By now, you’ve probably already heard: Next year, real estate will be dominated by smaller homes, iBuyer expansion, car-free cities and plenty of other trends. It’ll be exciting times.
But while 2020 may look a bit like 2019 on steroids, the longer-term future is less certain. What happens to real estate technology, for example, after five or ten more years of massive venture capital investment? Where will agent ranks end up as consumers have access to more tools and more information?
No one has a crystal ball, but to get a sense of what’s coming over the next decade, Inman reached out to a handful of industry players, executives and observers. And while they had different takes, what’s clear is that the next decade will likely be defined by massive change.
Here are some of the big trends industry observers identified.
2020: The housing market will stay strong
First the good, and more certain, news: Next year is likely to see 2019’s relatively healthy housing market continue. That’s according to a recent report from Zillow, which indicates that 2020 will likely see low mortgage rates and high buyer demand — both of which trends dominated 2019 as well.
Skylar Olsen
Skylar Olsen, Zillow’s director of economic research, said that 2020 could see slower growth, but still advised industry observers to not “mistake this for a buyer-friendly environment – consumers will continue to absorb available inventory and the market will remain competitive in much of the country.”
Numerous economists largely agreed. For example George Ratiu, realtor.com’s chief economist, has predicted “robust” buyer demand in 2020.
And Mark Fleming, chief economist for insurance and financial services company First American, said this month that “low rates are increasing buying power significantly.”
Frederick Warburg Peters
Frederick Peters, CEO of Warburg Realty, also agreed that the market should remain generally strong in the near future. Though he told Inman that while his hometown of New York City has seen something of a downturn in real estate during recent years, he believes that broader fears about a recession — fears that were common earlier this year — are unfounded.
“Realistically I’m not seeing anything that looks like a recession on the horizon,” he said.
These conditions will pose a challenge to some buyers who are facing supply shortages, and consequently increasing prices, with Redfin predicting for example that bidding wars will return next year.
But it’s worth keeping in mind that one year ago at this time there was speculation that some sort of downturn was on the horizon. By comparison, then, predictions about a robust market in 2020 are generally good news for real estate professionals.
2020: Homeowner demographics will evolve
Zillow’s report also notes that as Millennials — or, generally people born in the early 1980s through mid 1990s — hit their prime homebuying age they will continue to drive housing trends in the coming year. That should lead to increased interest in smaller houses that are more affordable.
Redfin also pointed out in its report that the coming years should see Hispanic Americans gain more home equity than white Americans for the first time ever. The online brokerage additionally notes that home values in Hispanic neighborhoods are growing faster than in white neighborhoods, and that these gains in home equity should benefit families for generations.
2020: Smaller cities will boom
All that price growth, as well as low interest rates, are creating a wave of demand that coastal superstar cities in some cases just can’t meet. As a result, secondary cities — some in so-called “fly over states” — should see continued increasing demand.
Columbus, Ohio. Credit: Getty Images and David Shvartsman
A recent report from the National Association of Realtors (NAR), for example, identifies cities in Utah, Nevada, Ohio, Florida and the Carolinas should stand out in the coming years. Cities in these markets generally benefit from strong economies and comparatively lower housing costs, though they too could end up seeing the kind of price inflation that has bedeviled bigger metros if they don’t add enough supply.
This shift toward secondary cities has been ongoing for some time now, and the NAR report notes that the trend won’t be limited to next year. But it’s still significant that the U.S. is currently seeing — and will in 2020 continue seeing — a pattern of migration to smaller and more affordable metros.
2020: Climate change will be a bigger deal
Recent years have seen an array of climate and housing related disasters. From flooding in the Midwest to wildfires in California, a warming planet is already impacting housing for many people.
A number of observers (including Inman founder Brad Inman) believe that these issues could become even worse in 2020. Redfin, for example, predicts that next year “homebuyers and sellers will take the consequences of climate change into account when deciding to buy.”
Probably the biggest climate-related policy question for 2020 has to do with flood insurance. Currently, most Americans with flood insurance get their policies through a federal system known as the National Flood Insurance Program (NFIP). And because flood insurance is generally required for anyone wanting a mortgage on a home in a flood zone, the program is popular.
However, it has also been plagued by problems, including billions in debt, and is the subject of ongoing reform efforts. The reforms are poised to change the way people pay for flood insurance, charging homeowners more for higher-risk properties and less for houses located further from the most dangerous areas.
South Carolina flooding in October 2015. Joe Raedle/Getty Images
Work on the program has been ongoing for years, but Larry Larson — an engineer, policy advisor and founding member of the Association of State Floodplain Managers — told Inman that lawmakers have postponed a decision until after the 2020 election.
That means next year could see the first major breakthrough on the issue in years, though its also possible that some resolution could come further down the road.
Either way, though, the near-term future is likely to see climate change playing a larger and larger role in the real estate industry. Peters told Inman that the issue is already “creeping into the consciousness” of buyers and sellers, and added that he “strongly believes” it’ll become more important in coming years.
2025: Agent ranks will shrink
Russ Cofano, the former president of eXp World Holdings, believes that the number of real estate agents in the U.S. is currently at or around its peak. However, in the coming years, greater disruption and innovation will give consumers more choices.
