On Friday, September 28, the Norris Group proudly presented its 11th annual award-winning black-tie event, I Survived Real Estate. An incredible lineup of industry experts joined Bruce Norris to discuss perplexing industry trends, head-scratching legislation, tech disruption, and opportunities emerging for real estate professionals. All proceeds from the event benefitted Make A Wish and St. Jude Children’s Research Hospital. This event was not possible without the generous help of the following platinum partners: the San Diego Creative Real Estate Investors Association, InvestClub, Inland Empire Real Estate Investment Club, ThinkRealty, Wilson Investment Properties, Coach Fullerton, First Lending Solutions, PropertyRadar, the Apartment Owners Association, MVT Productions, and Realty411. Visit www.isurvivedrealestate.com for event information, and see Amazon Prime or YouTube for past events.
Episode Highlights
- How good are the opportunities right now to remodel?
- How much emphasis does Doug Duncan put on an inverted yield curve?
- What was the ten-year T-Bill in 1932, and what was the confusion about how it related to GDP growth and unemployment?
- How do you determine whether or not a market is maturing?
- Should we expect to see an increase in real estate prices over the next year?
- How has DotLoop been revolutionary in real estate transactions?
- How far have we come with Artificial Intelligence, and do people have the right idea about it?
Episode Notes
This segment opens with a brief recap of Bruce’s discuss with John Burns and Doug Duncan. Bruce asked about the ten million more people turning 65 and over. He wondered how this affects housing, which John said he thinks it is actually 18 million over the next ten years. The shift in people’s thinking is they used to think they were hitting retirement and were going to play golf. Now, they want to go where their kids have a job and where the grandkids are. We are seeing people moving to these areas, and we are doing a lot of feasibility work where people are selling their homes or keeping it and renting it out. They are turning around and becoming renters. Older homeowners are turning into renters for a variety of reasons. One may be the lack of a tax deduction.
John next said he is very up on the remodeling business. Homes were not built for that many people over the age of 65, so the opportunities to remodel are fantastic. He thinks the ones fixing up homes are selling them to lots of people and putting things in them other than just family-oriented homes. Doug said this is consistent with the survey data of households. Boomers are basically saying they will age in place. They want the kids to come home and bring the grandkids. We have $6 ½-$7 trillion of equity, so some will be tapped to make the house habitable as they age in place. Doug said he sees this in the data at Fannie Mae. They can track cash out refinances. While these in total have fallen, the share of them extracting cash is rising continually.
Doug spoke with someone at one of the big building products firms about whether or not this remodeling thing was real from their perspective. They said this was the sector of their sales that is actually growing. If you look at Google Trends data, housing has slowed down and total sales is lower than last year. The one piece of the Google trends data search that is rising is the remodeling space.
Bruce asked Doug, as a top economist, how much emphasis he puts on an inverted yield curve. He said you have different Fed governors squaring off on this topic. Some believe it matters, while others don’t believe it matters. It is a consistently corelated relationship to economic downturns. If you look at the instances where the 10-year Treasury rate has fallen below the 90-day Treasury rate, within 12-18 months there has been a recession every time. It is very strongly corelated. You can argue whether it is the cause or not over your economic models. It is very highly corelated when it is the 90-day Treasury and 10-year Treasury.
Bruce asked if the Fed continues its pace in the short-end, he wondered when the crossover will likely happen. Doug said it really depends on what happens on two things. One is the continued pace of growth. If this expansion grows stronger and longer than what the current forecasts say, you probably won’t see that reversal, especially if it is tied to the European Central Bank raising or easing rates. If you look at bond market yields, last week there was a speech where they said inflation in Europe was growing faster than they thought. The U.S. ten-year Treasury rose. It is not just about our market.
One thing that confused Bruce was when he looked up what a ten-year T-Bill was in 1932. In the middle of the Great Depression, GDP growth was -23% while unemployment was at 25%. At the same time, the ten-year was 3.65%. Right now, it is a little under 3.1%. Bruce wondered which of these numbers is completely wrong. We have full employment, basically, and GDP basically at 3 for the first half. Bruce wondered how these two worlds have gotten it right. There is a peak, then the depth of the all-time greatest recession. Bruce wondered if we had that big of a problem that we have avoided. Doug said there is no question that if the monetary authorities, Bernanke, Paulson, and Geithner, had stepped in to save the banking system, we would have gotten there. We were heading way north of 10% unemployment.
The one program that was instituted that the public never really knew about was corporations going to short-term credit markets, not in the banks, but the bond market, to borrow money to meet payroll. That market froze, and the Fed opened a conduit that went from $0 to $300 billion in 90 days to fund the employees of Ford Motor, Chrysler, and U.S. Steel. This reestablished confidence in the capital markets, and they wound that program down over 6-9 months. Doug believes this was one of the most successful Federal government programs in the history of the country. It kept unemployment at 10 or 11% when it could have easily been at 20%.
