The Housing Chronicles Blog

Tuesday, January 15, 2019

Technology Continues to Change Real Estate Sales

Lead, Follow, or Get out of the Way -- Author Unknown

Is it time to finally bid goodbye to the traditional method of selling homes along with its standard, six-percent commission?

After many years of impacting the fields of retail, travel, stock trading and others, technology is now increasingly poised to change how both new and existing homes are bought and sold. While there will probably always be a market for traditional agents, only those with area expertise and excellent customer service will survive in this new marketplace.

When Jack Ryan, a former Goldman Sachs partner and technology investor, went to sell his Southern California home to an interested party in 2015, he contacted his local real estate agent who would help him complete the paperwork – for six percent of the sales price. Frustrated with this response and hiring an attorney instead for a small fee, he soon co-founded Real Estate Exchange (REX), which uses artificial intelligence (AI), machine learning and big data to match buyers and sellers for just a two-percent commission.

Unlike competitors such as Redfin and PurpleBricks, which discount the listing fee but still require sellers to offer a buy-side commission, REX bypasses the MLS entirely, thus cutting out three percent of the equation. For those buyers who insist that their agent receive a cut, it can still be negotiated with the seller, or the buyer can roll the cost onto their own mortgage. Should anyone experience buyer’s remorse, REX even offers a 30-day, money-back guarantee.

For those sellers looking for a faster route, “iBuyers” such as Redfin Now, Zillow Offers, OpenDoor, OfferPad, and Perch provide what is often a below-market cash offer in exchange for an almost-immediate sale. While Zillow expressly encourages sellers to bring in their own professional agent, the others close the deal mostly in-house. For this convenience, they charge overall fees ranging from six to 13 percent, depending on the strength of the market and the condition of the property.

Coldwell Banker, in partnership with Home Partners of America, is leveraging the rent-to-own giant’s subsidiary, cataLIST, for cash offers to sellers in select markets. If the seller turns down the offer as too low, then the home is still marketed as a traditional listing.

For larger new home builders, NewHomeSourceProfessional, a unit of Builders Digital Experience (BDX), specifically partners with buyer’s agents to help its builder members move inventory to a digital audience. Billed as an “MLS for new homes” and free to agents, the system not only regularly scrapes builders’ websites for pricing and inventory changes, but can also pull specific information about floor plans, school districts and other community information.

Going one step further and leveraging the power of AI, last year BDX also unveiled HomLuv, which allows buyers to review and rank more than one million images from 100,000 different new homes. As buyers pin their favorites, the system learns their preferences and begins matching them with participating builders for their locations of interest.

For smaller and custom home builders, Edgewise Realty is another option which offers a closer, direct-to-buyer partnership similar to REX, which also allows clients to reserve units with just a $1,000 deposit, upload financial documents, and make choices about features and upgrades. Currently working with about 30 different builders across the country and charging a flat one-percent listing fee, Edgewise buyers can also get regular updates with photos and videos.

But what if a potential buyer first has a home to sell?

To address that situation, BDX has teamed up with Keller Williams International in multiple U.S. markets for its New Home Ambassador and National Builder Trade-in programs.  Although the ambassador program allows agents to create a separate and personally branded website to search new home listings, the trade-in program charges a discounted, three- to four-percent commission while still offering the expertise of professional stagers and agents, and even lease buy-out programs for renters.

Meanwhile, upstart Knock has another strategy appealing to builders, which is to purchase a seller’s chosen new home for cash -- often at a discount -- and then sell the old home the traditional way. Only when the old home escrow closes do the buyers receive title to the new one.

Similarly, Ribbon finds buyers first, and then offers sellers a competitive, all-cash bid for a commission of 1.95 percent. With Ribbon, buyers can even rent out their new homes at market rates until they’re able to obtain a suitable mortgage, whereas if a Knock listing is taking too long to sell, it can also be temporarily converted to an income property.

Indeed, the times, they are a-changin’.

