REAL ESTATE TOPICS...How VC Funding Is Transforming the Real Estate Industry

BY By Stefan Swanepoel




Money is pouring into this multitrillion-dollar industry as investors seek to grab a large slice of the pie.

The real estate brokerage business is one of America’s last cottage-type industries. In 2015, the Association of Real Estate License Law Officials (ARELLO) estimated the United States had roughly 2 million individual licensees active.

These small entrepreneurial businesses control an enormous market share. That said, their independent nature means the industry has yet to consolidate to the level it could.

Nor has the home buying process changed much in the last half century. Steps have been made toward automation, and the internet and mobile phone apps have brought conceptual progress. But these measures haven’t been widely implemented yet.

Now, venture capitalists are betting that change is long overdue. That overhaul will most likely come in the form of new technology-driven business tools and models.

Money is pouring into this multitrillion-dollar industry as investors seek to grab a large slice of the pie. Overall investment in the industry has skyrocketed from $24 million in 2012 to more than $1.5 billion last year.

The money is pouring in. And it’s being invested into new, creative ways to update traditional real estate practices.

How VC Investment Is Driving Change

These investments fall into two categories: tech startups that are changing the tools of the industry and new business models that are changing the process. Underlying both approaches, however, is an ambition to find innovative ways to keep real estate professionals relevant and accessible throughout the relationship.

It starts with the listing process. VC investments have sparked a proliferation in the number of websites enabling agents and brokers to post property listings. VivaReal secured more than $40 million from Boston-based Spark Capital in October 2014, while the rental-listing platform Zumper received $6.4 million in June 2015.

Other innovators are looking to shake up brokerages’ digital presence. For instance, Placester, which raised $27 million last November, helps an individual brokerage build its online presence in order to become more accessible to consumers.

Some are even changing the way buyers can view potential properties. While photographs remain an essential part of the real estate market, companies like Matterport and Floored offer augmented and virtual reality to provide realistic depictions of residential purchases.

They’ve constructed 3D virtual reality models that allow a potential homebuyer to explore a property’s details and customizations before ever setting foot inside. While those models won’t supplant the traditional home visit in the short term, they do offer buyers a chance to vet and subsequently review the houses.

Other investments, however, have targeted companies seeking to redefine the services offered by the broker. Opendoor, which promises to handle all of the traditional paperwork and inspections, has raised $80 million in 2016 alone. In the past few years, competitors such as Redfin and Compass have raised $167 millionand $118 million, respectively.

HomeUnion raised $16 million in Series B funding this year. The company’s goal now is to commoditize real estate by molding the homebuying process into something — despite each individual home’s uniqueness — more closely resembling stocks and bonds.

How the Industry Is Responding

Most new business models and companies promote reduced costs and enhanced services, meaning the race is on for incumbents to maintain their value proposition. Real estate industry leaders don’t resist change or struggle to adopt new technologies, but the masses do. Fragmentation slows down change.

Key players within the industry are pivoting in response to change and the threat of more. For example, major franchisers Realogy, RE/MAX, and Keller Williams all cut sweetheart deals with Zillow to secure consumer traffic. These companies enhanced branding opportunities and constantly use newly adopted technology to help their respective internal modernizations.

However, innovation hasn’t stopped there. Powerful realtor associations like the National Association of REALTORS (NAR), the California Association of REALTORS (CAR), and the Houston Association of REALTORS (HAR) have led industrywide transformations.

For instance, HAR introduced Drive Time, a new feature that allowed users to search for homes based on their commutes. CAR has led the way in the automation of online forms and contracts, and NAR recently announced an initiative regarding transaction management platforms.

Where Real Estate Goes From Here

This revolution is causing the industry to shift away from the mom-and-pop structure and more toward a few global brands dominating the industry. These companies are more automated, rely more on systems, and strive to reap a lion’s share of all home buying revenue.

Despite its rich wealth of data, the residential real estate brokerage industry remains one of the least capitalized major industries. With more and more pieces of the process automated, community and lifestyle information will be tagged, sliced, and analyzed to provide consumers with an astounding selection of data points.

