My Way-Too-Early 2021 Real Estate Predictions

I started writing my predictions for 2020 but I didn’t end up publishing them.

Good thing, too, because COVID blew up just about everyone’s 2020 predictions.

If I had published something, I would have predicted there would not be any massive new entrants into real estate from the “FAANG” (Facebook, Amazon, Apple, Netflix, and Google, not to imply that Netflix is a likely real estate disrupter). And that was right.

I would have predicted at least one big new partnership in the iBuyer space. I think Opendoor and Realtor.com counts? But we will see how far that goes.

And I thought eXp Realty would finally get a new logo. That hasn’t happened, though I’ve heard that I’m not alone in thinking their logo is terribly outdated, especially for such a tech-focused brand. I suppose I can understand why they would be gun shy given Realtors’ recent experience with logos.

But enough about what I was too timid to publish previously. Let’s talk 2021!

The Emperor Has No Clothes

I’m not a Compass hater. Just a skeptic.

2021 will be the year my skepticism is vindicated.

I don’t think Compass is a bad company or anything. I just don’t think they are special.

Their business model is about as traditional as you can get, and yet they bill themselves as somehow new.

Their vision has seemed confused at times. Are they a tech company? Are they a real estate portal? Are they a luxury brand? Is their business model anything more than “aggressively recruit agents”?

They missed their “20 in 20 in 2020” goal. That was a big, hairy, audacious goal and it’s hardly fair to call the company a “failure” because of it. But my problem is the goal itself. “Market share” isn’t a value proposition. It isn’t a strategy. It isn’t an animating purpose. It doesn’t tell anyone what Compass is.

Are they anything more than just a brokerage?

There isn’t anything inherently wrong with being “just a brokerage”. But that makes them sexy Realogy. And that is not a compliment.

Compass is moving toward an IPO. And it seems impossible that they would make the same mistakes as their cousin company, WeWork, whose attempted IPO ended in a legendary disaster. Perhaps Compass has been dragging its feet on an IPO because its investors are very keen to avoid a WeWork repeat.

I think in 2021 everyone will finally have to admit what Compass is. Just a brokerage.

My prediction gets zero points for creativity, however. It’s essentially the same that Rob Hahn made a year ago. So, I’ll go a step further and say that Compass will fall out of the top 3 largest brokerages. As they currently have almost 3x the transaction volume as fourth place, I think that is a pretty bold prediction!

He who lives by agent recruitment dies by agent recruitment.

Feelin’ Hot Hot Hot

How is it possible that the oft predicted housing recession still has yet to visit us?

Not even COVID could kill off the real estate market!

It’s been over a decade since the Great Recession, an astonishingly long time of practically uninterrupted housing price appreciation. We’ve blown past recovering from those low lows and are now well into new high highs.

Even my market, Killeen, TX, notoriously flat with no appreciation, has been flying to the moon!

So isn’t it time for a downturn? Won’t the aftershocks of COVID unemployment, rising interest rates (they can’t get lower!), growing delinquent mortgages, and a glut of delayed listing supply tank our housing market in 2021?

Nope.

Some markets have slowed, like Dallas and Houston. But they are still healthy by any reasonable measure. The resurging prospects of a recovering economy and normalized unemployment numbers shouldn’t hurt anyone. And we’re still not building enough homes.

We’ve seen all this growth despite more young people now living with their parents. My guess is that they still see that as a temporary situation and not a new normal.

No. Real estate will still be good in 2021. I predict median national home values will be at least 4% higher at the end of 2021 than they are at the beginning.

That also isn’t a very brave prediction. Zillow estimates prices will rise 4.8% in the next year as of this writing. Don’t worry, I have at least one really bold prediction below!

I won’t make it a separate prediction, but the corollary to a hot real estate market is a growing number of agents. I think NAR will have more members at the end of 2021 than it does at the beginning, irrespective of consolidation of productivity.

What Goes Down Must Come Back Up

2011: “Interest rates have never been lower.”

2015: “Interest rates have never been lower.”

2020: “Interest rates have never been lower.”

My entire real estate career has been advising buyers that it was a good time to purchase because interest rates were so darn good! I got my license in 2013!

Eventually rate have to go back up, right?

Well, unfortunately, yes. And they will in 2021.

We are living through a demographically blessed time of lots of capital, which means lots of lending, which means cheap money.

But we reached the peak in 2020. It is only going to get tougher. 2020 was the year when half of the baby boomer generation (1946-1964) had finally hit the retirement age of 65. A majority of boomers are now eligible for retirement.

Why does that matter? Because many are leaving the pinnacle of their profession as high net contributors to our productivity and capital and becoming high net takers from our productivity and capital.

The result is that our money becomes worth more. Which means we will charge people more before we lend it to some poor fellow trying to buy a house.

And that is to say nothing of the massive printing of money that came with COVID relief and uncertainty about if and how that will affect inflation once things return to some normalcy.

Whatever happens, interest rates are going up. And by the end of 2021, they will have gone up a lot.

I’ll predict they are over 6% which, by 2010s standards, is off the charts. As of this writing, Freddie Mac says the weekly average mortgage rate for a 30 year fixed is 2.9%.

