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T3 Insight Monthly Digest Readings
CoStar Group CEO Andy Florance shared some details about the future of his commercial listing behemoth in the residential space in a wide-ranging interview. One of the takeaways included how the company will focus and expand in the residential industry with Homes.com. Homesnap, which CoStar acquired in 2020, will become Homes Pro to support the central Homes.com brand the company will focus on building.
A recent report from Realtor.com shows that small investors continue to be very active in the market even as the share of investor purchases eases from levels reached during the pandemic. The share of purchases by large investors (those with at least 50 properties) declined in 2022 and accounted for about 14 percent of investor purchases, down from a peak of 32 percent in mid-2022. Investors were most active in the Midwest and the South due to a combination of affordability and strong rent growth.
Fannie Mae expects home sales to be ‘subdued’ in 2023 due to a limited inventory of homes for sale. Homebuyer demand continues to support home prices, although prices, measured at the national level, are expected to soften starting in the second half of 2023. Fannie Mae forecasts home price declines on a year-over-year basis through 2024 with the strongest downdraft in the second quarter when prices are forecast to fall 2.6%.
NAR reported that April membership was down 0.66 percent compared with the year before, the first year-over-year decline since the Great Recession in 2008. Membership numbers show that there were 1.54 million Realtors in April, a decrease from 1.58 million at the end of 2022. NAR forecasts that membership numbers to fall further and expects to tap reserves next year to make up the gap between operating costs and revenue.
The Federal Housing Finance Agency has adjusted the loan-level price adjustment (LLPA) fee which is a fee charged by Fannie Mae and Freddie Mac on mortgages that they underwrite. It is based on a homebuyer’s credit score and the size of the down payment. The adjustment, which went into effect on May 1. The LLPA fee for some buyers with lower credit scores or smaller down payments will decrease and increase for other buyers with higher credit scores or larger down payments. NAR was against the overhaul arguing that it would raise the costs of mortgages when affordability is a top concern for many buyers.
The NAR Board of Directors approved a proposal to increase 2024 dues by 4% and tie future increases to the rate of inflation as measured by the Consumer Price Index. That will push dues next year to $156. Dues increases will be capped at 4%, however. The move comes as NAR faces annual deficits due to rising expenses and declines in membership. With the $45-per-year consumer advertising fee, Realtors now pay $201 in dues to the national association. As costs increase, the level of scrutiny of the association from brokerages and agents will likely increase.
The Real Brokerage reported $107.8 in Q1 revenue, an increase of $10 million from Q4 and a 75 percent increase compared to one year earlier. Its agent count, at more than 10,000, was 120% higher than the year before. The company noted that a consumer-facing app aimed at streamlining the mortgage process will be in beta testing within a few weeks. The company also announced the launch of Real Signature, a proprietary alternative to third-party signature platforms.
College-educated workers are leaving large coastal cities at an increasing rate and moving to other, lower cost, parts of the country. This pattern was accentuated by the pandemic and work-from-anywhere but increasingly the cost of living, notably housing, is shifting the balance so that places like San Francisco, Washington and New York are now seeing a rising net outflow of well-educated residents. On balance, a few other large metros, mid-size cities and rural areas are gaining college-educated residents who have packed up and relocated.
Buyers are grappling with high prices, rising interest rates and low inventory, while sellers face price peaks and the prospect of higher mortgage rates on their next home. The effect is a topsy-turvy market in which both buyers and sellers face significant hurdles to meet their real estate needs. In times like these, brokers and agents need to provide savvy advice and insight to clients to successfully realize their real estate goals.
CoStar Group, which owns real estate portal Homes.com and real estate agent marketing tool Homesnap, reported first quarter revenue of $584 million, a 13% increase from the same period in 2022. Its net income of $87 million in the quarter represented a slight decrease from $89 million in first quarter 2022. The company, which acquired Homes.com in May 2021, reported that Homes.com achieved 27 million unique visitors in March, more than 4X the 6 million it had when it acquired the portal. The company has expressed big plans for the portal as it reworks the product into its well-established advertising-based portal playbook. https://www.realestatenews.com/2023/04/25/costar-beats-expectations-increases-revenue-by-13
Homeownership rates closely track with income but the benefits differ by race, according to a recently released NAR study. Just 47% of low-income households (defined as income no greater than 80% of area median income) own their home. That number rises to 69% for middle-income households and 87% for those at the upper-income level. With homeownership rates of just 44.9% and 48.5% respectively, Black and Hispanic households continue to significantly trail the rates of white and Asian households, which are currently at 74.5% and 61.9%, respectively.