Whether these billions of dollars in VC investment will redefine the process or simply restructure the players remains unclear. But companies that have dominated the realm for approximately more than half a century now must confront unprecedented change.

As long as the shifts outpace internal-driven adjustments, VC funding will continue to flow into the industry. And as long as money is flowing in, opportunities will be available.

REAL ESTATE NEWS...Pending Home Sales Reach Highest Level in a Decade

BY Clare Trapasso

The number of homes under contract hit the highest level the housing market has seen since before the bubble burst, buoyed by a stronger economy and lower mortgage rates.

Pending home sales, which are purchases that haven’t closed yet, were up 4.6% in April compared with the same month a year earlier, according to the seasonally adjusted numbers in the monthly National Association of Realtors® Pending Home Sales Index. They also rose 5.1% from March to April. The report looked only at existing homes and not newly constructed residences.

This is the most homes under contract since February 2006, according to NAR.

“April is often a bellwether month for how the spring and year will wind up,” says realtor.com®‘s chief economist, Jonathan Smoke. “We saw almost a half-million new listings come onto the market in April, so buyers appear to be jumping on the fresh inventory.”

NAR anticipates that about 5.41 million residences will be sold this year—a 3% bump from last year.

“The building momentum from the over 14 million jobs created since 2010 and the prospect of facing higher rents and mortgage rates down the road appear to be bringing more interested buyers into the market,” NAR chief economist Lawrence Yun said in a statement.

Pending sales were higher across the U.S. except in the Midwest. Soon-to-be-finalized sales in the middle swath of the country dipped 0.6% in April from March, according to the report. But they’re still up 2% over the same time last year.

“We have less sales … because [of] the lack of homes for sale,” says longtime Minneapolis Realtor® Michael Sharp of Re/Max Results. “Sellers are afraid to put their homes on the market because they don’t know where they’re going to go.”

Demand is so high that he’s seeing residences get scooped up before they formally go onto the market. And too few new homes are going up to alleviate the supply crunch, he says.

In the West, the number of properties under contract shot up 11.4% from March to April, according to the report. They were also 2.8% higher than a year earlier.

“We’re seeing the uptick in the spring selling market,” says San Diego Realtor Michael Wolf of Ascent Real Estate. “This year, it happened to be a little more intense than other years.”

Sales were slower at the beginning of the year but began picking up in March and April, when a slew of new homes hit the market, he says.

“All those properties that came on the market are getting gobbled up quickly,” Wolf says of the built-up demand from buyers. “If you’re priced well and have done the necessary things to make your property look good, you should sell in a week or less.”

Pending sales edged up 1.2% month over month in the Northeast, according to the report. They were also up a none-too-shabby 10.1% over last year.

In the South, monthly sales climbed 6.8% from March to April. They were also up 5.1% higher than a year ago.

REAL ESTATE TOPICS...Strategies for Buying a Foreclosure in a Seller's Market

Don't expect the same knockout deals that were available a few years ago, but foreclosed homes can still be a good bargain.

By Teresa Mears

Just a few years ago, buying a foreclosed home was seen as a way to get a bargain. With a glut of foreclosures and few buyers perusing the market, lenders were willing to sell homes at a substantial discount just to get rid of them.

Those days are gone. Buying a foreclosure can still be a good move, but you're unlikely to find the same great deals. In many cities, it's a seller’s market for even foreclosed homes, so lenders know they don't have to offer bargains to unload homes. A good foreclosure, like any other good listing, is likely to draw multiple offers.

"In many cases it's still right in line with the market," says Andy Asbury, a broker at Better Homes and Gardens Real Estate Area Leaders in Minneapolis. "We don't see just crazy deals. We don't see lenders negotiating all that much off the list price."

For buyers who go in with their eyes open, buying a foreclosed home could still be a good move. But if you fail to do your due diligence, you could end up with a money pit.

When real estate professionals talk about foreclosures, they are actually talking about two very different types of sales:

• Buying a home that has been taken back by a lender. These properties are also known as REO properties, short for "real estate owned," and are held by banks and various lenders.