Wednesday, December 12, 2018

A Look Ahead to 2019: A more balanced housing market, but geopolitical turmoil brews

For most of this year, we saw the steady global expansion underway since mid-2016 continuing, with growth during the 2018-19 period projected to remain at its 2017 levels.

That’s the good news.

However, even with the International Monetary Fund’s (IMF) estimate of 3.7 percent growth in 2019, more downside risks to this growth rate have emerged in the past six to eight months, as political turmoil continues to spread to more places around the world.

Here in the U.S, the Federal Reserve is still projecting GDP growth to slow to 2.5 percent in 2019 after 2018’s tax cuts helped boost annual GDP growth to 3.1 percent. Unemployment remains low at 3.7 percent, and, as of October, there were one million more jobs than there were people actively seeking work, which has put upward pressure on wages as the competition for skilled workers heats up.

More recently, however, wild swings in the stock market due to escalating trade tensions with China and slowdowns in other developed countries have dramatically impacted the global appetite for risk, with the State Street Investor Confidence Index declining at the fastest pace in a decade over the last few months.

Still, one positive side effect of this volatility for the housing market has been a recent escape to the safety of long-term bonds, helping to reverse the steady increase in mortgage rates. This, in turn, could help make housing purchases more affordable and give buyers a badly needed break. Indeed, after several years of steady growth for housing sales and prices, 2019 is likely to return to a more balanced market between buyers and sellers, at least temporarily.

Projections by multiple sources including the NAR, and Zillow are envisioning a market with home prices still rising, albeit at a slower rate of growth. As buyers wait to catch their breath, is also suggesting that overall sales levels could slip by about two percent, while the NAR is predicting a small gain of one percent.

However, beyond the short run, these slipping or mostly flat sales levels could also exacerbate the country’s overall housing shortage even more. According to a recent study by Freddie Mac, the annual rate of U.S. construction is about 370,000 units below long-term housing demand, leading to a current pent-up shortfall of over 2.5 million homes. In many popular markets, until construction of new homes is able to increase and stabilize at higher levels, excess demand will continue to put some pressure on home prices and rents.

At the same time, the inventory shortage is not equally divided among housing sectors. In 2018, the NAHB modified their Leading Markets Index (LMI) to measure building permits against historical norms while adjusting for population growth. According to their new methodology, as of the third quarter of 2018, single-family permit activity, adjusted for population growth, was operating at 59 percent of potential capacity. Meanwhile, multi-family permit activity was at 98 percent of capacity. 

Since multi-family construction generally offers more affordable housing options, the City of Minneapolis is taking this idea one step further by rezoning single-family neighborhoods to higher densities. In early December, their City Council approved the Minneapolis 2040 plan, which will allow up to three-family homes in the city’s residential neighborhoods, remove minimum parking requirements for all new construction, and permit high-density buildings along transit corridors.

The idea is to break open restrictive zoning laws in order to provide new opportunities for residents to move for schools or a job, allow aging residents to downsize without leaving their neighborhoods, slow the displacement of lower-income residents in gentrifying areas, and address the lack of affordable housing citywide.

Whether or not this idea will spread to other cities, the timing is opportune. More millennial buyers are moving into their home buying years, and are expected to represent 45 percent of mortgages in 2019, with most looking to buy that first home. Gen X buyers are expected to account for another 37 percent of new mortgages, most likely trading up to the mid- to high-priced tiers, while Baby Boomers looking to relocate or downsize will capture 17 percent.

Finally, another wild card to consider is the impact of the 2018 tax cut on the housing market, with overall sales levels declining soon after it passed. Although most renters will enjoy a higher standard deduction and thus lower taxes, for owners the result is less clear, as some will find lower benefits from fewer personal exemptions and itemized deductions, especially in high-tax states. If nothing else, 2019 will certainly prove to be interesting.

Thursday, November 29, 2018

Personal income rose 0.5 percent in October vs. 0.6 percent rise in personal spending

Both personal and disposable income rose 0.5 percent in October, versus a rise of 0.6 percent for personal spending, resulting in the personal savings rate slipping to 6.2 percent.