Opendoor announced a cut of 560 employees, about 22% of its staff, in mid-April. It had already cut 550 employees in November. The pioneer iBuyer is attempting to find its footing as it works to reorient its company around a new marketplace initiative and leans into its Exclusives strategy, in which it lists homes it owns on its site first before listing in the MLS.
The U.S. Federal Trade Commission seek a preliminary injunction to stop the $11.7 billion acquisition of mortgage tech provider Black Knight by Intercontinental Exchange. The FTC wants more time to investigate acquisition – it is planning to begin review of combination on July 12. The investigation centers on Black Knight’s loan origination system and the potential reduction in competition if ICE completes the acquisition. Black Knight, a public company traded on the New York Stock Exchange under the BKI ticker, makes the popular Paragon MLS system.
Median home prices in March fell 3.3% from a year ago to $400,528, the largest annual median home price drop since 2012, according to a Redfin analysis of home prices. The effects of inflation, rising interest rates and a market throwing mixed signals is playing out in full force in this spring selling season. At a time when prices rise and demand peaks, this spring reveals cooler prices.
Existing-home sales dropped in March from February as buyers grapple with low inventory across the country. The annual rate of home sales in March was 4.4 million, down 22.0% from the year previous. The market faces serious uncertainty as the typically busy spring selling season approaches summer. Real estate has long anticipated a return to normal, but this year may prove to be a tumultuous interlude than once anticipated.
Companies are offering bonuses and perks to potential employees to get them to move closer to offices, according to a new analysis of the trend in the Wall Street Journal. The volume of relocation picked up in 2022 more than many expected as well as the budgets companies had to spend on it. Relocation has long been a key service of large real estate brokerage companies. A growing demand by employers of workers at offices will add some valuable demand to the market as they seek housing near their jobs.
Wes Foster, co-founder of Long & Foster Companies, passed away at the age of 89. He represents an era of family-founded and -owned real estate companies that has slowly been disappearing. He co-founded Long & Foster in 1968 and eventually bought out his co-founder. In 2017, following the corporatizing trend among the nation’s largest companies, he sold his firm to HomeServices of America. The brokerage continues operating under its brand as a subsidiary of the larger HSA company.
The U.S. Department of Justice has filed an amicus brief in a federal lawsuit by pocket listing service Top Agent Network against NAR in May 2020 that states that tossing the suit would set unlawful precedents regarding competitive advantages of NAR-affiliated MLSs. The suit, which a court tossed in August 2021 but is now under appeal, alleges that the Clear Cooperation Policy, which requires MLS subscribers to enter listings into the MLS within one business day of publicly marketing them, violates antitrust laws. This simmering case is one to watch as it could have far-reaching impacts if the courts reopen the suit.
Anywhere Real Estate has tapped Kamini Lane as president and CEO of its company-owned Coldwell Banker offices. Reporting to Sue Yannaccone, president and CEO of Anywhere’s franchise division Anywhere Brands and its company-owned brokerage division Anywhere Advisors, Lane reflects the increasing role women are playing at the highest level in real estate corporate boardrooms. Every year, T3 Sixty tracks the industry’s 200 most powerful leaders in the SP 200. 2024 is shaping up to be potentially a record year for women on the ranking.
This piece explores the growing appeal of some cities in the Midwest, such as Duluth, Minnesota, for those looking for a resilient climate as temperatures rise and wildfire risk increases in many areas of the country. Agents in Duluth, for example, report that homebuyers come with cash – from other more expensive areas of the country – and site moving to the area as climate-inspired.
Boomers have retaken the title as the most populous generation of homebuyers from millennials, according to NAR’s 2023 Home Buyers and Sellers Generational Trends report. The report reveals that boomers led all generations with 39% of home purchases in 2022, followed by millennials accounting for 28%. In 2021, millennials led with 43% share compared to boomers at 28%. Older homebuyers often have more resources and can weather turbulent economic times, like the U.S. is experiencing now, better than younger buyers. Brokerages and agents can leverage this insight to adjust their marketing and prospecting to better meet and serve current buyers.
