REAL Trending Episode 27

Steve Murray talks about the millennial desire to own homes: is it a problem of student debt or down payment, the market for brokers who wish to sell and buy has softened somewhat, and last, a brief comment on Upstream and NAR.

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, and today, we’re discussing millennial desire to own homes: is it a problem of student debt or down payment, the market for brokers who wish to sell and buy has softened somewhat, and last, a brief comment on Upstream and NAR, but first, a message about the Gathering of Eagles.

Millennial Desire To Own Homes

Realtor.com issued a report recently that analyzed millennial’s desires to own homes. According to the title, it’s student debt that most prohibits young families from buying a home, but interesting enough, when you actually look at the data and look at the charts, it’s down payment that is their biggest hindrance. Yes, it’s true. There are 10-20% of millennial families who said that student debt would prevent them from being able to qualify for a mortgage to buy a home, even if they had the down payment, but by far and away, it was down payment that was the greatest obstacle to millennials wanting to buy.

All that being said, if you read beyond the headlines and look at the data from this great study and great piece of work by realtor.com, millennials want to buy a home every bit as much as their parents and their older cousins, the gen X generation. In fact, in our consumer study that we did earlier this year, we found it interesting that for all the talk of the last 10 years about how different millennials are, they use agents at higher rates than either gen X or boomers based on our results over the Harris Insights study we did with the California Association of Realtors and the CE Shop.

Bottom line, it’s very, very positive for the industry that millennials and even the gen Z generation coming up behind them have the same passion to own a home, own their piece of the American dream as the generations before them, and yes, you cannot overlook the fact that student loan debt, which is currently estimated at $1.5 trillion.

I read one report where the average college grad who takes out student loan debt owes $45,000-47,000 and that they have to pay that is going to hinder their ability to buy a home as soon as they may have wanted. There’s no question it has a negative influence, but more importantly is down payment. One of the reasons we see millennials buying homes at the rates they are is because their parents are willing to give them down payment assistance. We have a lot of experience with that here anecdotally in our family. We know many couples, boomer couples who have assisted their children with buying a home. The funniest thing is, is so did many of our parents for us when we first got started 40-some odd years ago.

The Market For Brokers: Sell And Buy

Let’s move on. The market for the sale of residential brokerage companies and their related businesses like mortgage, escrow, title, property management has undoubtedly softened. We first brought this to the attention to the industry 15 months ago when we opined that when an NRT or a HomeServices either no longer bought brokerage companies or slowed down their activity or lowered their prices all for good economic reasons that the valuations of brokerage companies would decline. There’s no question that these two giants in our industry who started buying brokerage companies approximately 20 years ago have driven the values up through all of this time and that if the two leaders with the biggest checkbooks are saying, “We’re not going to pay as much or buy as many or buy at all,” as in the case of NRT that there would be an impact on the market for brokerage companies that would filter down.

You throw in the double impact of a softening housing market and what we’ll call the compass EXP effect of decreasing gross margins for brokerage companies, and there should be no question in any broker’s mind we’re entering a period and we’re at the front of it, not the end of it, the front end of it that brokerage valuations have softened.

Now, this doesn’t mean catastrophe. It just means that perhaps where a company may have been valued at 5.5 times EBITDA a year and a half ago is only 4.5 or 4.75 today. It’s not like there’s no market. It’s just economics. Buyers are more cautious. Isn’t that what we educate our agents to tell sellers when sales are drifting down and inventory’s growing and prices are softening? Isn’t that the very same thing that we encourage our own agents to do with their sellers is to rethink their value? It’s not a catastrophe. There are still a plentiful number of buyers both in market among competitors, regionally with people who are contiguous to your operation, and still, interesting enough, some of the national companies like HomeServices, Howard Hanna.

While NRT may not be out there wanting to buy brokerage companies, they are still interested in combining small to medium-sized brokerage companies with their existing NRT operations. It goes without saying that we have for the first time in the history that we’ve been doing this work at REAL Trends, investor interest in residential brokerage companies, a very, very positive development for all brokers in the industry. Most importantly, we are beginning to see a break in the nearly 40-year-old rules which said, “If I’m an independent brokerage in Kansas City, I can’t own a RE/MAX in Atlanta.” We’re starting to see a shift at the national franchise level where they’re willing to consider otherwise, and man, would that open up the market for residential brokerage companies. More on this as 2019 proceeds.

Upstream And NAR

Last piece of news today, Upstream and the National Association of Realtors announce their divorce with many kudos to both parties and platitudes among them as their exited their relationship to develop Upstream. I can only imagine there’s a great sigh of relief among the major brokers in the country that Upstream will be free to do what it needs to do to achieve its goal.

We just wrote recently that one of the hottest topics this year, 2019, the year coming, will be “will Upstream ever finally fulfill its purpose, its goals and objectives?” Believing in Alex Lange and the board of Upstream as much as I also believe the in the intelligence of NAR, they must have concluded that the best way for Upstream to achieve those objectives and goals is for Upstream to find a different technology partner and be free to go it alone. We think a very interesting and positive development.

Learn more about industry trends, marketing and technology strategies, as well as listen to past REAL Trending episodes on our website. This has been Steve Murray. Happy Holidays. Until next week.