October Pending Home Sales Index down 2.6 percent from September and 6.7 percent year-on-year

The Pending Home Sales Index  decreased 2.6 percent to 102.1 in October, down from 104.8 in September. Year-over-year contract signings dropped 6.7 percent, making this the tenth straight month of annual decreases.


October PCE Price Index up 0.2 percent from September and 2.0 percent year-on-year

The Fed-preferred October PCE price index increased 0.2 percent from September, and 2.0 percent year-on-year. Excluding food and energy, the PCE price index increased 0.1 percent from September and 1.8 percent year-on-year.


Wednesday, November 28, 2018

Mortgage applications rebound 5.5 percent as fixed rates slip four basis points

The Market Composite Index increased 5.5 percent on a seasonally adjusted basis from one week earlier, with purchase loans up 9.0 percent and refinance activity up 1.0 percent. The average contract interest rate for 30-year fixed-rate mortgages decreased to 5.12 percent from 5.16 percent.


October new home sales declined 8.9 percent from September and 12.0 percent year-on-year

Sales of new single-family houses in October 2018 fell 8.9 percent from September and 12.0 percent year-on-year to the lowest rate in nearly three years, or an annualized rate of 544,000 units.  Meanwhile, inventory rose to 7.4 months, the highest level in 7.5 years.


Monday, November 26, 2018

November private sector output index dips to 54.4, but still well in positive territory

The IHS Markit Flash U.S. Composite PMI Output Index registered 54.4 in November, down from
54.9 in October but still well above the 50.0 no-change threshold.


October Leading Economic Index up slightly, but pace of improvement slower

The US Leading Economic Index (LEI) increased slightly in October, but the pace of improvement slowed for the first time since May. Although the index still points to robust economic growth in early 2019, the rapid pace of growth noted for much of 2018 may already have peaked.


Thursday, November 15, 2018

October Home Purchase Sentiment Index dipped 2.0 points to 85.7

The Fannie Mae Home Purchase Sentiment Index® (HPSI) decreased in October, falling 2.0 points to 85.7, continuing its recent downward trend. The decline can be attributed to decreases in five of the six components, including those measuring consumers' home buying and selling attitudes.


October retail sales rebound 0.8 percent from September and 4.6 percent year-on-year

Retail sales rebounded sharply in October, following two months of small declines.  Advance estimates of U.S. retail and food services sales for October 2018 were $511.5 billion, an increase of 0.8 percent from the previous month, and 4.6 percent above October 2017.


Wednesday, November 14, 2018

October CPI jumped up 0.3 percent, rose 2.5 percent year-on-year

The Consumer Price Index for All Urban Consumers (CPI-U) increased 0.3 percent in October, the largest increase in nine months.  Over the last 12 months, the all-items index rose 2.5 percent before seasonal adjustment.


Mortgage applications fall to lowest level since December 2014 in weekly update

The Market Composite Index decreased 4.0 percent on a seasonally adjusted basis from one week earlier to the lowest level since December 2014, with purchase loans falling 5.0 percent and refinance activity down 3.0 percent. The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances increased to 5.15 percent from 5.11 percent.


Monday, November 12, 2018

CoreLogic: Home price growth slowing, thru September up 5.6 percent year-on-year

According to CoreLogic, national home prices increased 5.6 percent year over year in September 2018, and are forecast to increase 4.7 percent from September 2018 to September 2019. The September HPI gain was the slowest year-over-year gain since January 2017. An analysis of the market by price tiers indicates that lower-priced homes experienced significantly higher gains.


Producer Price index jumped 0.6 percent in October, up 2.9 percent year-on-year

The Producer Price Index for final demand rose 0.6 percent in October, a sharp increase from September (0.2 percent) and August (0.1 percent).On an unadjusted basis, the final demand index increased 2.9 percent for the 12 months ended in October.