A group of Fannie Mae economists have forecasted, based on economic data, housing sales forecasts and the faltering banking system, that the U.S. will likely see a modest recession commencing sometime in the second quarter. As uncertainty looms, real estate companies are smart to implement a conservative, focused financial approach as the second quarter begins. For those with clear strategies, opportunities will emerge to grow and take market share.
Home sales jumped 14.5% in February the month previous, the largest jump in over two and a half years, according to the latest existing home sales report from the National Association Realtors. Median existing home prices, however, dropped 0.2% in February from a year previous, marking the first year-over-year drop in over a decade! Inventory remains low, which could sustain demand despite rising interest rates. The market continues to throw mixed signals. At this time, strategic, focused marketing will help brokers and agents stand out and resonate with real estate consumers facing a difficult market.
Migration to quieter, more far-flung places has multiple downstream effects on them, both beneficial and challenging. In this article, the New York Times explores the impact on Maine, which saw a large influx of residents starting in mid-2020, which lowered the states average age, contributed to average home price increase of 60% from 2019 to 2022 and has brought life to many of the state’s sleepy towns. Similar areas across the U.S. are experiencing similar impacts of the Covid-induced migration. Questions remain whether this migration pattern will continue or whether the previous norm will return.
OJO Labs, the operator of a national portal and referral network, announced that it had sold its Canadian operations, ojohome.ca, to the Royal Bank of Canada, and raised a debt round. Combined, the actions brought approximately $200 million to the company. The Austin, Texas-based company has made large, aggressive moves to become a major player in the residential real estate lead-generation and portal game. It acquired one of the nation’s most-visited real estate portals in Movoto in June 2020. It has raised approximately $134 million to date. Like many startups who have raised millions of dollars in recent years to revamp real estate, OJO Labs is looking to gain traction and a profitable model for its tech platform and real estate network. We’ll continue to monitor the company and others like it as they evolve.
The Canadian Real Estate Association has announced plans to turn the real estate portal it owns, Realtor.ca, which had a reported 121 million users in 2022, into a standalone for-profit firm. The proposal will be discussed at the trade association’s annual general meeting in April. The potential spinoff of Realtor.ca from CREA echoes a similar move NAR made with Realtor.com back in the late 1990s. It operated under operator HomeStore, which went public in 1999 and in which NAR maintained a large equity stake. That stake has waned over the years as the site’s operator changed to Move and then to News Corp, which is now pursuing a sale of Realtor.com. NAR has lost a lot of control of the site. A national listing site offers many opportunities for an association, especially if it maintains control as the site grows and evolves in a separate company. Will be interesting to track how CREA manages this.
In this profile of 3D home printer Icon, which raised $185 million in February 2022, The New Yorker explores the promise and challenges of 3D homebuilding and its potential for improving housing affordability. 3D-printed homes remain expensive to build, but companies, such as homebuilder Lennar, which has invested in Icon, believe with scale they can become cheaper to build and more affordable for consumers. In addition, the technology can be applied to multifamily, which will bring much more supply than the current single-family applications.
NAR reported an historic member count in 2022 of 1.58 million, a 1.4% growth from 2021. The trade group has forecasted that the 2023 count will drop by approximately 7% to approximately 1.47 million. Real estate has always see-sawed with the market – in flush times, agents rush into the business and serve the increased number of buyers and sellers. In tighter times, the workforce contracts. The predominant independent contractor structure in the industry accommodates this fairly fluidly. The structure also contributes to a challenge of maintaining high service quality.
As interest rates rise and money gets more expensive, the models some companies launched with or leaned into in recent years are collapsing under their own weight. Profitability has become all-important and the days of losing big money on a future bet of profits is all but gone. This New York Times article profiles the dilemma referencing companies grappling with the reality, including Zillow Group, Redfin and Opendoor.
The S&P CoreLogic Case-Shiller US National Home Price Index shows that prices dropped 0.3% in November from the month before, representing five consecutive months of drops. Home prices have definitely come down in recent months, but as economics news early in 2023 appears bullish and with inflation potentially curbed, the housing market may stabilize as it heads into the spring selling season.
Like other iBuyers, Offerpad has hemmorhagged money as the market turned and it was stuck with inventory it had to sell at losses. The company recently raised $90 million in a private fundraising effort, which also came with an unspecified number of layoffs. More details of the raise, any adaptations to its model and the layoffs will be laid out on its fourth quarter 2022 earnings release.
