267 Audio Only
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Welcome back to the What's Your 1 More podcast. I'm your host, Quinton Harris. You're dialed in for episode 267. Welcome back [00:00:05] to the show. So how close are we getting back to 2019? Could you argue that [00:00:10] 2019 was a normal timeframe for real estate? I think that. We've got that more in this episode [00:00:15] at What's Your One More.
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So when we talk about industry life cycles, I think it's real important. I'm gonna [00:00:25] throw an image up on the screen here, and it defines the four primary phases of a industry cycle. [00:00:30] And the reason I bring this up is 'cause every industry seemingly goes through this. You know, we start at an era [00:00:35] of normal or normality, and then all of a sudden there comes this expansion because [00:00:40] the calm in the market.
it basically creates this, opportunity for expansion at some [00:00:45] point, right? And expansion. The industry grows and in business and profit, and all of a sudden [00:00:50] you start seeing more opportunities, and companies expand. And then this era of chaos will take [00:00:55] over. And chaos is a growth that just attracts more competition at [00:01:00] ridiculous rates.
They come out of nowhere and startups are very easy during this time. You see a lot of venture [00:01:05] capital money come in, A lot of moonshot funds, expansions are a thing that kind of [00:01:10] really take over a market, right? And these expansion phases can last for a long duration, but eventually [00:01:15] they will come around to the consolidation phase, and this is where profit starts to constrict the market volume [00:01:20] starts to constrict, and you have mergers and acquisitions that take place.
This timeframe can last for. [00:01:25] Anywhere, six months to six years and then you make your way back to normal. And these are the four patterns, [00:01:30] four phases of an industry life cycle that I see. So lemme give you an example and of an [00:01:35] industry that lasted a really long time in these cycles, right? So let's start with the airline [00:01:40] industry normal in the eighties was you would call a, travel [00:01:45] agent and you would say, Hey.
I'm looking to travel, blah, blah, blah. Help me find an airline. And at [00:01:50] that point, their job was to find you the ideal vacation package, travel package that [00:01:55] fit your needs, but also around the timelines in which you wanted to depart and arrive, and they would see [00:02:00] and go find out all of that information.
And then expansion started and the travel agents started to [00:02:05] become less and less used and you know in the early two thousands, late nineties people started goingmore [00:02:10] online, and you would look at comparison sites that would do the shopping for you, right? [00:02:15] Progressive Insurance was a, a come to the market that kind of drove that, Hey, we'll show you everyone else's price plus our price.
Quinton: [00:02:20] But back to the airlines. You had all kinds, you had, kayak, you had Expedia during this [00:02:25] time and they were doing very well. And then expansion started and you started [00:02:30] having Orbit Nome. And all of these websites started not only comparing to airlines, [00:02:35] but rental cars, places in which you could stay for hotels.
So it, it just created [00:02:40] this wild expansion error. This lasted a really long time, and then [00:02:45] consolidation kicked in the mid to late 2010 era, [00:02:50] and now all of those sites are owned by two. Two [00:02:55] companies own all of those sites that are out there right now. And it's interesting how that consolidation phase brought it all together.
And [00:03:00] now for the most part, statistics show when you go to book an airline ticket, most people go [00:03:05] directly back to the airline's website and book it directly. That industry cycle came full circle back to [00:03:10] normal. And obviously the person that's left outta this is the travel agent. But it went full circle back to [00:03:15] going directly to the airlines versus circumventing the airlines and going other places.
Well, real estate has the same [00:03:20] cycle, whether it's mortgage or whether it's real estate. We have the exact same cycle. It's just [00:03:25] the only difference is sometimes arcs can be accelerated by government policies or it can be [00:03:30] detoured by, actions that happen outside of our control. but the cycles live on.
Right. And I've been doing this for [00:03:35] 25 years and I can point to three of these cycles that I've seen, and I feel like we are in the [00:03:40] consolidation phase of real estate right now. We're coming out of the consolidation. You know what I'm saying is there's a [00:03:45] light at the end of the tunnel that is so visible right now that I feel like we haven't seen in probably three years.[00:03:50]
And I think we're on the tail end of consolidation. Now, you could argue that maybe this [00:03:55] gets dragged out a little bit more with what's going on overseas. but th this seems to have a, this seems to [00:04:00] have a little bit of, deterrent. But I don't think it's gonna stop the normality from coming back.
Right. It just, it [00:04:05] could escalate it if this thing overseas becomes, a wrap and it's done right. and whatever that [00:04:10] means, by the way. Just less escalation. Right. There's some finality over there. This could speed this [00:04:15] up, but getting back to the point, the point is we're coming outta consolidation and I think that this is good to get back to [00:04:20] normal.
So let me define where I think normal started and how we got to where we are [00:04:25] today and where I think we're going. I think normal was 2019. I think you could argue in the mortgage [00:04:30] profession and the real estate space. 2019 was a very normal time. We had normal transaction counts. We had a [00:04:35] very healthy, balanced market.
