Creating Innovative Housing to Address Changing Demographics

At the National Building Museum in Washington, D.C., Fannie Mae exhibited “Making Room:  Housing for A Changing America” as it highlighted many of the issues that face today’s shortage of quality affordable housing. In a blog by Maria Evans, VP for Sustainable Communities at Fannie Mae, she notes that “When affordable housing is part of a mixed-income community with good schools, health and wellness opportunities, and good-paying jobs, it is much easier for those communities to address longstanding disparities in educational or health outcomes of low-income residents.”

It was noted at the exhibit that the housing industry has failed to keep up with the ever changing demographics.  The demographics show that 11.63 percent of the total housing stock was for single adults who preferred one bedroom homes. Three and four bedroom homes made up 39.82 and 16.66 percent of the housing stock with two bedrooms composing 26.54 percent.

Shifting demographics & lifestyle changes in the U.S.

This thought provoking idea is now one of the many projects that Fannie Mae has launched under the Sustainable Communities Innovative Challenge.  Under this challenge, Fannie Mae makes a $10 million commitment to generate affordable housing solutions to sustainable communities that provide residents integrated opportunities for employment, health and wellness, and education. Anyone inside or outside the housing industry can submit their ideas and innovations. One example that has come out of this challenge is the West Denver Renaissance Collaborative that came up with the idea of an accessory dwelling unit(ADU) program where a detached residence approximately 450-870 square feet is placed in the backyard of primary homes and can serve as a rental unit, creating a new source of income for the homeowner.  This ADU not only raises the property value but also adds to the affordable housing supply that is very much needed.

Advertisements

Silver Tsunami vs. Millennials in Real Estate

Silver Tsunami

Are you ready for the Silver Tsunami?  Wikipedia describes it as a metaphor used to describe population aging. The silver tsunami metaphor has been used in popular media and in scholarly literature to refer to the late-twentieth century demographic phenomenon of population aging in major media platforms including The Economist, Forbes.com, and multiple news outlets.

Millennial

In real estate, we see that the millennials are the demographic group that is trending now for home purchases, but millions of baby boomers aka Silver Tsunami could seek to downsize in the coming years as they approach their 60s and 70s. It is expected that by the year 2050, the seniors 65 and older will make up nearly 20 percent of the U.S. population compared to the 15 percent today.  Not only will the demand for senior living increase, but the style and manner will as well. With the large increase in this demographic market, you can expect to see senior living communities popping up everywhere, especially in Florida. These types of communities are expected to rise in in both rural and urban settings alike.

Today’s baby boomers, now the Silver Tsunami to come, look at life a little differently in regards to aging. They expect accessibility and convenience with personalized care and amenities.  These future seniors reflect a change in the way our older generation currently resides. They are active, empowering, and believe that senior living should not be institutional.

Then we have the seniors of today that were born between 1931 and 1947, who are staying in their homes longer and aging in place, the result being higher homeownership rates than the previous group of seniors.  It is estimated that 1.6 million existing homes were held off the market in 2018 due to the aging in place occurring. The trend of these seniors aging in place is only expected to grow as the number of seniors increase with the impending Silver Tsunami. To put this in perspective, the 1.6 million existing homes that are being held off the market due to aging in place, the Urban Institute estimates that 3.4 million millennials are missing out on homeownership.

Sam Khater, Chief Economist at Freddie Mac, stated in Freddie Mac’s February Insight  “We believe the additional demand for homeownership from seniors aging in place will increase the relative price of owning versus renting, making renting more attractive to younger generations.” “This further highlights the importance of addressing barriers to the production of new housing supply to help accommodate long-term housing demand,” he added.

https://www.leisurecare.com/resources/silver-tsunami-senior-living/

https://dsnews.com/daily-dose/02-06-2019/how-aging-in-place-is-restricting-first-time-homebuyers

https://freddiemac.gcs-web.com/news-releases/news-release-details/freddie-mac-insight-seniors-who-are-aging-place-hold-16-million?_ga=2.143892016.483936937.1549379288-957113108.1544712385

Millennials Looking for a Place to call Home

Make way for millennials! According to the Dave Ramsey website, in 2019 millennials will lead the way in number of mortgages, accounting for 45% of the market. As the millennial generation reaches adulthood, they are moving into the housing market looking for a place to call home. However, it is not in the (credit nor debit) cards for most to be living in the city like modern TV drama would have you think. Because of historically high student debt, recession, rising real estate costs, and a challenging and stratified job market, ‘frugal’ is the word to live by. So, most millennials are looking into moving into single family suburban homes on the outskirts of
18-hour-cities.

In their quest to save money in their new homes, millennials are keeping an eye out for space with a multiplicity of use and amenities built for efficiency. No longer is it the size that matters, but how it is used. While they desire the life of suburbia, they also want to integrate some elements of urban life such as walk-ability to shopping & dining and open options for transit. Many attribute this millennial propensity toward convenience to the modern technological era: everything is now available at the click of a screen.