In his podcast, John Burks talked about maturing markets. Bruce asked how you determine whether the market is maturing. John said usually something has been going on for too long and is completely out of whack. It’s not construction this time around since there is very little of this in almost every market in the country. It is affordability. When you have a nine-year expansion and low interest rates the whole, supply cannot keep up with demand and prices go through the roof. The next recession will likely be pretty painful for pricing. However, it should not be as painful on volume or construction, although pricing hurts. We are actually sitting in a market right now that is frothy like that. It is considered mature as it is believed we are near the end of the cycle, but John could not say which year it will be.
Bruce asked if they expect to see real estate prices go up nationally for the next year or two. John said yes and that this is their forecast. They do not see a lot of supply in the market coming from the new or resale market. He buys into Doug’s latest forecast that the economy will keep growing. He also thinks wage growth will be stronger than most people think. In a low unemployment world, that makes sense. This should fuel some good price appreciation, although not as much as we saw last year. It could be two points less.
Bruce asked them if they see the end of this cycle mimicking the end of any other cycle we have experienced. John said it feels like the ‘99/2000 period where housing was still coming off its back after the crisis those years. We were not overbuilding the market and had a frothy tech market, particularly in NASDAQ. It feels like this now; but the difference is the Fed funds rate was at 6 ½%, and it dropped to 1 almost instantaneously. They also used housing to prop up the economy. The industry that has hit the debt market the least is housing. John said if he were the Fed chair, he would look at all the industries and say this one looks like the healthiest industry and figure out what he can do to help it get going. Bruce asked if California will lose price in this next down cycle. John said by down cycle, he means we are shedding jobs and people are losing them. When this happens, prices could correct substantially.
John said a buffer to this is we have people like Bruce as well as the Blackstones and people of the world who will raise billions of dollars and start buying right away. They already have an engine to rent them out, so there could be a buffer down there at that some point where it will not be as bad as last time. Institutions will be coming in to take advantage of this.
Bruce asked about if we had $21 trillion and growing in the next couple years. We will have a lot of bonds that will come due. The assumption is that there is always a buyer for this, but Bruce wondered what would happen if there is not. Doug thinks there will be, but the question is at what price. He talked about what the conditions were in the bet that would extend the expansion and have a faster growth rate that what was anticipated before the tax cut. The problem with that spending component is it will have to be funded. The way this happens is those who buy American goods have to put the cash back to work, and they buy U.S. treasuries. If you set about attempting to eliminate the trade deficit, you will cut off the people providing the dollars to fund that debt. It is possible this could stop, and that part of current policy is on a train wreck.
Bruce asked who the buyer is, which Doug said China is one of them. However, they would not be under that circumstance, so there would have to be replacement buyers, and it would not just be Americans. There will need to be global capital inflows.
Bruce ended by saying the Fed controls the short end, and he wondered who controls the ten-year. Doug said this is determined in capital markets by global capital trades, both inflows and outflows.
Bruce wondered if this is influenced by rates of other ten-year. Doug said absolutely. Right now, the U.S. is the best-looking horse outside the glue factory. It is hard for the U.S. ten-year to go too far when the German bond is at .5% while we are at 3.1%. Global market conditions will have an impact on how far U.S. rates can go on the long end. Bruce asked what Japan’s equivalent to the ten-year is, which they said it is 0. Bruce asked if they raised it a tenth like they discussed, which Doug said they were debating it.
Aaron Norris moderated the next panel to discuss nerdier topics. For this segment, they talked about everything from 3D printed houses to artificial intelligence. First up on the panel was Marnie Blanco, VP of Industry Relations with DotLoop, a company of Zillow Group. She manages strategic partnerships with leading brands across the industry, and her background is tech innovation, product marketing, and technology platforms.
Next up was Eddie Wilson, CEO of Affinity Worldwide, which controls over 80 brands including ThinkRealty, the National Real Estate Insurance Group, and the American Association of Private Lenders.
Last but night least was all-time favorite Sean O’Toole, founder and CEO of PropertyRadar. He has been involved in technology and software since he was 18, and he has been an entrepreneur ever since.
Aaron began by asking Marnie what her elevator pitch would be for those not familiar with DotLoop. She first asked if anyone in the room was already familiar with the company. They are a digital transaction management system. When you do your transactions, it covers everything from completing your contracts, agreements, and documents to going to the collaboration of all the parties within the transaction. This includes e-signatures out to the brokers to do compliance and checks. Finally, it would end with storing it. They do all of this in one system instead of what many do in three or four systems. Instead of making a PDF and sending it to a e-sign software and having to send it back and forth, they make the process much easier.
In 2015, Zillow Group bought DotLoop. Aaron asked why it was so important and what Zillow is looking to do. Marnie said they were acquired back in August 2015, so it has been a little bit over three years. When they were acquired, there was a lot of speculation. Zillow is always the boogey man in the industry, so everyone wondered what they were doing with an acquisition like DotLoop. At the end of the day, it is just to make the consumer transaction easier. This has always been the mission at DotLoop. This is not just for the agent and broker, but they also want to make it a good consumer experience. That aligned very well with the Zillow mission and ideals they are trying to accomplish.
Aaron asked if you have to be a Zillow agent to use the software. Marnie said you do not. Last month, they had over 450,000 unique agents in the system. Almost half the transactions in the U.S. go through DotLoop in some form or another. If you have an agent on one side or a co-op agent on the other side, or if a signature or offer is going through, they want to have everyone involved whether they are with Zillow or not. In other words, a complete integration of all the systems.