While both fall under the foreclosure umbrella, the two types follow different processes from bid to final sale.

Buying at foreclosure auction. In most jurisdictions, buying a property at a foreclosure auction carries substantial risk. The buyer has to bid without seeing inside the home, which makes it difficult to estimate the cost of repairs.

Plus, there is no guarantee that the property doesn't have liens, multiple mortgages, code violations or other issues that could make it difficult and expensive to get a clear title. Tenants or the former owner may also still occupy the property, and evicting any occupants will be the responsibility of the buyer.

When buying at a foreclosure auction, you’re required to pay the entire purchase price in cash. Typically this payment must be received within 24 hours. If there are problems with the property, you're stuck. A foreclosure auction is no place for amateurs.

"When you buy from the courthouse steps, there's a greater risk," Asbury says. "It really is buyer beware."

Most homes go back to the lender at the foreclosure auction because the amount owed is more than the property is worth. The lender is then responsible for paying off liens and clearing the title, as well as evicting the occupants, before putting the property up for sale.

Buying from a lender. Purchasing a foreclosure from a lender is more like buying from an individual, but there are some important differences. For one, there is no seller's disclosure about the property's condition.

"You're dealing with a seller that's never been to the property," says Alan Plager, an REO specialist with Berkshire Hathaway HomeServices in Clearwater, Fla.

Most lender-owned properties are in the multiple listing service, and your buyer's agent can make an appointment to show them to you. You can also make your offer contingent on the property being approved for a mortgage and passing with a satisfactory inspection.

A thorough inspection is crucial, especially if the property has been vacant for some time. In many cases, needed maintenance may have been put off for years. If you buy a house that requires extensive repairs, you're going to need the cash and the know-how to get the work done.

"If someone didn't pay the mortgage, they didn't upkeep," Plager says.

Many foreclosed properties don't have water or electrical service, making it harder to evaluate them during your initial visit. If you're in a place like Minnesota during the winter, it may be colder inside the house than outside, and you'll have no clue how well the furnace works.

"You can't test anything during your initial showings," Asbury says. However, he adds that making quick assessments of the plumbing system and a few other things is possible if the water works during the inspection.

Lenders will usually turn the utilities on for an inspection once the home is under contract, but there may be a charge to the buyer.

As with a private seller, you can renegotiate the deal if you uncover serious problems during the inspection, but you won't always find lenders ready to make concessions. If you're seeking a Federal Housing Administration loan, or some other types of loans, your lender will require the house to be up to certain standards. The bank that owns the house may or may not be willing to make those repairs. In some cases, if you want the house, you'll have to pay for the work before you close. In other cases, the lender may fix an issue that's required for financing.

Even if the inspection reveals multiple shortcomings, lenders are unlikely to accept a lowball offer. For one thing, in the current seller’s market, there are generally multiple offers on well-located properties. If you don't want the house in its current condition, someone else probably will.

"It seems very rare these days that they're willing to adjust the price," Asbury says. In some cases, that could mean you'd be better off walking away and searching for a more suitable property.

For would-be buyers who are struggling to compete with cash offers, foreclosed properties can present a good opportunity. Fannie Mae, Freddie Mac, the Department of Housing and Urban Development and some lenders give owner-occupants the first shot at acquiring properties. Some financing is also available to them.

To get top dollar for their properties, some lenders are making repairs before putting homes up for sale, from carpet and paint to replacing furnaces and air conditioners. In some cases, that means you could find a foreclosure in move-in condition. And you'll probably pay the same price you'd pay for any other house in the same condition.

"You're going to get the property pretty much at fair market value," Plager says. "[Lenders are] just like any other seller. Obviously, they don't want to give it away."

REAL ESTATE NEWS...Low supply plagues spring housing: Here's where it is worst

By Diana Olick

The usually strong spring housing market could be far stronger this year, if only there were more homes for sale.

The number of listings continues to drop, as demand outstrips supply and potential sellers bow out, fearing they won't be able to find something else to buy.

The inventory of homes for sale nationally in April was 3.6 percent lower than in April 2015, according to the National Association of Realtors. Redfin, a real estate brokerage, also recently reported a drop in new listings.