Regardless of the why, there is a huge disconnect between the houses which millennials want and the houses which realtors are selling. Part of the issue could be the disconnect in age. According to National Association of Realtors the average age of a realtor today is 57, and home-builders are building homes with Baby boomers and Gen X in mind. Generations before wanted mansions, but a millennials only desire is a comfortable and adaptable kind of space. Pardee Homes interior designer , Bobby Berk, summarizes the shift for millennials : “ I think we grew up around an older generation of excess, and saw what it did to everyone and the economy. It made us more of a less is more generation.”

It’s safe to say that as this new generation grows up, it’s in real estates best interest to grow with it.

https://www.daveramsey.com/blog/real-estate-trends

https://www.curbed.com/2018/10/10/17959984/real-estate-trends-2019-housing-affordability-inv estment

https://www.curbed.com/2016/6/21/11956516/millennial-first-time-home-trends-suburbs

Startups – a Threat to Title Insurance or a Solution Looking for a Problem?

Title insurance agents might have a new competitor entering the title and escrow arena.

 

Title insurance agents might have a new competitor entering the title and escrow arena. A startup company from Seattle named Modus opened early this July. Modus allows real estate agents to use its resources as a title and escrow workshop, bypassing a traditional title firm altogether. Both agents and clients can log onto the company’s platform to track every step of the closing process. By using a shared platform, the service reduces the potential for fraud and speeds up closing by eliminating the back-and-forth of personal and financial information via email. Agents also will have the ability to outsource manual data entry, cutting down on time for closings once more.

Modus is not the only start-up offering such services. The fledgling company is joining names such as Spruce and JetClosing, startups which offer similar services for the sake of simplifying the title and escrow process. The increasing popularity of such companies raises concerns among title companies- will existing firms have to provide more to compete with these young startups?

startups2     Or does this sound like these companies are trying to offer a solution that is looking for a problem?  If someone had a problem at a closing it could have either been a bad real estate agent or an escrow agent.  Typically it is the buyers that pick the escrow, but in today’s market it seems to be this responsibility has fallen on the listing agent, whose primary job is first and foremost a marketing one.  The listing agent does not directly sell your house, but they should be the reason your house sells.  Thus being knowledgeable in escrow is not a primary responsibility for them.

Then there could also be issues with banks accepting electronic signatures when it startups3comes to payoffs on the seller’s mortgage and getting new loan documents on the buyer’s loan.  When it comes to real estate transactions, electronic signatures are enforceable, however certain documents (e.g. mortgages and deeds) will require original signatures for recordation.  Borrowers and lenders continue to require originally executed notes to maximize their comfort level that there is only one negotiable instrument.

DIGITAL TECHNOLOGY & ITS IMPACT ON REAL ESTATE TRANSACTIONS

PRESENTED BY MICHELLE GARCIA GILBERT, ESQ.

GILBERT GARCIA GROUP, P.A.  | SAPPHIRE TITLE & ESCROW COMPANY

 

 DIGITAL TECHNOLOGY

Bitcoin, virtual currency, example of blockchain (or distributed ledger) technology

  • Released at time of financial crisis, due to advances in software, communication and encryption
  • Established set of rules that ensured integrity of data exchanged among computers globally, without use of government or other trusted third party
  • Ledger recording transfer of bitcoins resides on virtual network which uses encryption and secure keys for transactions; each transfer is recorded in a block of information
  • Each block has time stamp and link to prior block which creates permanent record that is almost impossible to alter
  • Technology is being used for other distributed ledgers

APPLICATIONS

Digitally record tangible and intangible assets in a system that is more trustworthy, transparent and verifiable than any other

  • Private blockchains, not public like Bitcoin, participants  verified against pre-approved list
  • Collaboration among many participants required
  • Common technical standards and processes required Participants must share information
  • Resource intensive
  • Legal concerns regarding intellectual property, data privacy, data security, anti-money laundering, settlement finality and securities requirements

 

REAL ESTATE TRANSACTIONS NOW

Old-fashioned industry with paper contracts, manual escrow deposits, hard files, and in-person closings

  • U.S. net worth totals $89 trillion, household ownership of real estate is $27 trillion out of a total of $33 trillion of  nonfinancial  assets
  • 2016- outstanding real estate debt was $11.5 trillion residential and $2.6 trillion nonresidential
  • Industry has long history of state and local regulation, lobbying power of real estate agents, and interaction with laws, tax code and American culture of home ownership
  • Establishing property rights involves navigating lawyers, insurance agents, realtors and title agents
  • Current state of affairs: brokers and realtors facilitate transaction for a fee; parties can use an attorney in addition to an agent or in lieu of an agent, to prepare a contract;  contract uncertainties exists with contingency for inspect ions, appraisals, state of title, and financing; title search is performed to determine state of title and requirements that must be met to convey marketable title; title insurance is provided as part of the transaction; 2016- 88% of all buyers financed homes; closing – most take 1-2 months to get to the table, and the closing itself can last hours

 

REAL ESTATE TRANSACTIONS IN THE FUTURE

Blockchain technology has the potential to address uncertainties in real estate transactions by providing more direct, precise and efficient process.