Virtual Vanishes

Social distancing and work-from-home has been a major boon to the virtual business model and software space.

My “best 360 cameras” article became my #1 best performing page for about 6 months. Virtual meeting companies like Zoom reported 353% growth. Zillow CEO Rich Barton said that virtual is going to be the new normal, and that “we are not going back to the way things were”.

We are going back to the way things were.

There is simply no substitute for being in a home. 3D tours have been around for a while already. While they’ve been nice and especially useful during a pandemic, they aren’t really essential.

Your newfound virtual skills will come in handy when next serving an overseas buyer or doing a listing video for Facebook Live. But your typical buyer client relationship will look mostly like it did in 2019: caravanning with your buyer to 10 homes on Saturdays.

There will still be some lasting housing effects from our collective COVID experience.

The new WFH employment policies will have a tremendous effect on many housing trends, encouraging exurban growth and a preference for larger homes. And both agents and brokerages may have a renewed confidence in virtual brokerages. And hopefully title and escrow services continue to adopt and adapt to the option of a flexible, virtual closing experience.

But they won’t change how buyers prefer to conduct their home search: in person.

How to measure this? As of this writing, Austin city limits has 3593 homes for sale or pending on Zillow, just 63 of which have a 3D tour when filtered for that on Zillow for 0.018%. I predict that number is no higher than 0.020% at the end of 2021.

Google Gets Greedy and Goes Gangbusters

2021 is finally the year one of the big players makes a move.

Google is infamous for disrupting online publishers. 2019 was a landmark year in which, for the first time, over 50% of Google searches resulted in zero clicks. Google was taking content from websites themselves and posting them in the search results as a featured snippet. Why click through to the iMDB page showing Anthony Hopkin’s age when you can already see the result right there on Google? iMDB gets nothing. You already got what you needed to know!

For some reason, Google has left real estate alone. Zillow, Realtor.com, Homes.com and the franchises are kindly allowed to fight it out for the top of the SERPs.

No more in 2021.

We finally get the big move.

Previously, Zillow was a relatively small fry, having a market cap between $2-6B depending on when you measured it, compared to Google at over $1000B as of this writing (also known as over $1T).

But now Zillow is winning over investors! Having survived COVID and seeing improvements to both PA and their Homes business, investors have turned into … Zbelievers? BeliverZ? Z-ealots? Zillow’s market cap has skyrocketed to $23B on a stock price that is over $100 for the first time in its history. Meanwhile, their competitor is bought at a $5B valuation.

That is real money, even if the stock recedes some. That’s enough money for Google to get out of bed for. And get out of bed Google shall.

By the end of 2021, when you search “homes for sale in [your home town]”, you won’t get a link to Zillow, Realtor.com, and Homes.com. You will get a featured result showing homes for sale on Google Maps.

In the footer of Google Maps, there will be a link for agents that says: “Hey, Realtors! Remember all that advertising money you are giving to Facebook and Zillow? How would you like to put that into Google Ads instead and show up on Google Maps next to homes for sale?”

They have all the driving directions and 3D tour technology to replicate a lot of what Zillow is doing. It would only take a single, incredibly affordable (for Google) acquisition or two to get all the data feeds they need.

Losing the top of the funnel would obviously be a disaster for Zillow and Realtor.com. The vast majority of their site traffic is organic home searches (SEMRush estimates Zillow spends $3.7M on paid traffic). They would have to survive on their brand name, unique content, and other hard services like their mortgage and iBuying services. Or, they could partner directly with Google and join the Borg rather than be subsumed by it.

iBuyers Go on Their Honeymoon

Speaking of the iBuyers, they are otherwise doing pretty good right now.

Zillow raised a bunch of money in late 2019 and is still sitting on a big pile of cash. Meanwhile, just as things at Opendoor started to look dicey with COVID layoffs and a dramatically reduced acquisition rate, they got a major boost when they were acquired by Social Capital.

Neither company is going to have to retreat from iBuying any time soon. 2021 is going to be another year of full speed ahead for both companies.

But that means one more year of waiting to see how far the iBuyer phenomenon can really go. Neither company is profitable. Is the business model one that can make the leap from “niche” to “popular alternative to traditional selling”?

Will a long runway, paved with cash, help get them off the ground?

Or will all that cash merely mask the execution, monetization, and customer acquisition challenges for the new business model?

We still won’t know by the end of 2021.

I predict both companies raise more capital (while it’s still affordable-ish!) in 2021.

Conclusion

I’m not Nostradamus. I’m not a genius. In fact, I got a 2.6 GPA in college and was lucky to graduate. So, don’t read too much into anything I have to say.

None of the above should be taken as investment advice. Some of it is just me having fun and we’ll see where I stand in a year!

I currently also work for Zillow and own stock with them, in case that affects your opinion of my opinions. Nothing here includes any secret information. They don’t tell me anything, anyway.

As for how all this affects agents – it doesn’t. Nothing here is going to disrupt your business is you are providing value to customers and doing your job. None of the disruptors or trends are anywhere close to stealing market share from good brokerages and agents. The “big data” and “AI” capabilities simply don’t exist to surpass good execution.

What do you think is going to happen? Any other logos that need an overhaul? Share in the comments and let’s discuss!