The supply numbers are even tighter in certain local markets: Inventory is down 32 percent in Portland, Oregon, from a year ago; down 22 percent in Kansas City; down 21 percent in Dallas and Seattle; down 17 percent in Charlotte, North Carolina; down 12 percent in Atlanta; down nearly 10 percent in Chicago; and down 8 percent in Los Angeles, according to Zillow. Houston and Miami are seeing big gains in supply, due to economic issues specific to those markets.

"The struggle will continue for home shoppers this summer," said Zillow chief economist Svenja Gudell. "New construction has been sluggish over the past year; we're building about half as many homes as we should be in a normal market. There still aren't enough homes on the market to keep up with the high demand from every type of homebuyer."

Where home prices are surging the most

Metropolitan Area	Zillow Home Value Index (ZHVI)	YoY Home Value Change	Percent Inventory Change for All Homes	Bottom-Tier Percent Inventory Change	Middle-Tier Percent Inventory Change	Top-Tier Percent Inventory Change	Condo Percent Inventory Change
Denver, CO	$336,600	15.2%	0.1%	-2.3%	15.3%	-4.8%	6.8%
Portland, OR	$325,400	15.1%	-31.6%	-39.8%	-39.0%	-21.6%	-43.5%
Dallas-Fort Worth, TX	$183,700	12.6%	-21.0%	-32.1%	-35.1%	-11.9%	-33.6%
San Jose, CA	$962,400	12.3%	1.3%	-3.8%	3.2%	5.8%	7.1%
Seattle, WA	$386,300	11.6%	-21.1%	-28.5%	-20.9%	-15.6%	-23.9%
Miami-Fort Lauderdale, FL	$232,800	10.5%	18.0%	10.3%	16.6%	21.9%	28.7%
San Francisco, CA	$806,800	10.0%	-2.1%	-14.9%	0.1%	6.1%	11.9%
Tampa, FL	$165,600	9.7%	-16.2%	-27.9%	-19.3%	-8.1%	-12.8%
Austin, TX	$250,400	8.9%	2.6%	n/a	n/a	n/a	20.6%
Phoenix, AZ	$220,600	8.8%	-8.0%	-20.2%	-6.6%	-4.1%	-15.6%

Source: Zillow

The short supply is pushing home prices higher than expected this year. Zillow had predicted 2 percent growth in home values from April 2015 to April 2016, but its latest data show values currently soaring more than twice that, at 4.9 percent.

"In many markets, those looking to buy a home in the bottom or middle of the market will need to be prepared for bidding wars and homes selling for over the asking price. This summer's selling season's borders will most likely be blurred again, as many buyers are left without homes and will need to keep searching," added Gudell.

The inventory drops are most severe in the lower-priced tier of the market. Homes in the top tier are seeing gains and therefore show more price cuts. Sixteen percent of top-tier homes had a price cut over the past year, compared with 11 percent of bottom-tier homes and 13 percent of middle-tier, according to Zillow.

REAL ESTATE NEWS...APRIL CALIFORNIA PENDING HOME SALES TREND HIGHER BUT INVENTORY CONCERNS REMAIN

Source: C.A.R.

Led by the Central Valley, California statewide pending home sales reversed a three-month decline and posted higher in April, but a persistent shortage of homes for sale may dampen the upcoming spring home-buying season, according to the CALIFORNIA ASSOCIATION OF REALTORS® (C.A.R.).

Making sense of the story

• C.A.R.’s April Market Pulse Survey also reflected a slowdown in market activity with a decrease in floor calls, open house traffic, and listing appointments/client presentations, likely due to the tight inventory and low affordability conditions constraining the California housing market.

• Statewide pending home sales rose in April on an annual basis, with the Pending Home Sales Index (PHSI) increasing 4.1 percent from 135.9 in April 2015 to 141.6 in April 2016, based on signed contracts. April’s annual increase was the strongest thus far this year, and the PHSI is now at its highest level since March 2012.