CRMLS and Bright MLS, the nation’s two largest MLSs, are launching a consumer search portal, Nestfully, expected to launch on April 1. The two MLSs own the site under a joint venture, and REcolorado has signed on as a participant. At launch, the MLSs expect listings from over 240,000 brokers and agents to show up on the site. Other MLS participants are expected. The launch of Nestfully represents the ongoing effort by innovative MLSs to enhance collaborations and achieve the multiple benefits of scale. For more details on these collaborations and the reasons behind them read the 2023 Swanepoel Trends Report chapter, “The Future of MLS.”
In its second quarter earnings report of its fiscal year released on February 9, News Corp disclosed dropping revenue, with its digital real estate division playing a key part, and plans to cut approximately 1,250 jobs. In addition, it said it still is pursuing a sale of Move, the operator of Realtor.com. A sale of operator of one of the nation’s most popular real estate sites in Realtor.com to CoStar Group, one of the named suitors in the potential sale, will play a big role in the evolution of online real estate in the U.S.
In their recent full-year 2022 earnings statements, Zillow Group and Redfin posted net losses for the year of $101.0 million and $321.1 million, respectively. With its winddown of iBuying, Zillow net loss represents an 80.1% improvement over its 2021 loss of $528 million. Redfin, however, who just announced the wind down of its iBuying program in 2022, saw its year-over-year net losses almost double from $109.6 million in 2021. Zillow and Redfin, operators of two of the nation’s most popular real estate websites, have struggled to achieve profitability, and as they adjust their models and the market changes, time will tell if they can wring sustainable profits out of their large revenues.
The DOJ filed a motion for a two-week extension to file an amicus brief in the lawsuit brought by private listing network Top Agent Network against NAR and the San Francisco Association of Realtors that alleges the Clear Cooperation Policy violates antitrust. The DOJ has until March 13 to file the brief, which it says it intends to file on behalf of the plaintiff or as a neutral party. The DOJ has quite a dossier on NAR policy after years of careful review of its policies and how they impact consumers. With a judge ruling in late January that it must halt investigation into NAR policies related to compensation structure, the law enforcement body may have a role here.
A federal judge ruled in late January that the U.S. Department of Justice’s signed settlement with NAR from 2020 prevents it from investigations it had attempted into two NAR policies related to brokerage compensation: NAR’s Participation Rule and the Clear Cooperation Policy. This ends one of the two major threads of scrutiny into the industry’s compensation structure, as chronicled in the 2023 Swanepoel Trends Report chapter, “Evaluating Real Estate’s Compensation Structure and Its Future.” The thread still active are the multiple class-action lawsuits against NAR and other large brokerage firms still active that allege the industry’s compensation structure violates antitrust laws.
Some former members of California-based Corcoran Global Living, which had been Corcoran Group’s largest affiliate and suddenly and surprisingly announced the shuttering of the company in late 2022, have banded together to form a new Corcoran affiliate Corcoran Icon Properties. Corcoran Global Living was one of the nation’s largest brokerages with over $8.1 billion in annual sales, so this transition is notable for the industry.
From February 2012 to June 2022 – 124 consecutive months – the Case-Shiller National Home Price Index reported month-over-month home price appreciation. July through October 2022 saw four consecutive months of monthly home price drops, down 2.4 percent from June’s peak. The correction is here. After years of accelerating growth and heat, home prices are readjusting as the Fed raises interest rates and the country works to stem inflation. This readjustment period could last for all of 2023 and then settle somewhat into a new normal. We’ll be tracking the data closely.
Approximately 6 percent of US real estate agents are Black and earn about a third of their white counterparts, according to U.S. Bureau and NAR data cited in this New York Times article. The article provide valuable insight on life as a Black real estate agent, who grapple with supporting clients and operating in a market marked with the legacy of discrimination and segregation. As the industry works to become more diverse, insight into some of the many different groups working in the space helps all of us better work to make this a more inclusive space.
The West is facing massive water-shortage issues. Lake Powell and Lake Mead, two key portions of the dammed Colorado River, provide water for millions of residents and businesses in the West, are drying up. This New York Times feature profiles a housing development of 500 to 700 homes in Arizona that is left without water service as neighboring Scottsdale, which had provided service, cut it off citing the need to conserve its allotment. This is just the beginning of a major readjustment to life and growth in the West as it confronts increasing populations and decreasing water reserves.