On Friday, October 21, the Norris Group proudly presents its 9th annual award-winning black tie event, I Survived Real Estate. An incredible lineup of industry experts will join Bruce Norris to discuss perplexing industry trends, head-scratching legislation and opportunities emerging for real estate professionals. Proceeds for the event benefit Make a Wish and St. Jude Children’s Research Hospital. This event is not possible without the generous help of the following platinum partners: HousingWire, PropertyRadar, the Apartment Owners Association, the San Diego Creative Real Estate Investors Association, InvestClub for Women, MVT Productions, the San Jose Real Estate Investors Association, Inland Empire Real Estate Investment Club, Think Realty, and White House Catering. Visit www.isurvivedrealestate.com for event information and tickets.
This podcast begins with the discussion on millennials being divided into two new names. Bruce wondered what the new names were, which John said they were broken down first by those born in the 1980s called the sharers. These were the ones who invented the sharing economy. Those born in the 1990s were called the connectors because they are the ones leading us to being connected 24/7 with our smart phones. Everybody’s definition of when the millennials begin and end is different. Mark Zuckerberg is a millennial, and so is John’s daughter who is a high school junior. However, everybody can relate to what year you are born and your high school classmates.
- What groups are millennials divided into to distinguish the different markets in which they were born?
- What was the big demographic shift that occurred just recently?
- Where is unemployment at, and what is missing in the current employment number?
- What is the workforce participation and new business formation rate, and why did it change around 2000?
- How did Sean O’Toole’s client base grow through PropertyRadar?
- What does Zillow’s future look like at the moment?
- What is the open door policy, and how has this changed real estate?
You can also compare ten-year periods to each other. Some people will say they were born in the 60s or another decade, so it is easier. One thing they seem to have in common is that they are underemployed. Bruce wondered what this meant, whether they have a Master’s degree and cannot get a job for it or have a skillset for which there is not a job. John said it is the latter, and this is actually a government statistic put out by the BLS. Usually a lot of people in their 20s are underemployed. The normal percentage is around 25%, but it has been running about 42%. They have the capacity to earn a lot more money if they could only find the job that fits their skill set. You see a lot of people today with a college degree who are working in retail. Bruce asked if this is something that will change, which John said he thinks it will and dramatically.
One of the big demographic shifts that started just a few years ago was the baby boomer generation reaching 65 years of age. The number of people retiring has gone from 2 ½ million to 3 ½ million per year in a short period of time. Long story short, the population aged 20-64 is only growing by 1 million per year right now when it used to grow by 2 million. It could even be seen going to 500,000 per year. This will create a lot of tightness in the labor supply. The question is whether enough automation can come along to solve the problem. The surge in retirement we are seeing today is going to provide a lot more employment opportunity for young people. On one technical note, this year is the one where the oldest boomer will turn 70. You will likely see an acceleration in the retirement years.
The last question Bruce first asked Doug had to do with historical charts. We have 5% unemployment right now and about 1+ GDP growth as well as a 10-year T-Bill that is 1.7. These three charts have never existed together in years prior. Bruce asked why 5%, full employment, is not doing what it normally does and what is missing in that employment number. Doug said this is a great question and one in which there is a lot of controversy among economists. For one, there are 95 million people who are working age eligible and not in the workface. It is not even known what they are doing. If you lay all the economists in the world down end to end, they will not reach a conclusion. Even though with the 5% unemployment it looks like there should be serious wage inflation, we are not seeing this.
There are all these people still on the sidelines; so when job prospects improve you start to see some movement back into the labor force. This increase in supply then keeps wages suppressed. In the most recent month’s release we saw about 500,000 people re-enter the labor force because the unemployment rate had gotten that low. The real wage rates accelerated a little, so they are still below the average wage rate increase from World War 2 to 2000, even in the 7th year of this expansion. This is how weak this expansion has been. Going back to what John discussed, it is economics that is holding back the younger households.
In terms of the other impact on wage rates not growing, that comes from the lack of productivity. This is historically low, in fact negative, in recent periods. The chain of events is businesses expect growth in sales and demand, so they invest in equipment to improve the tools with which the workers work to make them more productive. When sales go up, they can pay the workers more; and that draw down in negative productivity is a key factor in this.
Doug said if he were to point out two things that really troubled him, one is the 30-year decline in new business formation. This suggests the entrepreneurial spirit in the country is somehow ebbing. Doug is worried about this because it is small businesses that discipline large corporations in the marketplace. They force them to compete as opposed to collude. The second thing is the decline in labor force participation is much more prevalent in working age men than in women. Their workforce participation has been declining for almost 30 years, but it was disguised by the fact that women’s participation increased up until 2000 when it peaked briefly then declined. For Doug, these are the two most troubling statistics looking at why the economy is not doing better.