• California pending home sales also rose on a monthly basis more than is typical for April, which average 1.3 percent between 2008 and 2015. The PHSI increased 4.5 percent from an index of 135.4 in March.

• When adjusting pending sales for typical seasonal patterns, pending sales actually increased 9 percent from March. Despite the uptick, inventory concerns remain as statewide listings are 4.2 percent below where they were a year ago.

• At the regional level, pending sales were up on an annual basis in all major regions of the state, with the Central Valley Region’s index reaching an all-time high, thanks to its high affordability and ample inventory. The Southern California region also saw a healthy uptick in pending sales from a year ago, driven by double-digit increases in Orange County and Riverside.

• For the Bay Area as a whole, pending sales were down 5.1 percent from March and up 1.6 percent from April 2015. Within the core areas of the Bay Area, including San Francisco and Santa Clara counties, pending sales actually saw an increase over last year of 9.4 percent and 15.8 percent, respectively.

• While pending home sales in Southern California as a whole were down 5.5 percent from March, they rose 4.8 percent from a year ago. Los Angeles County posted an annual gain of 3.4 percent, while Orange County experienced a robust 10.3 percent gain.

TALKING POINTS …

• Prominent luxury home builder Toll Brothers Inc's quarterly revenue jumped nearly 31 percent as the company sold more luxury homes at higher prices, underscoring a steady growth in the U.S. housing market.

• Shares of Toll Brothers, which mostly builds high-end single-family homes, rose as much as 8.9 percent to $29.51. The strong home sales data also boosted shares of other homebuilders Lennar Corp, D.R. Horton, and PulteGroup.

• Toll Brothers' orders increased 3.2 percent to 1,993 homes in the second quarter. Lennar, D.R. Horton and PulteGroup have also reported strong results, mainly due to higher demand from first-time buyers.

REAL ESTATE TRENDS...The Price of Low Wages? Millennials Set Record for Living With Their Parents

By Beth Braverman

For the first time in over a century young Americans are more likely to live with their parents than to live with a spouse or romantic partner.

A new report from the Pew Research Center finds that in 2014, 32.1 percent of Americans age 18-34 lived in their parents’ homes, compared to 31.6 percent of those who were married or cohabitating in their own household.

Several trends have pushed more millennials to stay home, including a postponement of marriage, a tough employment market and low wages. The failure to leave the family nest also reflects far higher rents and home prices relative to income than those faced by previous generations.

Another factor is an increase in college enrollment. Nearly half of American college students said that they lived at home last year in order to keep college costs down, according to a Sallie Mae report.

The shift marks the first time since 1880 that the most common living arrangement for young adults has not been living with their significant other. At its peak 1960, 62 percent of young adults lived with a romantic partner, compared to just 20 percent who lived with their parents.

Young men are more likely to live with their parents than women, with 35 percent of men living with their parents compared to 29 percent of women. Minorities and those without a bachelor’s degree were also more likely than their peers to live in their parents’ home.

REAL ESTATE NEWS...Pending US home sales hit 10-year high

Pending home sales across the U.S. hit a decade high last month, likely thanks to low interest rates and job growth.

The sales index for homes under contract rose to 116.3 in April, the highest level seen since February 2006, the Wall Street Journal reported. Pending sales increased by 5.1 percent from March and saw a year-over-year increase of 4.6 percent, according to the National Association of Realtors.

“U.S. housing-market activity continues to improve, and all indications thus far point to a strong spring selling season,” Barclays economist Jesse Hurwitz told the newspaper.

While the increases show a stronger housing market, new home supply is contracting and prices are rising. Some economists are worried the dwindling inventory may eventually halt the housing market’s improvements.

The tightening of the new-home supply caused a 9.7 percent year-over-year price increase in April. Last month saw the highest median sales price on record at $321,000. [WSJ] — Kathryn Brenzel

REAL ESTATE TOPICS...Sorry Millennials, You Can’t Blame the Economy for Why You Live with Your Parents

Terry Bradshaw, Matthew McConaughey and Kathy Bates in FAILURE TO LAUNCH, 2006

BY Brad Tuttle

IT'S NOT JUST THE ECONOMY...

