home ownership through the provision of funds for the down payment. Here’s the other piece of good news. 64.8, which is basically as we said, the 40-year average in normal times of home ownership rate, also means that the federal government and Fannie and Freddie are not overstimulating home ownership again. At least, it doesn’t appear they are.

 

The Importance of Relationships

On a second note, the importance of relationships. This observer had the chance to be at the R4 Conference in Las Vegas last week, and got to hear from the keynote speaker Marcus Lemonis. Now, being someone who doesn’t watch TV, I had read about him but never heard about him, nor seen his TV show. But, let’s just say his hour-plus presentation, which engaged the entire audience of 8,000 RE/MAX agents, brokers, employees, and suppliers, was very, very personal, very, very right in your face, and mostly focused on the fact that relationships drive success in business, not the other way around.

He told several stories that supported that proposition, enormously good stories. Now, obviously, his record is not unblemished in business, and he told the story of his own life, being adopted at birth, having very difficult childhood challenges, but he clearly made the point that relationships are what drive great businesses, not the other factors. He said that it’s not just that technology and marketing and products and services don’t matter. It’s just that, in building a small business, which most of the listeners to this podcast are, is more based on making, building, developing, and keeping strong relationships.

In many cases, his lessons that he shared with the audience were virtually biblical in their basis. Number one was, he talked about when you have a tough relationship with coworkers or bosses, you should always attempt to reconcile those relationships, always first. He said it doesn’t always work out, but you should always make the attempt.

The second thing he talked about was a story of having his mother visit him in his place in Chicago and see his expensive house and his expensive car. She admonished him that he didn’t need those things, that they weren’t the most important things in his life, that he should dedicate himself to taking resources away from having a huge house and a fancy car and all the trappings, and he should do something for other people with those blessings of financial prosperity. That again, comes right out of the Bible. A talk, be careful about worshipping false gods. It was very interesting to hear him talk about that stuff, particularly in front of 8,000 real estate agents, brokers, and suppliers.

Again, I’m circling back. I think the most powerful part, if you were listening carefully, is he repeated over and over that relationships were what matter. Why does this matter today, to those listening to this? Because it doesn’t matter whether we study the data from consumer studies and agent studies and broker studies. That message comes through time and time again. 90% usage rate of agents. Why? Because they want someone personally to help them through the transaction. How do they find an agent? Two-thirds said it’s because they know one or someone they know referred them. It’s all about relationships.

What do we find in the relationships between brokers and agents? It’s not always about money. In fact, we’re observed to say time and again, if it were always and only about money, most brokers we know of in the United States would be out of business because there’s always a cheaper brokerage company available. Has been for 30 years. But, most agents and teams remain with established, strong, identifiable brokerage companies who we know are not the cheapest. It’s about relationships.

When we do onsite assessments of brokerage companies at REAL Trends, and we do 12 to 15 a year, what we hear over and over and over again from agents, is how they wish they could spend more time with the owner, the leader, or the head of the company. The evidence is there to see if you’re willing to listen. Yes, there are some brokers and some agents and some customers and buyers and sellers to whom it’s only about the buck. But, the fact is in our industry, it’s mostly still about relationships.

 

GDP & Housing Outlook

Lastly, a report out this morning, the gross domestic product, the GDP grew a very, very strong 2.6% in the fourth quarter of 2018. Interest rates are moderate. The economy is stronger than people thought it would be. Most importantly, the 2017 Tax Act, whose major component was to reduce the corporate tax rate, seems to have had a major impact on GDP. Business investment for the first time in years led the way in driving GDP up 2.6%, according to articles in The Wall Street Journal and other publications this morning.

It’s very important that business investment is picking up, even though consumer spending is not as high as people thought it would be, because business investment leads to jobs, leads to productivity increases, leads to higher wages, and for those of us in the housing industry, leads to the possibility of a stronger housing market going forward in 2019.

We start the new year, we notice NAR’s Pending Home Sales Index the other day was up for the first time in months. All in all, with GDP that strong, the Pending Sales Index going up, mortgage rates flattening, this is starting to look like we’ll have a better spring and summer than anybody would have thought six months ago.

 

More on this later from REAL Trends. Learn more about industry trends, marketing, and technology strategies, as well as listen to past REAL Trending episodes on our website.  This has been Steve Murray. Until next time.