Russ Cofano
And with a more diverse real estate service landscape, agents themselves will have to step up their game.
Some agents, Cofano argued, will succeed and continue to thrive. But over the next five years many will not.
Cofano said that when big companies are the ones creating more choices, “it will force traditional agents to become more valuable. And I think there will be many who are unable or unwilling to do so. So we’ll see the number of agents go down.”
Peters speculated that the reduction of agent ranks could be further exacerbated by the growth of iBuyers in more middle class markets.
“If iBuying really takes hold, the issue won’t be that people won’t use brokers, the issue will be more that even with broker involvement the compensation model will begin to change,” he said. “It’ll be more difficult for brokers in those environments to put together enough transactions to make a living.”
The result, Peters continued, is likely to be “fewer agents doing more transactions each” over the next five years.
2025: Commissions will drop
Cofano also said that today average gross commission rates across the U.S. are just above five percent. However, competitive pressure should drive that number lower. Cofano believes that pressure will come from at least two sources.
On the one hand, large companies are actively trying to use their scale and technology to make transactions cheaper. Think Redfin’s 1.5 percent listing fee, or the iBuyer model that theoretically allows consumers to circumvent agents altogether.
On the other hand, agents themselves will actively discount their fees, both to compete with larger companies and to boost their volume. Cofano consequently sees gross commission rates falling to “somewhere between 4.5 and 5 percent.”
“There is no question that the average commission rate, list side and buy side, will absolutely be lower five years from now,” he argued.
2025: Data will be everywhere
Rich Sarkis
Rich Sarkis, co-founder and CEO of real estate data firm Reonomy, told Inman that in the medium-term, data will be everywhere and using it will be “table stakes.”
“Everyone is going to have access to data,” he said. “I think that’s going to evolve within the next five years.”
The result, he speculated, will be an emphasis on using data to predict the future and “see around the corner.”
Rebecca Jensen
“I think we’re going to see a proliferation of applications that are made possible by common data standards,” Sarkis added.
Rebecca Jensen, president and CEO of Chicago-area multiple listing service (MLS) MRED, agreed that data will have a growing role in the medium term, adding that it will become particularly important to large companies and MLSs.
“I think that artificial intelligence and big data are something that every major brokerage is talking about as part of their strategic plan,” she said. “I don’t think agents need to be data engineers. But the MLSs need to be.”
2025: Venture capital will reign supreme
Jim Kim, founder and general partner of investment firm Builders VC, said that in the next several years he expects to see continued interest in real estate startups among venture capitalists. That’s because there is significant money to be made, while real estate “is so antiquated in many ways.”
Many of the experts who spoke with Inman for this story agreed, saying that despite recent stumbles — perhaps exemplified by the implosion of WeWork — venture capital isn’t going anywhere.
Jim Kim
The result, Kim added, will be the continued growth of newer business models such as iBuying.
Kim specifically pointed at Opendoor, saying that they “will be a significant player” in the next five years.
“They’re going to be formidable,” he noted.
Cofano agreed, saying that he too believes iBuying will grow in the next five years. And while both he and Kim anticipate iBuying continuing to have a minority of the overall market share (they didn’t speculate on exactly how much), there’s little question that the trend is here to stay.
2030: Climate change will make homeownership pricier
While climate change will likely land on the radars of more buyers and sellers in the near term, in the medium term it will almost certainly make homeownership more expensive by driving up insurance rates in flood zones.
“You’re going to see that,” Larson, the engineer and policy advisor, said. “There’s no question about it.”
Larson also explained that even after lawmakers pass reforms to the NFIP there “will be winners and there will be losers” as some property owners are forced to grapple with rising costs.
A flooded neighborhood in Iowa. Credit: PickStock and Getty Images
Further down the road, Larson expects to see greater attention on mitigation, which he said offers six to one cost benefits over insuring and then bailing out flooded homeowners. He additionally floated the idea of adding a modest transaction fee to every real estate deal in the U.S., then using the proceeds to pay for climate and flooding management. There are political obstacles to these solutions, but long term they make sense, he added.
Larson also expects the financial industry to push back against housing in climate change-affected areas over the next decade — which could cut off buyers’ abilities to get mortgages.
“You’re already seeing companies like Moody’s saying they’re not going to invest in real estate in high risk areas any more,” he explained.
Flooding is only one part of the climate change equation, of course, but homeowners affected by other disasters such as wildfires have also already begun to see their insurance costs skyrocket. Over the next decade, that trend is likely to continue — potentially pricing people out of areas they might otherwise have lived in.
In other words, while the policy specifics are still to be determined, it’s clear that climate change is going to drive up the cost of homeownership over the next decade.
“A lot of people in some of those districts are going to get hammered pretty bad,” Larson concluded.
2030: Augmented reality will arrive
Remember Google Glass? No?
You’re probably not alone. Augmented and virtual reality have looked like the next big thing for a long time — Nintendo debuted its Virtual Boy console in 1995 — and yet the technologies are still struggling to break into the mainstream. Sure there’s Pokémon Go and virtual staging is a growing sector, but for the most part you still can’t easily get digital information overlaid in real time on the real world.