  • Smart contracts: digitally signed agreement, stored on blockchain program would speed closings be­cause payment would trigger automatic transfer of title; limited use for structuring of agreements, and handling of breaches and dispute resolution; also, without common technical standards and processes, suspect to hacking
  • Land records: outdated system in which paper filings are maintained as a chain of title by local government office; manual process with high potential for error and fraud; risk mitigated by purchase of title insurance, though about 5% of premiums paid out in claims in 2016; In September, 2016, Cook County, Illinois launched a pilot program to current system with public blockchain technology; Cook county never completed a blockchain conveyance but reported alter the pilot ended, in May, 2017, “…that blockchain and distributed ledgers are natural fit for keeping land records and stream lining the dozens of intermediate steps needed just to get a deed into public record.”
  • Transaction platforms: Encrypted, secure and distributed ledgers provide a way to execute transactions with little or no intervention by people. Instead of involving many employees, third-party agents and paper processes in a transaction flow that takes days, weeks or longer, huge volumes of transactions will be com­ pleted very quickly and transparently. Financial institutions, in particular, have been struggling with business process inefficiencies, but such inefficiencies exist in other industries, including real estate.
  • States opting in: Blockchain recognized as a legitimate form of ownership.

 

WHAT IS HAPPENING NOW…

  • Countries like Georgia and Ukraine have already implemented blockchain, as the start-up Propy executed the first real estate transaction through cryptocurrency, in which a San Francisco investor bought a house in Kiev for $60,000 in Ethereum tokens (another cryptocurrency)
  • And more examples to be provided

Artificial Intelligence in Real Estate: “Maybe one day they’ll need-homes too.”

 

In 2018, it seems the most promising, and yet most horrifying frontier is artificial intelligence, or (AI). The potentials for computing ability, in short increments of time, are almost unfathomable, while the ethical implications in creating an entity with such a supreme nature are grounds for insomnia. Regardless, even if its potentiality keeps you up at night, artificial intelligence is being incorporated into almost every sector of the market, including real estate; it’s the biggest thing since sliced bread. The effects this technology could have on the traditional methods of real-estate business are still obscure. Companies like REX Real Estate Exchange are offering the consumer an artificial intelligence-driven service that essentially replaces the human agent, and charges less in commission. In this service, the computer runs through hundreds of thousands of data points to identify potential buyers. To accomplish this, the AI extracts and scrutinizes mountains of personal browsing data and flags the individual users who are satisfying the criteria of interest. Once a user is identified, the system advertises the properties, to the potential customers, on their preferred social media platforms, as well as the websites they visit which allow some form of what I would call advertisement metamorphosis.

data miningArtificial intelligence isn’t just the foundation of new startups, it’s being implemented into pre-existing real-estate tools that have been transforming the market for years. ATTOM data’s AVM is a tool which analyzes previous property purchases. The system breaks down property characteristics, compiles them and assigns values, and uses them to set a market value scale. This same process can be applied to a buyer. Artificial intelligence makes it possible to scrutinize personal data and, consequently, base property value on the desired home qualities, income, and personality traits of buyers, not just the characteristics of properties. Even services, like Zillow, will need to adapt greater AI capability. The consumer today shapes their life according to recommendations. Video streaming and food services use AI to suggest future choices to people based on prior activity. It’s a fundamental tenant of psychology that most people desire to be instructed and managed. This same concept applies to how AI is incorporated. Real estate web services, with the help of AI, will be presenting recommendations, to the consumers, based on extrapolated data trails. Has this individual posted about having children? Add a spare bedroom qualifier to their home criteria. Do they like barbeque? Advertise a property in close proximity to something finger-lickin’ good. Do they like reading? Propose a property with abundant natural light.

The future of real estate, with the help of AI, is consumer personalization. The average artificial intelligenceperson, according to a Nielsen Company audience report, spends 10 hours a day consuming media online. That amounts to 3,650 hours, and 41.6% of the average person’s year spent online. This activity produces an incomprehensible mass of data trail to be scrutinized and expressed in your next home purchase. How AI will ultimately transform the real estate business is unknown. Who knows, perhaps one-day artificial intelligence will purchase property for itself. All one can be utterly sure of is that the phrase, “I’ll be back,” will not be vocalized because AI isn’t terminating anytime soon.