Bruce asked John if he had a theory why it changed around 2000. He said they did a lot of charts, and Bruce would be stunned how many trends reversed course around 9/11. The percentage of men and women staying at home increased, and the emphasis on getting ahead, having duel income households, and having a bigger house shifted. He remembered talking about how in 2001 and 2002 things like comfort food changed things. Although he is not completely sure it was 9/11, the charts shifted in 2001.
Bruce invited up the next three panelists for the evening. Nick Bailey serves as Vice President for Zillow Group and helps build the company’s strategic partners and relationships throughout the U.S. He helps drive the expansion of products and services through partnerships and the broadening of brand awareness across the real estate industry. He has over 20 years of real estate industry experience as a leader in franchising, brokerage, management, technology, and is a licensed broker. Prior to joining Zillow Group, he spent 12 years at RE/Max World headquarters.
Joining him on the panel was Gary Acosta. He was one of the co-founders and CEO of the National Association of Hispanic Real Estate Professionals. He is also a 25-year veteran of the housing industry. NAHREP is the nation’s largest minority real estate trade organization with over 20,000 members and 40 local chapters. He has also founded and co-founded several mortgage real estate and technology companies including Newton’s Asset Management, Counselormax, and realestateespanol.com. In 2013 he co-founded the mortgage collaborative, a cooperative of mortgage companies working together to increase profitability and market share.
Last but not least was Sean O’Toole. Prior to launching PropertyRadar he successfully purchased and flipped more than 150 residential and commercial foreclosures. Leveraging 15 years in the software industry, Sean used technology as a key competitive advantage to build a successful real estate investment track record. He has always strived in start-up environments and as such became a key contributor at Xing Technology, acquired by Real Networks. He also contributed to ISI Global center, acquired by Global Crossing and Icarian Inc., started by Work stream Inc.
Bruce started with Sean O’Toole. Bruce first met him when his company was still ForeclosureRadar. Having bought at trustee sales, Bruce saw how much of a revolutionary product this was and really effected people who were in the business. This included the people providing the information since it was being produced at $49 a month rather than thousands of dollars a year. As a trustee sale buyer he was surrounded by 5 people, and now he is surrounded by 100 people. It was a real game changer, and that is the nature of technology it seems. It gets cheaper and a lot more participants.
Bruce started by asking Sean how his client base expanded through PropertyRadar and what services he is providing for those people. He said it has certainly been a shift from 2010 where there were so many people buying foreclosures, and a lot of people have had to exit that business. It is still almost ten times as more for foreclosures a month compared to when he was buying them. It is about $2,000 a month, and about half of those are going to third parties. When Sean was buying it was about $200 a month, a greater percentage of them being in the state of California and a greater percentage going back to the bank. It really has changed a lot, but there are still a lot of people in that business.
Sean said he saw that coming in 2010, so he started to shift into broader property information. The biggest challenge here is people asking what he does, and when he tells them he deals with property information they surprisingly ask if he competes with Zillow. It was a tough transition for them, but through it found out that public records is a pretty brilliant thing. He tells his realtor customers there is no excuse for not knowing every potential customer by name as well as how much equity they have and who their lenders are. This is the power of public records data, and it is what a lot of investor clients use to find folks to reach out to and see if they are interested in selling their homes. A lot of realtors use it as well to learn their clients by name.
They have been expanding a lot into the home services professionals. The pest control guy can draw a circle around where he is doing business and know every potential customer by name as well as something about them. This could include whether or not they own the house.
Bruce welcomed Nick to the panel for the first time. Zillow started in 2006, and this is a lot of movement in ten years. Nick said this is true and that one of their culture pieces is “Move fast, think big.” This has no doubt come true. The originators of Zillow also started another company in the travel industry. It was Rich and Lloyd, and they started Expedia. In addition, Zillow’s CEO Spencer Rascoff was from Hotwire. Bruce said with Expedia, if you were a travel agent that was a game-changer. Bruce asked if there is a lingering feeling that Zillow will become the formerly employed travel agent, only with a realtor hat on and nothing to do. Nick said this was the most eloquent way of asking if they will put real estate agents out of business.
He said Expedia did put travel agents out of business, and a lot of it was driven by consumer demand and behavior. Zillow studies this so much today, but there is a difference between buying an airline ticket as a commodity one time as compared to your largest investment. Zillow is a media and technology company capturing consumers because they are demanding more information and transparency. Real estate data intel ten years ago was wrapped up very tightly by real estate professionals because it was part of their value prop on how to generate a commission. Those commissions will not change, they are just looking for them to spend more on advertising dollars. However, they have opened the doors to this type of transparency. It is very different from Expedia in buying or purchasing a commodity versus providing people data to do research.
