Can you feel it? It’s been going on for quite awhile. Now it’s getting stronger. It’s the seismic shift in the world of real estate. It’s affecting real estate brokerage, home ownership, commercial real estate and even land use.
In 1954, Mississippi passed a law requiring licensing and regulation of real estate brokers and salespersons. That was followed by creation of the multiple listing services by real estate associations. It resulted in significant control of information and who represented whom in transactions. The chain’s links were owner, listing broker, and selling broker. Most brokers charged owners the same percentage of the selling price regardless of what the property sold for. Listing and selling brokers split commissions, usually 50/50 at a rate that didn’t change for a long time.
Things didn’t change much until the 1970’s when some real estate agents announced that they would represent buyers instead of being subagents of sellers. An important and significant shift that many contend more accurately disclosed who had been representing whom all along. Controversial initially, but eventually standard practice, with forms provided by many state licensing agencies.
Now comes, litigation about fees themselves. Recently, The U.S. Department of Justice sued the National Association of Realtors(NAR) accusing it of maintaining anticompetitive rules, alleging those rules created an environment in which there was little visibility for home buyers about the commissions a buyer’s agent would earn. A settlement was reached, with the NAR admitting no wrongdoing.
Home ownership rates are declining. The highest rate nationally was in 2004 at 69.2%. That rate has been dropping each year since and now stands at 63.9% Mississippi’s highest rate was around the same time at 72.1%. Today, the Magnolia State’s rate stands at 68.2%, according to the U.S. Census Bureau, American Community Survey. That’s the 15th highest in the country. West Virginia comes in first in the current home ownership rate at 72.5%. The home ownership data is not surprising when one considers the effect of the Baby Boom.
Something else is affecting current home ownership rates that is more cultural than purely demographic. It seems that the millennial generation is not the home buying kind. It is said that job insecurity is one reason. Today’s workers change jobs and even careers more frequently than previous generations. They also don’t marry as frequently and wait longer to establish a permanent residence.
That brings us to the next shift. A new phenomenon is taking place place across the country, to wit, corporations buying residential real estate and renting it instead of flipping it to a new owner. (Flipping is yet another shift.)
Home ownership is grounded in residential neighborhoods. Those neighborhoods are becoming more the place a rental householders instead of owners.
Invitation Homes, Inc., the country’s largest rental-home owner (about 80,000 houses) has been buying at a clip of roughly $200 million a quarter since a pause at the onset of the coronavirus lockdown. According to an article in the October 7, 2020 edition of the Wall Street Journal, the company disclosed a joint venture with Boston property investor Rockpoint Group LLC that will result in more than $1 billion for Invitation’s ongoing house hunt. The deal will provide enough cash to buy 3,500 more homes.
Conrex Property Management, “a full-service acquisition, renovation, and property management company growing throughout the South and Midwest,” has expanded into Mississippi. As of this writing, its website www.rentconrex.com, lists 35 properties for rent in the Jackson metro area. The company makes it easy for prospective tenants to rent a home by even going through the process on their smartphones. According to an article in the July 11, 2019 online article in the Clarion-Ledger, Conrex “has quietly purchased more than 500 house throughout Hinds, Madison and Rankin counties, raising concerns about property values and the longterm outlook for those properties.”
Another shift affecting neighborhoods is the emergence and growth of Airbnb, which is having a significant impact on the changes in use of residential real estate worldwide. While providing a way for residential property owners to make money by renting out their properties for short periods of time, problems have arisen. Properties have been the scene of large gatherings and loud parties, as well as places where large numbers of people have been housed. Many cities have passed regulations as a result. The lodging industry is upset. Parties are disrupting neighborhoods.
What will happen about Airbnb? No one really knows at this point, but it’s safe to say that there will be increased local regulations. Airbnb has responded by emphasizing to property owners to check local regulations and how to be good hosts. The company now lists over 50 cities in the United States that have passed ordinances or regulations directly affecting rental of private property. No cities in Mississippi are on that list, however that doesn’t mean local rules don’t apply. Ridgeland, for example, prohibits renting a residence for less than 30 days. One thing we do know is that the company went public on NASDAQ on December 9 in an IPO that opened at $148/share before shooting up to $160/share. That translates to a valuation of $3.5 billion.
These and other seismic events are affecting the real estate landscape in profound ways. And the rumbling continues.
Part 2 of this column will discuss the commercial real estate shift, remote working and coming evictions.
» PHIL HARDWICK is a regular Mississippi Business Journal columnist. His email address is firstname.lastname@example.org.