However, Sarkis thinks that may begin to change over the next decade.
“I think you’re starting to see applications there, on a give or take 10 year horizon,” he told Inman.
An example of augmented reality in which digital information is superimposed on the real world with a tablet. Credit: Prasit photo and Getty Images
Sarkis said that there have always been good potential uses for augmented reality, but that as phones become more powerful — both in terms of their cameras and computing power — innovators will rise to the occasion and develop new ways to deploy the concept.
“I think that is a frontier where the hardware is going to enable a hole bunch of software applications,” he explained.
2030: Builders will be more connected
Kim, whose firm invests in a number of construction-related startups, said that by the end of the next decade he expects software to have fully infiltrated the construction industry. That should translate into greater efficiency and savings, as well as more transparency for property owners.
A man uses a tablet on a construction site Credit: Morsa Images and Getty Images
“Ten years from now I’m hard pressed to think of a general contractor who is going to be using much pen and paper,” Kim explained.
However, he thinks it will take even longer before things like 3D printing and prefabrication fundamentally change construction. That’s because those technologies have a much higher barrier to entry and involve more physical processes, and because they’re largely still in the experimental phase now.
“I think some of the prefab stuff will be closer to customer adoption than the 3D printing stuff, but I don’t think they’re a next ten year thing,” he added. “I don’t think Home Depot is going anywhere.”
2030: Consumers will demand more
Ryan Gorman — who is currently the CEO of Realogy’s NRT subsidiary but will soon assume the top spot at a newly unified Coldwell Banker — predicted that over the next decade “consumers will continue to seek trusted advisors.” But agents who want to have jobs will need to offer more value than they do today.
Ryan Gorman
“I think by 2030, expectations will be much, much higher,” Gorman told Inman. “I think that [agents] will remain central to the transaction, yet what’s surrounding that advisor and what they’re bringing to bear will be pretty different than what it is today. What our parents didn’t think to ask of agents are things that our kids will think should be demanded of every agent.”
This situation may lead to “a very bright future for those who stay current and push the trends forward,” Gorman added.
For everyone else who doesn’t stay up to date, though, times could be tough.
“I think for those who don’t — which candidly might be a significant portion of the population — then, no,” Gorman added. “I think they’ll see their business decline to a place where they’re uncomfortable continuing.”
Clelia Peters, president of Warburg Realty and editor-at-large with Inman, agreed, saying that as consumers demand a higher degree of professionalism she could see agent ranks shrinking by as much as 30 percent to 50 percent.
Beyond 2030: Blockchain will (maybe?) be a thing
The impact of blockchain on real estate has been hotly debated for several years now. The technology is what underlies cryptocurrency bitcoin, and in essence it creates a secure ledger that some people believe could make transactions safer and more efficient, among other things.
Zach Aarons
But despite some wild dreams that are based on the technology, blockchain has yet to have anything close to a paradigm-shifting impact on real estate.
Zach Aarons, co-founder and partner at venture fund MetaProp, thinks that will change, though it will take decades.
“Eventually every real estate transaction will be digitized and transacted on some lightning fast ledger,” he said. “But I think the time horizon is so long that I’m not actively looking for blockchain real estate investments. I’m talking like 20 years.”
Beyond 2030: The idea of home will be redefined
Since the end of World War II, the U.S. has taken a relatively consistent approach to housing: Consumers have been encouraged to buy their own homes, which provided them with both security and a pathway to greater wealth.
But Peters thinks the coming decades will turn that idea on its head.
Clelia Warburg Peters
“I think for a variety of reasons people may be less focused on the idea of being true owners of their homes,” she told Inman.
Instead, Peters envisions a future in which consumers own portions or shares of their home, while investors own the rest. This idea already exists, but Clelia said it will become more popular in the decades to come as both consumer and investor preferences evolve.
“You’re going to see a proliferation of tools that let people buy into a portion of the equity of their homes,” she told Inman.
At the same time, Peters believes renters will gravitate toward the concept of the “home as a service.” That means, in other words, increased interest in amenities, greater lease flexibility and “more people opting to rent fully furnished homes,” among other things.
For example, Peters proposed a hypothetical scenario in which a renter pays 12 months of rent, but that rent provides access to a variety of units owned by the same company in multiple parts of the country. The renter then gets to choose where he or she spends time — blurring in many ways the distinction between the hospitality and real estate worlds.
“It’s really going beyond what I expect the person to provide is an empty space to expecting a home to be provided for me as a service,” Peters added.
All of this — shifts in both ownership and rental models — will be facilitated by companies that see homes as “one of the final frontiers for penetration of their services,” Peters continued. And she believes that there are enough consumers who will gravitate toward these concepts that they could have a significant impact on the real estate industry of the future.
“I think people just want things to be easy,” she added, “and they’re willing to pay for them.”
Are you ready for what the industry holds in 2020? Inman Connect New York is your key to unlocking opportunity in a changing market. At Connect you will gain insight into the future, discover new strategies and network with real estate’s best and brightest to accelerate your business. Create your 2020 success story at Inman Connect New York, January 28-31, 2019.
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