Bruce next welcomed Gary Acosta to the panel. Gary wears duel hats, the first being in mortgage collaboration. Bruce asked what service he provides the industry. He said the thrust behind the mortgage collaborative is really a couple things. One is helping smaller mortgage banking firms compete with some of the bigger guys. If you think about it in other industries, you see how Home Depot put a lot of mom and pop hardware stores out of business. Most people don’t know that Base Hardware Stores is actually a co-op. A bunch of mom and pop hardware stores pooled together and bought their hammers and nails as a group. They could then compete with the bigger guys since they could buy in bulk.
The mortgage collaborative has a similar strategy that has helped the smaller mortgage banking firms pull together so they can buy goods and services at the same price as places like Wells Fargo. This way they can compete on price. This is the beginning premise. The other part is educational, masterminding, and sharing best practices. Gary thinks some of it has been stimulated by what his organization does as market share really shifted from the big guys down to the smaller players. This is good for the marketplace because it gives consumers more choice.
Gary just had a big event, and Bruce wondered what the main takeaways were and what attendees got out of it. It was a conference held in Denver, and some of the things effecting mortgage bankers in general are the changes in the regulatory environment out there. There is a lot happening with the CFPB, and there is a lot happening that may curtail that a little. One of the issues talked about a lot is how to deal with regulatory issues that are really increasing costs substantially.
Secondly, it is changing demographics. The marketplace and consumer are changing as well as the needs of the consumers. The question is how we qualify buyers coming from different backgrounds and different experiences who use credit and earn income differently. How do we get more of them into the credit box and convert them to become homeowners down the line?
Bruce asked Sean about the investor space and who he sees succeeding. What are they doing differently or better than other people? Sean said what is interesting for both investors and realtors is how the old school materials are working the best. Large players come in and dominate online, but what is working is people knocking on doors and doing direct mail. These are helping a lot of people close deals, minus buying leads online. On the investor side, it has not changed that much. There are interesting things on the horizon for investors with companies like Open Door who are providing a challenge in the way other companies have been a challenge.
Bruce asked all the audience how many of them heard of Open Door, and it was only a few. Sean described Open Door as the old flipper model. You buy the house, make the person a cash offer, then resell and flip the house. What they do is they have a nice pretty website where you go to say you want to sell your house. They may have tighter margins than the traditional investor margins. Right now they are only in a couple markets, mainly Dallas and Phoenix. People can do an open house any time between 6 am and 9 pm with no agent. They literally walk up with their phone and the door unlocks for them. They have taken the whole flipping thing to the next level and raised $100 million in capital for their business operations, not for funds for flipping the house.
In the first half of this year you had $1.8 billion of big money come into the real estate tech space. A lot of that money went into people who wanted to see Zillow overseas or companies like Compass, who wants to change the brokerage model. We also have open house apps among other things. They talk a lot about giving their agents benefits through big data analysis and other things along those lines. Another upstart in the Bay Area that is trying to change the brokerage model is REAL I. There is a lot of money pouring in, trying to disrupt real estate right now. It is almost like everyone is so worried about what happened with Zillow back in the day, but there is a lot more happening currently.
Sean was a big service to an agent with a listing. If they were in the listing business, Sean’s would go there for free. He is not trying to be a competitor with them, but rather be a partner and drive interest. They could then receive the leads as a buyer interest, or another agent could do the same.
Tune in next week as we continue to hear from Bruce Norris and the panel of experts on the economy. The Norris Group would like to thanks its gold sponsors for supporting I Survived Real Estate: Auction.com, Coachella Valley Real Estate Investors Association, Coldwell Banker Town and Country, Elite Auctions, In a Day Development, Inland Valley Association of Realtors, Jennifer Buys Houses, Keller Williams Corona, Keystone CPA, Las Brisas Escrow, L.A. Green Designs, LA South REIA, New Western, North San Diego Real Estate Investors, Northern California Real Estate Investors Association, Orange County Investment Club, Orange County Building Industry Association, Pacific Premier Bank, Pasadena FIBI, Pilot Limousine, Real Wealth Network, Realty411 Magazine, Realty Executives Inland Empire, Rick and Leanne Rossiter, Sonoca Corporation, South Orange County Real Estate Club, Spinnaker Loans, uDirect IRA Services, Westin South Coast Plaza, Wholesale Capital Corporation, and Wilson Investment Properties Inc. See www.isurvivedrealestate.com for sponsor links and event information
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