Click on the play button to listen to the audio version.
Over the next 24 months, the real estate and mortgage industries will be challenged like no time in recent history. Companies that have healthy capital reserves and their fixed expenses under control will expand their footprints, and increase market share. Agents with strong brand awareness and low overhead will also do well. Brokers with corporate accounts and multiple channels of business like REO, relocation, and property management are in the best position for growth. Conversely, companies with high fixed expenses, and singular revenue channels will suffer.
Real Estate is a cyclical business. I have never understood why brokers and agents lock themselves into long-term commitments for office space, equipment leases, and human capital. They always regret it. I have been in the business for almost 35 years, and I have seen the same people go from moguls to paupers more than once. Ten years ago, I read a book titled “The Lean Start-Up” by Eric Ries that I have never forgotten. I use many of the principles discussed in the book to this day.
What to Expect in the Coming Months
First, expect fewer transactions. It will be a while before interest rates begin to come down, so wannabe sellers who are sitting on 3% interest rates are going to be on the fence for a while. Inventory will remain low and prices will stay high, although red-hot markets like Phoenix, Austin, and Nashville may see some price compression. Unless you have been living under a rock, you probably know there are a slew of lawsuits challenging traditional real estate commission practices. I have no idea how those lawsuits will play out, but it only emphasizes the need for agents and brokers to keep costs low and have supplemental revenue streams. Mortgage lenders will need to find ways to lower acquisition and manufacturing costs. Mortgage brokers will increase in market share because of their low overhead, and more companies will look at near-shore opportunities for loan processing.
The Bounce is Always Proportional to the Dip
The worst real estate market in modern history was between 2008 and 2012. However, that dip was followed by a ten-year bull market. The longer the current real estate market stays down, the stronger the rebound will be. The longer interest rates stay high, the more loans there will be to refinance when rates come down, and so on. It is always dangerous to try and predict the bottom, but smart companies are already thinking about ways to scale up quickly when the market gets hot again. The cyclicality of the industry works both ways.
Demographics and Digitization
The Hispanic housing market will remain robust despite affordability challenges. If your plan is to stay in a house for at least 10 years, there is never a bad time to buy or invest in real estate. Hispanics are a family-oriented community, and the home is central to the family experience. Hispanics don’t care as much about price or interest because their goals are more long-term. One of the few things you can count on is that the youth and vitality of Hispanic homebuyers will drive the market for decades.
Technology, blockchain, and AI will change the industry more in the next five years than anything else since the emergence of the internet. I would advise everyone to invest heavily in educating themselves about how these technologies will impact the housing industry.
The housing and mortgage industries are staffed for six million home sales and approximately four trillion dollars in mortgage originations. Experts are predicting those numbers to decrease dramatically. That means a lot of people will be forced to leave the industry. That is both bad and good. I don’t wish anyone hard times, but a contraction in our industry is long overdue. Fewer deals mean more competition and competition usually means consumers will get more value and better service. Only the best will survive.