So How Is the Market Doing?

Gary Keller’s 2016 Vision Speech delivered at Family Reunion where Keller & Papasan discussed the current status of the market & examined the future of the industry.

Source: So How Is the Market Doing?

Here are the Ah Ha! Notes from Ken Wimberly, CCIM taken during Gary Keller’s 2016 Vision Speech

• 2015 was the 5th best year in Home Sales in history

  • 3 of the top 5 best years have happened in the past 5 years

• Median home price increased from $209,000 to $222,400

  • Prices are at the highest peak in history – higher than 2006
  • “If that doesn’t make you nervous, you SHOULD be nervous.”
  • We are in the 2nd highest tranche of home price appreciation since tracking started in 1989

• Mortgage rates continue to be the savior of home price affordability

  • 85% is way lower than where the Federal Government would like rates to be
  • If interest rates increase by 1%, the monthly cost of ownership rises by approximately 10%

• Government WANTS GDP growth to be 3% to 4% annually; what we are actually getting is between 2% and 3% annually

  • In today’s global economy, what is happening around the world directly affects your local economy
  • RECESSION – defined as two back to back quarters of negative GDP growth
  • National GDP matters, but what really matters is what is happening in YOUR LOCAL ECONOMY

• Unemployment is at 5.3% – very healthy rate

  • 5% unemployment helps wage growth

• Inflation – target rate is 2%

  • We are at 2% without energy and food
  • With energy and food, we are only at 0.4%

• In 2015, there were 9 available sides per agent in the US

  • Historically, the average is 10.3 sides per agent
  • Need to drop 100,000 agents to get back to the historical average

• Federal Reserve Policy

  • The Fed would LIKE to raise rates in 2016; however, with the poor GDP growth, they may not be able to raise rates this year

• New Home Construction

  • Historical average is over 1 million homes per year
  • 2015 had just 715k new homes
  • 30% off the historical averages; growing, but still quite a bit off

• Student Loan Debt

  • Between 2003 and 2015, the total amount of student loan debt quintupled, going from $241B to $1.2T. A 398% increase!!!
  • This has forced many new entrants to the job market to put off being a first time homebuyer, in favor of renting

• The World’s Wealthy

  • US HNWI has grown 63% since 2005
  • 30% of all millionaires in the world live in America (yet we have only 4% of the population)

• Allocation of Financial Investments – Globally

  • 18% in real estate
    • Real estate benefit is DIVIDENDS/CASH FLOW
    • It never goes to ZERO
    • Can sell off all or part of the property to realize appreciated value/equity
  • 26% in CASH
  • 17% fixed income
  • 27% stock market
  • 13% alternative investments

• Commercial Real Estate

  • Job Growth
    • Added 2.6M jobs, contributing to lower unemployment
    • Businesses then need more space; remodeling; new furniture
  • Vacancy Rates
    • MF – 4%
    • Retail – 10%
    • Industrial – 10%
    • Office – 16.4%
  • Loan Delinquency Rates
    • Historical average is 4.01% (since 1991)
    • Today is at 1.14%
  • Commercial Property Price Index
    • Up 110% since 2001
    • Dipped form 86% to 13% from 2008 to 2010
    • THOUGHT: KBB to look at market data every month together (CoStar data; REIS reports; Other)

• CFPB Warns Against MSA’s

  • Actions that have resulted in punishment include:
    • Feels based on referral business
    • Not providing all the services of the MSA while still receiving full payment

• Technology Trends

  • Chasing technology for the sake of new technology is NOT the way to go; being on the “leading edge” could mean you are the first person to fall off the edge
  • In the past 24 months, $2.6B has gone into disruptive technology for RE
    • 58.3% of it has been in search technology

• The Sharing Economy

  • The number of 16-19 year olds getting their driving license has decreased significantly
  • Median Net Worth
    • Renter: $5,400
    • Homeowner: $195,400
      • A home is basically a “forced savings” that is significantly increasing one’s net worth

• Real Estate Online Advertising (Search Portals – Zillow, Trulia, Realtor.com, etc.)

  • 2007
    • $2.6B online ad spending
    • $3.6B online lead revenue (38.5% ROI)
  • 2015
    • $8.9B online ad spending
    • $6.1B online lead revenue (-32% ROI)
  • Zillow has 120M unique visitors; yet there were only 5.1M homes sold last year
    • THE MATH DOESN’T WORK
  • UpStream model
    • Single entry portal for data; feeds to
      • MLS
      • Broker Public Portal
      • Zillow
      • Realtor.com
      • Homes.com
      • Trulia
      • KWLS
      • 300+ others
    • Then UPSTREAM owns the data and the other portals cannot sell/manipulate the data
      • This puts the BROKER in control; which means in the KW Model, it puts the Agent in control

• Commission Rates for Agents

  • The agents who make the MOST in commission do 2 things
    • Show up ready to talk about commissions
    • Have a flexible commission plan / menu of choices
    • People do NOT tend to choose the cheapest plan
  • Limited service, discount brokers
    • Their market share is just 1.1%, an ALL TIME LOW
  • Average Commission – Nationwide
    • Sellers: 2.6%
    • Buyers: 2.7%

PDF Download of Gary Keller’s 2016 Vision Speech Family Reunion Slide Deck