We had the seasonality of the ebbs and flows. you had the rise in the [00:04:40] March season. The peak in the June Julys and then coming off of August back into school season. Then you had [00:04:45] the Santa Slump back into the New Year's, right? This was normality in every market and it felt [00:04:50] comfortable and everybody was having some consistent numbers and consistent transaction counts.
maybe you were [00:04:55] off one month, but you can guarantee the next month the pipeline was there. We haven't seen that kind of normality [00:05:00] since 2019 because what happened was coming out of that, I could argue [00:05:05] probably you could too late Q1, 2020. we came out of that going into April [00:05:10] of 2020, especially May of 2020 expansion.
Started. The [00:05:15] numbers were off the charts. It wasn't chaotic yet, but the numbers were off the charts. [00:05:20] And the count of mortgage lenders, the registered number of what we call mortgage loan [00:05:25] originators, the mlo, the numbers weren't quite as chaotic as they became in 21. [00:05:30] Same count for real estate agents.
In 21, it became chaotic. We had, in [00:05:35] February of 21, there was a peak of license originators. It was over 320,000. [00:05:40] Today we stand at about 176. so you could say less than half. at [00:05:45] that time it was doubled at 3 21 from where we are today. Real estate agent counts were all time highs during that [00:05:50] time. It was chaotic, lots of competition.
Everybody wanted to get in and be a part of that. [00:05:55] And that went on till probably late Q1 22. you could [00:06:00] say, I think the pipeline started to fizzle out in April and May because the rates started to rise a little bit. We started to [00:06:05] see some, We started to see some compression in the market and things became more competitive.
22 [00:06:10] was still in the chaotic phase 23, late [00:06:15] 20 or late 22 early twenties when the consolidation phase started. And in real estate, one of the largest [00:06:20] consolidations that took place during this time. We'll pull up here. Was, really in [00:06:25] 2025 when it finalized in 2026. and the reason for that is gonna [00:06:30] be the merger between, compass and Anywhere, right?
That was one of the largest real [00:06:35] estate mergers that we saw on file because you took a huge organization like anywhere [00:06:40] that accounted for quite a few,how you say. Companies in itself from Century [00:06:45] 21 to Caldwell Banker to Sotheby's, all under that one umbrella, anywhere real estate. [00:06:50] And then Compass came in and got all of that in a merger and acquisition.
And [00:06:55] even you could say another one that took place during that time was Stone Point Capital that came in and took over the [00:07:00] majority of ownership of Keller Williams. these were consolidation phases that we were living [00:07:05] in 25, and here we are in 26. we're starting to see less and less of the mergers and [00:07:10] acquisitions.
I say that, but then today, as I'm sitting here right now, this is Monday, April [00:07:15] 27th, last week,re max was. Was purchased by real brokerage for [00:07:20] $880 million. Another consolidation that happened, and I look [00:07:25] at this because this is the signs of getting back to normal once the consolidation phase [00:07:30] runs its course.
And I think it's, I think that's probably one of the last ones you're gonna see. 'cause it was one of the last [00:07:35] major brokerages that were massive out there. assuming Compass doesn't gobble blood real, and you [00:07:40] can only keep going for so long. But the reality is that we're on that tail end.
You can say the [00:07:45] same thing, the mortgage space. look at what Rocket acquired. Rocket Morgan acquired a large servicing [00:07:50] platform of Mr. Cooper. look at what UWM and Cross Country were recently fighting over with [00:07:55] Two Harbor, trying to get that servicing platform right? So you're seeing a lot of mergers and [00:08:00] acquisitions on servicings from the mortgage lenders.
and it's a race to who can own the data and who can own the customer to try [00:08:05] to get that refinanced. So the question is. why are we in this consolidation phase? Well after this [00:08:10] quick commercial break, we'll be right back with that breakdown.
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Quinton: Hey, so welcome back. Love that sponsor we got right there from Texana [00:09:15] Bank of their REMLO program. Second to none trademark pending. It is an amazing thing, if you want more [00:09:20] information that like the commercial said, go to Remlo program.com, or shoot us a quick DM at the show here. Would love topoint you in [00:09:25] the right direction.
Massive opportunity for the agents that are taking advantage of that dual capacity. Done right? Love [00:09:30] that program. Alright, so why are we having these consolidations? Well, let's start back on the mortgage side, right? [00:09:35] When a mortgage lender attempts to acquire a servicing platform. [00:09:40] They're buying future opportunities, right?
They're buying, not necessarily leads, but they're buying future [00:09:45] revenue. And then in hopes of maintaining that revenue, they're gonna wait for a rate drop in [00:09:50] refinance with what we call, I don't like the word churn, but, imagine a portfolio that you have a high [00:09:55] percentage of refinancing them. You're gonna collect fees on the refinance.
You're gonna put them [00:10:00] back into your portfolio, into your servicing platform again, and you'll continue to generate revenue off of that. And [00:10:05] buying larger ones gives you opportunities on your hedge to help offset any future rate [00:10:10] hikes as well. So there's a lot going on on that particular space and the race to the massive lenders to [00:10:15] get bigger.
