Real Estate Thanksgiving

real estate thanksgiving
A Real Estate Thanksgiving

Thanksgiving is a time to take stock and be thankful.  Although the original Thanksgiving may have had a religious purpose, today’s secular holiday is about traditions.  However, it seems as if the tradition of enjoying a peaceful meal with family and friends has been increasingly difficult over the past few years.  But since the election is over, let’s try to talk about something worthy of discussion (at least until the next election cycle begins), such as real estate and housing. Yes, it’s a “Real Estate Thanksgiving.”

Why shouldn’t we focus on something we all can get behind? There is a good chance that your dinner guests will include someone will be moving next year.  Whether they are buying, selling, or renting a home, someone at the dinner table will be affected by such issues as housing affordability, mortgage rates, and availability of homes.

Things to talk about during your Real Estate Thanksgiving might be about mortgages, home sales, home prices, rent, maintenance, etc.  The topics are seemingly endless.

Talking about mortgages during the Real Estate Thanksgiving.  The current news is about mortgage interest rates.  How high will mortgage rates go?  Housing experts agree that mortgage rates will likely be about 5 percent next year (although the Fed just announced they may hold off on interest rate hikes after spring).  Paying more interest on your mortgage may not be your idea of positively affecting home sales.  However, increasing mortgage rates typically moderate home price growth because of affordability.  Another silver lining of increasing interest rates is a stimulated lending environment.  As a result, mortgage companies will likely further loosen lending requirements, which will increase the home buyer pool.

Real Estate Thanksgiving and home sales could focus on the reasons for the fall slowdown.  Will home sales rebound this spring?  You’re probably aware that home sales have dropped off during the fall.  Major media outlets have grasped the news and created the meme depicting “housing bubble 2.0.”  You can’t really blame them because there are many economists who are projecting bleak home sales to continue through spring.

The main reason for a disappointing 2019 forecast given by many industry insiders is affordability.  I contend that this rationale is shallow and one-dimensional.  There is no doubt that rising interest rates and increasing home prices are on the minds of home buyers.  However, the lack of home sale inventory is a dimension that is often forgotten when discussing home sales and rentals.  The lack of available homes for buyers and tenants to choose has forced many into fierce competition.  The result has been upward pressure on home prices and rents.

You have to also consider the economy at your Real Estate Thanksgiving. The strength of the economy is an aspect affecting the housing market that many haven’t discussed.  Whether you want to admit it or not, the economy is the strongest it has been in decades.  Consumer outlook is optimistic.  Home buyers and renters have expressed confidence about their job prospects too.  Employers are competing for talent, influencing the highest wage increases in over a decade.

Commenting on the economy, First American chief economist Mark Fleming believes that the economy will be a major force in the housing market (How Will a Potential September Rate Hike Impact Existing-Home Sales?; blog.firstam.com; September 18, 2018).  One of the features of his analysis for 2019 is “It’s the Economy and First-Time Home Buyer Demand, Stupid.”  He described a pent-up demand from a wave of millennial of first-time home buyers who will be in the market next year.

Fleming explained that home sales slump during an adjustment period that home buyers undergo when interest rates increase.  The same thing occurred in 2010 when rates increased from 4.5 to 5 percent.  However, the economy was struggling at that time, and home sales were stagnant.  Fleming described First American’s positive housing forecasts overcoming rising interest rates, saying,

“According to our Potential Home Sales Model, the boost from the strong economy and first-time home buyer demand should overcome any downward pressure from rising rates on home sales.”

Original article is published at https://dankrell.com/blog/2018/11/21/real-estate-thanksgiving/

By Dan Krell. Copyright © 2018.

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Disclaimer. This article is not intended to provide nor should it be relied upon for legal and financial advice. Readers should not rely solely on the information contained herein, as it does not purport to be comprehensive or render specific advice. Readers should consult with an attorney regarding local real estate laws and customs as they vary by state and jurisdiction. Using this article without permission is a violation of copyright laws.

Industry disruptors changing real estate

Reat estate industry disruptors
Reat estate industry disruptors (infographic from nar.realtor)

Buying and selling homes hasn’t really changed much over the years.  It still requires a buyer and a seller.  Getting them together often requires a real estate agent or broker.  Sure, technology has changed the brokerage relationship dramatically.  It has also forced players in the real estate industry to change or get out of the business.  A new trend of real estate brokers are embracing technology like never before.  Will these real estate industry disruptors change how real estate services will be provided in the future?  Will these industry disruptors drive a new enthusiasm for “real estate technology brokers“?

