REAL Trending Episode 61
New data on home ownership, the tech treadmill, and the demise of the world as we know it.
From REAL Trends, the trusted source for real estate industry news, this is REAL Trending episode 61. I can’t believe we’ve done 61 of these already. 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. Today, we’re discussing new data on homeownership, the tech treadmill, and the demise of the world as we know it.
New Data on Home Ownership
Some new data on home ownership appeared in an article in the Wall Street Journal October 16th just a week ago. Interesting. In 2019, about 19% of all US households with six-figure incomes rented their homes. Sounds like a big number, but it really is meaningful when compared to the fact that in 2006, that number was only 12%. The increase equates to about 3.4 million new renters who would have been homeowners a generation ago. We all know and have read numerous studies about the importance of home ownership in building wealth.
In fact, the article says that houses are the democratic assets. Roughly half of housing wealth is owned by the middle class, according to Moritz Schularick, a professor of economics at the University of Bonn, and one of the authors of this study. The average tenant of the country’s two largest single-family landlords Invitation Homes and American Homes 4 Rent now earns $100,000 a year, the company say. They own some 133,000 houses between them increasingly in attractive neighborhoods with good school districts around growing cities like Houston, Denver, and Nashville. In each of these cities as well as others like Seattle, Cincinnati, and Ann Arbor, the number of six-figure renters doubled or better between 2006 and 2017. In fact, during that period before the market died in 2007, the number of renter households in the US grew 25% while the number of homeowners was nearly flat according to the US Census Bureau.
Why do we bring all this data up to our listeners? Because as we said in our 2014 book Game Changers, there was a very real likelihood that the home ownership rate would ultimately decline under the weight of a lack of inventory due to the lack of building and affordability issues. In the second quarter, the article went on to say 65% is the current home ownership rate, stuck at the lower end of its rate average for the last 30 years. We all know the story about prices going up. Now we have some other data to talk about the fact that more and more people, even six-figure income people can’t afford or choosing not to afford to own their own homes.
Steve Murray: This points out the real opportunity where 35% of households are renting. We know that something near 20 million people live in one to four family investor-owned inventory. We’ve said before on this podcast, one of the great new service business opportunities is residential property management and/or leasing, both very fragmented industries right now, both wide open. They’re not as lucrative perhaps in dollar terms as brokerage, but the margins in both of these business here at REAL Trends having done numerous valuations on management and leasing companies, the margins are better than in brokerage.
The Tech Treadmill
On to our second topic, the tech treadmill, an article by Andy Kessler, again, in the Wall Street Journal October 21st, just a few days ago, and how it applies to our industry is fascinating. The point of the article is if you show up to a gun fight with a bat or a knife, you’re outgun from the start, so to speak. The article really talked about the war for live streaming and TV and exactly how fair is it that you got Google that spends 25 billion a year in R&D, Apple who spends 20 billion, Amazon who spends 28 billion, and your AT&T and Disney and Universal NBC going up against them, and your spending is 3-5 billion, and just how long can you keep spending money because even big companies have discovered once you’re on the tech investment treadmill, there is no getting off. They’re also learning that depending on what markets you’re in, it’s best not to pick a fight with guys who have 5 to 10 to 20 times your capital to spend.
But going back to my core message here, brokerages, national networks and agents and teams all being directed and enthusiastically supportive of more technology, better technology, better systems. I think the lesson here is apt for all the major companies, whether it’s realtor.com, Zillow, Realogy, Berkshire Hathaway, RE/MAX, Keller Williams, HomeSmart, Redfin, and all the rest, and there are many that are spending tons of money on technology to build integrated platforms. Be very, very careful because there is no end to investing in these systems because once you’re there, you’re on the, quote, “tech treadmill.” Last article: It’s a commentary, the demise of the world as we know it.
The Demise of the World as We Know It
In the last few weeks, we read articles from various sources about yet another antitrust restraint of trade suit out of Missouri surviving a court challenge and is now going into due diligence, subpoenas being issued to multiple parties all over the industry demanding every piece of information they have going back 12, 15 years ago. Having done that before, believe me, it’s a ton of fun, and many of you listening have been through it too.
Then we have other editorials talking about the end of dual agency and the end of MLS and the end of agents using buyer agents, and this information swirls about is so… so basically, you have to believe one of two things. You have to believe either they’re right or they’re wrong. There’s no gray here. They’re right, or they’re wrong. The whole world, as we know it, the realtor marketplace of brokers and agents and MLS and associations of realtors and the state regulators have all been wrong, that this is a horrible system, that consumers are mistreated, that agents are sharks, that no one really cares about what happens to the buyer and seller.
Well, yours truly just went through the process of buying our first downsized home of our career, my bride and I. Now that our boys are both out of the house and have their own homes, we’re downsizing. It took 15 months to find the right one at the right price with the right spaces and the right neighborhood, but we found it, and we secured it. We went to sell our home. We followed our listing agent’s advice on all the things we should fix ahead of time and how we should stage the home. For our community, this was not a cheap house, and we sold it at full price in 24 hours.
Anybody who says that the value of agents, if you’re willing to listen to them, is not valuable is not thinking clearly. Anybody who says an MLS system needs to be busted up, broken up, and tossed away and that some other system can replace it that will be far more efficient, I’ve actually heard no one describe it yet. Nowhere. I think that you either believe this system is irretrievably broken and needs to be blown up and we need to start over again or you need to accept that it does have flaws that can be improved, but at its heart, it is a very effective and very fair system enabling buyers and sellers and agents on both sides and all the other participants from mortgage lenders, title insurance.
You want to hear a very interesting side story. I went to order moving services for our furniture. This company had access to our listing online and all of the photos of our rooms in our house, and we were able to walk through it together so they knew exactly what pieces we had, how big they were, how many needed to be moved. Now, that’s clever thinking, and what a great use of technology. I ask the question: Do you believe the system overall is really a good one and does need some fixing at the edges, or do you think we should all plan for the demise of the system that we’d known it? I’ll go with the former.
Learn more about industry trends, marketing and technology strategies, as well as listen to past REAL Trending episodes on our website, www.realtrends.com/blog/. This has been Steve Murray. Until next time.