At first glance, it might seem likely that the economy and a lackluster jobs market would be directly responsible for the boomerang phenomenon—in which young people move back in with their parents after college, or perhaps never leave their childhood homes in the first place. After all, the number of young Americans living with their parents spiked during the Great Recession and the years that followed.

In the spring of 2011, 5.9 million Americans ages 25 to 34 lived with their parents, compared with 4.7 million before the recession. What’s more, according to a 2012 Pew Research Center study, 63% of Americans ages 18 to 34 said they knew someone who was forced to move back in with their parents “because of the economy.”

And yet, as a new FiveThirtyEight analysis by Ben Casselman points out, the economy is not responsible for boomerangers moving back in with their Baby Boomer parents—not entirely anyway.

If the economy was directly to blame for the trend, then we would be seeing more millennials move out of the nest lately, what with the economy recovering and unemployment dropping for years. Instead, the percentage of millennials living with their parents has continued to rise, recently reaching the highest rate since 1940. The latest report noted that more millennials live with their parents than a spouse or partner.

“The recession wasn’t what led millennials to move back into their old bedrooms,” Casselman explains. “Rather, long-run shifts in demographics and behavior have been pushing them in that direction for decades.”

Millennials are getting married and having children later in life than previous generations. Remove marriage and kids from the equation, and there’s much less incentive for a young person to feel compelled to buy a house or even to find a place to rent. For that matter, since millennials seem to get along better with their parents than previous generations, continuing on with mom and dad as roommates not only makes financial sense, it can be pretty awesome, many members of Gen Y maintain.

Perhaps most importantly, even with an improving economy and better career opportunities, young people today are stuck in the nest because of two obvious factors, Casselman explains: “more debt and higher rent.” If you’re struggling to pay back student loans, you face soaring rental rates, you don’t have the need for extra space because of a spouse or child, and you have parents that will welcome you back home, then why wouldn’t you return to your childhood bedroom?

REAL ESTATE NEWS...U.S. Economy Grew More Last Quarter Than Previously Estimated

The U.S. economy expanded at a slightly faster pace in the first quarter than previously estimated, reflecting less damage from trade and inventories.

Gross domestic product rose at a 0.8 percent annualized rate in the three months ended in March, the smallest gain in a year, Commerce Department figures showed Friday. That compares with the 0.5 percent advance the government reported last month.

The figures do little to alter views of the third consecutive sluggish start to the year, and could portend a tougher slog in the second quarter as businesses work to continue to pare stockpiles. At the same time, household income gains were stronger than previously reported as the labor market strengthened, which will help support consumer spending.

“It’s still a very poor start to the year,” Ryan Sweet, a senior economist at Moody’s Analytics Inc. in West Chester, Pennsylvania, said before the report. “From past experience we get most of that back in the second quarter.”

The median forecast in a Bloomberg survey called for a 0.9 percent gain in GDP, the value of all goods and services produced. Projections ranged from 0.5 percent to 1.4 percent. This is the second of three estimates for the quarter before annual revisions in July.

The report included revisions to fourth-quarter personal income that showed pay accelerated even more than previously estimated. Wages and salaries grew by $125.5 billion, the biggest quarterly gain in almost two years and up from the $81.7 billion gain previously reported.

Income Gains

After-tax personal income adjusted for inflation climbed at a 4 percent annualized rate in the first quarter, revised up from a prior estimate of 2.9 percent. The saving rate was also pushed up to 5.7 percent, the highest since the fourth quarter of 2012, from 5.2 percent.

The figures also offered a first look at corporate profits. Before-tax earnings rose 0.3 percent from the prior quarter, but were down 5.8 percent from the same time last year.

Total income in the economy, which combines all forms of earnings, increased at a 2.2 percent annualized rate, the most since the fourth quarter of 2014.

Theoretically, the income and GDP figures should match over time although they often diverge in the short term. The stronger performance by the earnings side of the ledger will stoke debate that first-quarter GDP figures have lately been underestimated.

Household purchases, which account for almost 70 percent of the economy, grew at a 1.9 percent annualized rate, the same as initially estimated.