One the largest players in the real estate industry is Zillow.  Although Zillow has a number of services that can bring home buyers and sellers together, they are mostly a technology company that serves to provide consumers information.  The company generates revenue by selling services to real estate brokers and agents, as well as mortgage companies and loan officers.  Many consumers visit Zillow’s websites to view information about homes for sale or rent that are listed with brokers or the homes’ owners.  Consumers don’t pay Zillow a fee or commission for the service.

Over the years, many have talked about how Zillow’s technological influence will predict the real estate industry’s future.  Those real estate prophets foretold a time when home buyers and sellers will be able to do business on the internet without a real estate agent or broker.  But in reality, Zillow’s influence only cemented the necessity of a broker or agent to facilitate the transaction.  Zillow’s success has generated millions of dollars in revenue, but the company has struggled to post an annual net profit.

Redfin is another real estate company that has a significant internet presence.  Some think of Redfin as a technology firm offering real estate services.  But the reality is that it is a real estate brokerage built around technology.  Redfin has built its brand, and went public this year.  Although the company generates millions in revenue, the Seattle Times reported that Redfin’s IPO offering indicated that the company has yet to post an annual net profit and has accumulated losses of $613.3 million (Seattle real estate company Redfin files to go public; seattletimes.com; June 30, 2017).

Companies like Zillow and Redfin are not the only players in real estate know for technology, but they may be the most well-known.  These companies are part of a new generation of companies that strive for a huge internet footprint to drive business.  But Zillow and Redfin demonstrate that technology in and of itself is not a guarantee of profitability, nor has it been an absolute “game changer” for the real estate industry.  Instead, technology has been the catalyst for change.

Industry disruptors and real estate

Consumers probably don’t realize the subtleties, but the rapid changes in real estate technology has forced real estate agents and brokers to change how they engage their clients.  Since companies like Zillow and other real estate aggregator sites have propagated the internet, the role of the real estate agent and broker has shifted away from being the source of information to being the source of a meaningful analysis.  Agents and brokers have also shifted their roles from information keepers to transaction managers.

What better way to be a real estate change agent and industry disruptor than to build a business around technology.   Redfin is probably the most poised to make major impact to how consumers are served in the real estate industry.  With all of its tech goodness, Redfin’s contribution to the industry hasn’t been as much technological than financial.  The brand will likely be known for being instrumental in reducing real estate commissions.  In markets where Redfin has been successful in establishing its brand, agents have been under significant pressure to lower listing commissions and/or offer buyer rebates.

Original published at https://dankrell.com/blog/2017/11/26/industry-disrupt…ging-real-estate/

Copyright© Dan Krell
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Disclaimer. This article is not intended to provide nor should it be relied upon for legal and financial advice. Readers should not rely solely on the information contained herein, as it does not purport to be comprehensive or render specific advice. Readers should consult with an attorney regarding local real estate laws and customs as they vary by state and jurisdiction. Using this article without permission is a violation of copyright laws.

Real estate fakery

“Fake news” is the cause du-jour that has energized many into a movement to stop the spreading of falsehoods.  Ironically, the crusaders who point their finger at alleged sources of fake news may also be guilty of promoting it; Fake news accusations are sometimes used to promote misinformation and half-truths.  Unfortunately, fake news has become a meme that is becoming trite and meaningless.  The promotion of fake news may be found throughout history, but real estate fakery is well established in the industry.

Fake real estate news isn’t always a manufactured story.  It is more often a story that is misleading.  When reporting real estate, the media typically sensationalizes a headline without reporting all the facts, which can make you draw inaccurate conclusions.  An example of this is when the local media report on rising national average home prices, giving the false impression that the local market is expanding at the same pace.  This is a mischaracterization of the local market because the regional data is often much different from the national trends.

