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Looking over the Horizon A Review of Trends in Residential Brokerage REAL Trends Consulting.

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Presentation on theme: "Looking over the Horizon A Review of Trends in Residential Brokerage REAL Trends Consulting."— Presentation transcript:

1 Looking over the Horizon A Review of Trends in Residential Brokerage REAL Trends Consulting

2 Looking over the Horizon The Housing Market Change in Consumers The Brokerage Challenge The Brokerage Opportunity

3 The Housing Market Inventory currently running at 11-12 months Shadow inventory adds from 4-6 months of additional supply

4 The Housing Market The thirty year average of home buying indicates that 5 percent of all households buy a home each year During recession years the rate has averaged 3.8-3.9 percent

5 The Housing Market At the current level of households, approximately 115 million and in normal times would equate to 5.75 million new and existing home sales In recession years at 4 percent the rate would normally be 4.6 million new and existing home sales

6 The Housing Market The market is currently running just under the 5 percent rate. Near record low interest rates, extraordinary pricing and the strength of the investor market are keeping the rate higher than would be expected

7 The Housing Market These are the forecasts for 2011 ExistingNewTotal NAR5.123M.350M5.473M Fannie 5.011M.350M5.361M RT4.990M.350M5.340M

8 The Housing Market Projections therefore expect lower unemployment, continuation of affordable mortgage rates and continued growth in the economy. Not full recovery but measurable

9 The Housing Market Wild cards Rising mortgage rates/tightening of credit Either flood of/or tightening of foreclosure inventory Economy slides or doesn't recover Tax hikes to cover state/city deficits Immigration due to unemployment shrinks further

10 The Housing Market Joint Center for Housing Studies at Harvard indicates that 1.1 to 1.3 million new households per year through 2020 Additional stimulus from Gen X and Millennial households who are now living home

11 The Housing Market Investors will continue to be >20 percent of all sales for several years Second home/retirement home sales are.300M per year first half of decade sliding in second half of decade

12 Changes with Consumers The Millenials are marrying later, marrying not at all and are delaying entry into housing purchase market Of the new households that will be created in the next decade fully 71 percent will be minority households

13 Changes with Consumers Between 1/5 th and 1/4 th of all owner occupied households currently have either negative or no equity in their homes The Boomers and the Millenials are both seeking similar housing – low maintenance smaller more urban quarters

14 Changes with Consumers So two groups representing over 70 percent of all potential homebuyers are moving away from suburban housing and crowding into condominiums, townhomes, lofts and apartments And Generation X, the smallest of the generations, is left to purchase the suburban two story homes

15 Changes with Consumers The homeownership rate was 66.5 percent in the fourth quarter of 2010 The homeownership rate peaked at 69.2 percent in 2004 The last time the rate was at 66.5 was 1999

16 Changes with Consumers Singles make up an increasing share of all homebuyers. Homeownership rates for single women are higher than for single men (focused on their big screens not homes!)

17 The Brokerage Challenge The rate of home sales will likely resume its 30 year average of 5 percent From the current level and with 1.2 million new households created each year, then home sales will grow roughly at 50-55,000 additional home sales each year

18 The Brokerage Challenge That represents roughly 1 percent growth in home sales each year for the next decade Prices are expected to resume long term trends of 3-4 percent per year with higher levels in certain markets

19 The Brokerage Challenge The average commission rate declined from 1991 to 2005 to 5.02 percent then reversed upwards through 2009 to 5.36 percent We expect it to remain there for a year or two then begin to soften as sales professionals go back to competing for listings

20 The Brokerage Challenge The gross margin for brokerage firms has declined for the past twenty years. The rate in 1990 was 36 percent and in 2009 it was 26.8 percent nationally (lower in western region)

21 The Brokerage Challenge Competition from 1)RE/MAX, 2) Keller Williams and 3) Virtual and Freedom Brokerage firms has driven competition for sales professionals to new heights There are no apparent reasons for this to continue (In Canada where such trends are 5-10 years ahead of U.S. gross margins are 17-18 percent)

22 The Brokerage Challenge The competition has moved to: Lead Generation and Capture Technology platforms Recruiting systems Educational programs and training

23 The Brokerage Challenge The significant growth in core services (mortgage, title and other settlement) has reached maturity for most firms. Capture rates do have room to grow but for most firms it is limited

24 The Brokerage Opportunity An estimated 60-65 million homes will be bought and sold in the next ten years The total commission revenue from such sales will between $450 billion and $550 billion

25 The Brokerage Opportunity The market is segmenting by type of brokerage Traditional graduated commission 100 % commission Capped Company Dollar Virtual/Freedom Brokerage

26 The Brokerage Opportunity There are profitable brokerage firms in each different model Generally the higher the retained gross margin the more success in core services

27 The Brokerage Opportunity Research indicates the following: 20 percent of the agents do 60 percent of the business when comparing only those doing business at all

28 The Brokerage Opportunity General keys to success Pick a model Execute ruthlessly Bet that technology and content will be of equal value in the future, not just the technology

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