Aaron next asked if there has been a lot of talk about artificial intelligence. Marnie said integration artificial intelligence is a big factor at both Zillow and DotLoop. They even recently increased their AI team 8x of what it has been. In the DotLoop world, particularly because they deal with hundreds of thousands of agents, they hear from a lot of them that the offer process is clunky and difficult. Some people text, some email, some call, so DotLoop put out their own DotLoop messenger that is taking a lot of artificial intelligence into the mix and simplifying the offer process by natural language learning and different ways to do behavior learning to prompt it to be more streamlined than it is today.
Aaron next asked Sean if the artificial intelligence term is being used correctly since there is a lot of technology in the real estate space. He said the best way to explain it is there are a lot of places where artificial intelligence is being used and a lot of places it is being used well. A lot of people over subscribe to what it can do. For example, Zillow uses it in their AVMs. OfferPad and others have talked about AVMs too. Any time someone talks to you about artificial intelligence, take a step back since at the end of the day it needs machine readable data in order to do something. If you think about the last time you valued a piece of property and the things you took in to account, you probably asked what the neighborhood is like and what the yard and floor plans are like. Most of this data is not machine readable. People think it will come up with perfect values for everything; but not necessarily. With chat bots, you can see people’s expressions and tone of their voice. You can then take all this into account. Most of these things like Siri and Alexa are keyword spotting. There are the things people believe it can do and where it really is at currently.
Aaron heard it is using a lot of marketing. He has been talking a lot about zero interface for the next interface to prepare his company for what happens when screens go away. When you ask how often you can say something and Alexa will respond, people may look at you crazy. However, when you see a four or five year old with an Amazon Dot, it is absolutely magical. We have all seen the 1 ½ year old who finds the phone. They cannot talk, but they can find pictures and videos of themselves. For the five-year old, Alexa is just a friend that will tell you anything, even jokes that are hilarious to a five-year old.
Aaron’s favorite video from last year was Italian Google Grandmother. An 80-year old got the Google Mini for Christmas, and through a very thick accent she was trying to get Google to tell her the weather. She was banging on it, and the kids were laughing. The magic part, though, is when it works and you see the look on her face. She just realizes she has a friend. It doesn’t matter if you are five or 80 with a thick Italian accent. The goal is we are not looking at screens anymore. Apple has made their entire life out of making it so beautiful and easy to get what you need. Now, you are talking into thin air.
Starting this year, Aaron said they did not interview people before the event. They were interviewing Offers.com, whose pitch is within a 70% certainty they will know when somebody sells within one year. To be fair, this is probably in the best city. If you go to different cities and click on the areas, it is a different percentage. A lot of us spend a lot of money marketing, which is pretty significant. Aaron wondered if this is for artificial intelligence or a lot of data crunching. Sean said it is more of a data question. If you are Zillow and have all the traffic of people searching for homes, you probably have a good idea of who might be thinking about buying a home.
If you are some other company using public records data, the question is when the last time was you did something here before selling your home. You really have to dig through and see what you are making this prediction on and what data you are using. Then ask if you can use that data to make that prediction. Artificial intelligence allows you to do things at scale. It does not allow you to do things that were not previously possible. Could you look at this same data and predict who will buy a home? The answer is yes, and now you can use AI to do this at scale.
Aaron next went on to talk with Eddie about what he had done with ThinkRealty magazine and Personal Real Estate Magazine rebrand. He is doing a lot of video and radio too. Aaron said as a marketer and PR guy himself, the mix is getting difficult. When you talk about zero interface, it is feeling more and more like we have five influencers. We will have to go through the filter of either Facebook or Microsoft Task Cortana, while Amazon has Alexa. Are these really the filters you have to learn to play in since they will not be going to websites anymore? Aaron asked if these are things he is having to think about now, which Eddie said it is. Eddie’s company has 84 companies, and a lot of the things they are doing in mass media is to get people to raise their hand or force them into some funnel. We are also using all these new tools, like voice recognition on Facebook. Now you begin to say a product, be served with it, and wonder how they knew what you said. The reason: the machine-learning that has the AI attached to it. It is getting fundamentally harder to get them to take action but not to find out who they are.
The Norris Group would like to thank its Gold Sponsors for supporting I Survived Real Estate: Coldwell Banker Town and Country, Guaranteed Rate and Nathan Chabolla, In A Day Development, Inland Valley Association of Realtors, Jason Thorman with Coldwell Banker, Jennifer Buys Houses, Keystone CPA, LA South REIA, Las Brisas Escrow, Michael Ryan & Associates, New Western, NorcalREIA, NSDREI, Orange County Real Estate Investors, the Outspoken Investor, Pacific Premier Bank, Pasadena FIBI, Pilot Limousine, RealWealth Network, Rick and LeeAnne Rossiter, SJREI, Spinnaker Loans, South OC REIA, Tri-Counties Association of Realtors, uDirect IRA Services, White House Catering. See www.isurvivedrealestate.com for event information.
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