Attention Real Estate Industry Pros: Your Future Is In Jeopardy!

Real estate brokers, agents, home builders and lenders - we're talking to you!

The residential real estate industry is undergoing the biggest fundamental changes since Jim Walter built and sold his first home in the late 1940's. It's not often that changes of this magnitude happen to any particular industry. But for real estate, the changes are coming quickly and it's going to have a massive impact on how real estate brokers, agents, home builders and lenders do business. It's also going to have a dramatic impact on ancillary businesses such as furniture and "home" stores.

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On January 6th 2009, the Jim Walter "era" ended, leaving in it's wake the memories of the greatest industrial achievement mankind had ever witnessed - the rise of the middle class home owner in America, following World War II. It lasted from 1948 until 2005, almost 60 years.

The recent spate of positive news about rising home prices and the "recovery" of the housing market has merely been a smoke screen for the real news -  the Census Bureau has reported that the homeownership rate is at a 17 year low, and is NOT rising. Even with the so-called recovery, homeownership rates have continued to fall slowly, year by year.

And this is not just the result of a recession but rather this time, it's a fundamental change in the way that a new, high tech, mobile generation views it's housing needs and wants. The American Dream is no longer a house with a white picket fence, two cars and 2.6 kids.

Today's younger generation is more apt to want their freedom. They are opting to not have kids, opting to not get married and opting to not start families. And on a social level, the availability of abortion, the growth in gay marriage, immigration and new technologies represent a seismic shift in the way that the population will grow and develop. The result of these social changes will be absolutely profound for the professional real estate industry and related companies who depend on a strong housing market.

The 2008 housing collapse kick-started a rental snowball that has begun to roll down hill with increasing velocity. Increasing preference for rentals over buying is fueling a new generation of trends related to renting instead of owning. In fact, according to Census Data, most major cities, including Atlanta, GA; Phoenix, AZ; Riverside California, Detroit, Minneapolis, Nashville, - and many others - have seen the market share of "non-owner-occupied" homes increase an average of 24% since 2009. Houses may be selling but the question is to whom? Increasingly the answer is not owners, it's investors. Big investors with lots of money.

And there's a major new trend that most real estate professionals have paid virtually no attention to, that threatens to upend the housing market for sure - the growth of a new form of investment called "Rental Bonds". Blackstone, a large well funded buyer of foreclosed properties to be used as rentals has completed the first ever public offering of rental bonds - a new type of investment based on the combined cash flow of thousands of rental properties. Can you say "derivative"? Rental bonds are a threat to the traditional single family market in two ways. If they work and prove to be a profitable investment, there will be a flood of investment cash coming into the housing market, driving the purchase of thousands more homes to be used as rentals. If it does not work it could result in another market collapse in those areas where the vast majority of these type properties are concentrated.

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If you are a real estate industry professional, you need to start thinking about how these lasting, fundamental changes will impact your business model and your target market.

Brokers are going to have to think about strategic changes to address  markets in which sales commissions could drop and property management becomes a significant portion of your business. In many markets, sales commissions are already down as much as 30% from pre-2008 levels. There are fewer qualified buyers and a growing number of tenants. I'd say that now is probably the best time ever for agents to have a property management certification.

The tighter credit standards and a struggling job market that is undergoing it's own changes will continue to challenge traditional mortgage lenders. The refi boom is over. Rising interest rates could be right around the corner. Buyer qualifying is more difficult in a struggling job market and the trend towards more flexible part-time hiring among employers appears to be here to stay.

Ancillary businesses like furniture stores and home appliances are struggling to recover from the 2008 collapse. There are so many factors working against them that they are really going to have to be innovative. The ability to shop online now has presented significant competition that the brick and mortar stores simply failed to anticipate. Why not be online and brick and mortar? You have to compete globally now, not just in your local market. If you can't find ways to expand your reach, you might as well get busy planning a move to a smaller building. You won't be needing all that space for inventory much longer.

Home builders are going to have to rethink their industry if they hope to continue to sell in large volumes in a post-baby-boomer world.  We'll need lower cost homes that are once again affordable to the masses. We may need a return to the original Jim Walter model in which the buyer helped finish the inside in order to save money. For it's time, the Jim Walter model was innovative and ground breaking and found ways to meet the needs and budgets of housing consumers. The future real estate titans will be those who can best find ways to address the needs of a society that is changing fast.

 

About the author: Donna S. Robinson is a 18 year veteran of the real estate industry and residential real estate market expert. She is the author of "Real Estate Investing Fundamentals & Strategies". Follow her on twitter @donnaconsults  Watch her videos here. read more articles and contact her about coaching or business consulting services on her website.