Is one like I've never seen before. and I think that presents huge [00:10:20] opportunities in the market. I also think there's some scarcity going on because a lot of lenders right now are [00:10:25] not keeping their paper that they book, they deliver it to another lender. They sell in the secondary. and they do [00:10:30] that because the pricing and the premiums are better than servicing or selling direct to the agencies at the [00:10:35] current moment.
Right now, the agencies being Fannie and Freddie. That will change, that will pivot. It always [00:10:40] does, but in the current environment, it doesn't make sense for a small to mid-size lender to try to run in that space. [00:10:45] The massive ones have the, I would say, have the advantage in that particular play. But back to [00:10:50] real estate, why would they be consolidating?
Right. Well, I think for the longest time you had these pillars in real estate. [00:10:55] You had the Kels, you have Caldwells and these, I'm not talking about the independents, the people that have franchises. I'm talking about [00:11:00] the big companies that are just strictly attached to that. Right? You had the pillars. [00:11:05] And then you had Keller, you had Coldwell, you had re max, you had Century 21.
and Sotheby's.and then all of a sudden [00:11:10] there's some big new players over the course of the last 10 years that came outta nowhere. Compass being probably the biggest one. [00:11:15] Right. which was a venture capital startup. Then you had, real come out of nowhere.
And they [00:11:20] all are very funded. They don't have a huge legacy of situational [00:11:25] contracts, et cetera, that they have to deal with. They have opportunity. And the one thing that we [00:11:30] know about a downward trending market, and you could argue these numbers are down right now compared to what they were four years [00:11:35] ago.
It's not a down market. They're just down from where they were. Post COVID, everybody is. You gain [00:11:40] market share in a downward trending market, that's exactly what they're doing. And so by [00:11:45] consolidating and getting in there, it presents opportunities, but it also gives, I think, the franchise [00:11:50] companies an upper hand, meaning that, let's say you work, let's say you own a franchise, a Caldwell.
[00:11:55] Keller, you have the upper hand because, just 'cause someone came in like Stone capital and purchased the majority [00:12:00] shares of the organization. If you're a franchise, you don't have to necessarily stay there. [00:12:05] You don't have to agree to the new terms of the contract. You control the destination, put a new sign on that [00:12:10] door, and as long as your agents are good with it, you can go pivot to another place.
So I think it gives those [00:12:15] franchisors an upper hand in this particular situation, good or bad, right? The other thing is, the reason this [00:12:20] is getting done though, is because getting more, chances to eliminate the competition and bring people [00:12:25] under one presents you about a wider net to cash to the general public, which also gives you an opportunity to generate [00:12:30] more revenue, because if you become the last man standing or the first to market, you're going to win out in this.
And so [00:12:35] that's how consolidation works. And as we come outta that consolidation phase back to normal, right? [00:12:40] This is what the market. Presents as an opportunity when you get back to normal. [00:12:45] Because coming outta consolidation, I always say if you're one of the ones that didn't get consolidated, [00:12:50] you may stand a greater chance in that next wave of normal to expansion to [00:12:55] actually do something completely different or that was never thought of or that you didn't think you could do because you [00:13:00] actually survived the consolidation phase.
I also believe this in the consolidation phase, I think there's [00:13:05] massive opportunity there to be had, especially if you're the consolidate or not the consolidated [00:13:10] because. Again, you're gaining market shares and if the market share is down, let's say [00:13:15] 20%, and you just took over 10% of the market, well when it goes back up, your elevated [00:13:20] 10 is much greater than it was at that lower percentage.
So that's another reason you see a lot of the [00:13:25] consolidation take place . But going back to the lifecycle here, I think this is really important. Any industry that you're at [00:13:30] coming into normal is going to be a new normal. I had someone tell me, they were like, Hey, you can't count [00:13:35] COVID when you talk about this because where we are right now, we've never seen anything like it before.
And I'm like, you're [00:13:40] right. And it's because of what happened in COVID. Like we're literally paying the piper now with some of the things [00:13:45] that we're dealing with because of COVID in our industry. And then, obviously the buyer has, and the seller [00:13:50] has a different psyche now than they did. In 2019.
So that normality is going to change a little bit, but [00:13:55] getting back to normal as far as consistent amount of transactions, consistent amount of inventory, consistent [00:14:00] amount of opportunity that is coming, and you're gonna see a little bit with some rate relief, but it's not gonna be anything [00:14:05] significant.
But normal is more clear and more in the future than I've seen than ever before over the last [00:14:10] three years. Last year's been pretty cloudy, starting to remove that and see some lights there. So I'm very excited about that and wanted to share it [00:14:15] with you guys. If you like what you're hearing, please share this podcast.
If you would give us a five star review on any platform that you're [00:14:20] listening to. Especially on Apple, especially on Spotify, that's where we get the most, bang for our buck there. And if you're [00:14:25] not a, if you're not a podcaster, check us out on YouTube. But What's Your, One More with the number one our platform If you would subscribe and [00:14:30] like, we'd love to hear back from you on there.
Until then, hope you guys have a great one. We'll see at the next episode of What's Your One More
Speaker 4: I [00:14:35] got one more shot. I'm gonna make it one more chance. [00:14:40] [00:14:45] [00:14:50] I'm.
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