The National Association of Realtors® is sometimes guilty of real estate fakery too by stating conjecture as fact when explaining market deviations.  An example of this is when existing home sales declined about seven percent during February 2014 (March 20, 2014; nar.realtor).  It was explained away because of the poor weather and snow that occurred that month.  However, if snow is causal to poor winter home sales; then why was there a five percent increase in Montgomery County Home Sales during February of 2010 – when Snowmageddon and Snowzilla occurred? From “Real Estate, Climate Change, and Data-Porn” :

The National Association of Realtors® (realtor.org) March 20th news release reported that February home sales remained subdued because of rising home prices and severe winter weather.  The decline in existing home sales was just 0.4% from January, but was 7.1% lower than last February’s figures.  NAR chief economist Lawrence Yun stated that home sales declines were due to “weather disruptions, limited inventory, increasingly restrictive mortgage underwriting, and decreasing housing affordability.”  And although it may sound bad, Yun actually has a rosy outlook saying, “…Some transactions are simply being delayed, so there should be some improvement in the months ahead. With an expected pickup in job creation, home sales should trend up modestly over the course of the year.”

So, if a snow filled and cold February is to blame for poor home sales, was Snowmagedden and Snowzilla the reason for increased home sales during February 2010?  Of course not.   And although home sales increased 5.1% year-over-year here in Montgomery County MD during February 2010, it was mostly due to increased home buyer demand that some speculate was due in part to the availability of first time home buyer tax credits.

Housing data cause and effect is only conjecture unless it is directly observed.  To make sense of the “data-porn” that is excessively presented in the media, often without proper or erroneous explanation; economic writer Ben Casselman offers three rules to figure out what the media is saying (Three Rules to Make Sure Economic Data Aren’t Bunk; fivethirtyeight.com): Question the data; Know what is measured; and Look outside the data.  Casselman states, “The first two rules have to do with questioning the numbers — what they’re measuring, how they’re measuring it, and how reliable those measurements are. But when a claim passes both those tests, it’s worth looking beyond the data for confirmation.”

Consumers also perpetuate fake real estate news by exaggerating their (good and bad) experiences, usually offering unsolicited advice or posting to the internet (to real estate forums and websites).  Facts are often distorted or misrepresented about specific real estate situations, such as divorce, short sales, and foreclosure.  Unfortunately, people in similar situations who are looking for answers are at their most vulnerable; and can take the “advice” as gospel, seeking a similar outcome with their transaction.

More real estate fakery on the internet comes in the form of fake reviews.  Fake reviews has been an ongoing issue for a number of years.  And although the online real estate portals have claimed to use artificial intelligence and other means to thwart the trend, fake reviews and those who provide them have adapted and have become more sophisticated such that it is increasingly difficult to spot.  Even back in 2011, Cornell researchers claimed that detection of fake reviews is “well beyond the capability of human judges” (Proceedings of the 49th Annual Meeting of the Association for Computational Linguistics, pages 309–319).

From “Are internet Realtor® reviews real or fake?“:

The National Association of Realtors® (NAR) code of ethics prohibits deceptive practices, which includes posting or encouraging fake reviews. However, Lani Rosales of AGBeat (Sketchy new trend – hiring fake online review writers) argues that there has always been an element posting fake Realtor® reviews and testimonials.

Scammers and fraudsters also use fake real estate news to their advantage.  Fake real estate listings have been an issue since the inception of the internet.  Fraudsters publish pictures and information from a prior sale or rental, or may lift the photos and information from a legitimate listing being marketed by an agent.  The con is to have the consumer send money, often before the home can be seen.  Craigslist warns consumers: “Avoid scams, deal locally! DO NOT wire funds (e.g. Western Union), or buy/rent sight unseen.”

Real estate agents are also culpable for spreading fake news, which may be why agents are often characterized as being fake or phony sales people who will bend the truth to make a sale.  Of course there are some in the industry who fit the stereotype, but many are “straight shooters.”  Unfortunately, it is common for agents to use puffery to make a home seem nicer (until you visit it and realize the “rustic charmer” is a neglected home).  Not as often, agents may create a history for the home that is not real to promote a lifestyle or even hide relevant defects.

When it comes to real estate news, advice, and listings – don’t take anything for granted.  Don’t fall prey to real estate fakery – know the source, and verify the information with a local real estate professional or your real estate agent.

By Dan Krell
Copyright © 2016

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Disclaimer. This article is not intended to provide nor should it be relied upon for legal and financial advice. Readers should not rely solely on the information contained herein, as it does not purport to be comprehensive or render specific advice. Readers should consult with an attorney regarding local real estate laws and customs as they vary by state and jurisdiction. Using this article without permission is a violation of copyright laws.