To understand where innovation is likely to occur, it is helpful to first look at what major trends are impacting an industry. We have all seen much (obvious) change over the past few years. But other, bigger changes have been happening over the past decade. These shifts were hidden, occurring in the background, and were less obvious. Combined, however, is creating a “perfect storm” to drive innovation in the Real Estate industry.
To better understand what is happening, let us first look at the major trends that have been happening for quite some time, starting with demographics.
The Demographic Shift
For this article, the following demographic terms are referenced with the accompanying years when these individuals were born:
- Generation X: 1965–1980
- Millennials: 1981-1996
- Generation Z: After 1997-2012
We all know that the world’s population is aging. Improvements to healthcare and an overall improved standard of living have extended the average age that people are living. What is not as well-known is how fast this shift will change the demographic makeup of home buyers over the next decade.
Households headed by someone over age 65 will comprise 34% of all households by 2038, up from 26% in 2018 (source), reflecting an increase of 31 percent. According to a survey conducted by AARP, more than three in four Americans over age 50 expressed a preference for aging in place (source). The reasons stated were concerns about affordability and wanting to stay in their current neighborhoods.
Further, there has been a decline in nuclear families among Millennials and Gen Zs in addition to a rise in multigenerational or group living arrangements. These shifts, combined with an increasing pattern of retirees aging in place, will reduce demand for new single-family homes. This imbalance will soon become more pronounced.
Most of the real estate industry, however, is still building traditional homes for nuclear, white families. An increasingly diverse race mix and changing demographics are driving a need for different housing stock. This change has only accelerated with the growing affordability crisis in the US as Americans are increasingly “doubling up” to reduce housing costs. These factors are driving innovation in the Real Estate industry on how to cut costs and simplify transactions to purchase a house when it increasingly will be first-time buyers.
Remote Working
COVID dramatically changed how employers operate and serve their customers. It also impacted how and where new employees are hired and how they work at home. While not every business can operate remotely, this shift is driving innovation in the Real Estate industry. New space utilization is needed. Small one-bedroom apartments in high-density urban environments are less appealing. Young families with children must increasingly manage their families while working from home.
Another emerging repercussion is also occurring. Fewer relocations will happen when people change jobs. Employees gained power in today’s “great resignation.” Future job offers or promotions will be contingent on the ability to work remotely to avoid leaving existing residences. This will also contribute to a lower expected volume of transactions that will occur over the next 10 years.
Greater Security Threat
We live in a more dangerous world today. The Russian-Ukraine war has only heightened criminal activity online with large, state-sponsored initiatives to fund an expensive operation. Cybercriminals are getting increasingly aggressive and smarter with how they operate across the globe.
Cybersecurity is now the top concern for every business today. No firm is safe. Ransomware attacks and the theft of data are increasingly common. Service providers must frequently perform audits to ensure systems are secure. More investment is needed in new systems to offset this threat. This has created an environment for continuous innovation to defend against the latest threat.
This shift is having a significant impact on how service providers operate and what customers expect – especially Millennials and younger Gen Z buyers. From hosting websites on “HTTPS” domains to offering two-factor authentication to access online accounts, this is a giant trend that is forcing Real Estate and Title Insurance industry firms to invest in system upgrades.
How Are These Trends Impacting the Industry?
Expect the above-described trends to impact the Real Estate industry as follows:
- Fewer Real Estate transactions will occur (triggering an industry consolidation)
- Higher expectations will emerge for a seamless, digital experience
- Greater focus on security will be expected (and lead to an increase in regulations)
The industry will respond – and innovation will lead the way. This is always how it happens. The firm that is first to embrace a change will gain a first mover advantage. This will create an enormous incentive for other industry players to pivot and take advantage of a new market opportunity. Those with legacy systems will struggle to keep up.
Industry leaders serving the Real Estate, Title Insurance, and other supporting industries are responding now by investing in innovation that can address these challenges quickly by:
- Automating systems and processes to streamline the ability to deliver a better user experience and apply digital security safeguards at an increasing rate – most often done behind the scenes – to not negatively impact the customer experience.
- Investing in Artificial Intelligence, machine learning, and other AI-based technologies to improve how service delivery is provided, how back office operations are performed, and how security is applied to continue to compress the time required to complete a real estate purchase.
- Racing to scale digital investments over a larger customer base, laying the groundwork for industry consolidation. With an ability to operate larger systems, faster and with greater efficiency, industry leaders will acquire rivals in the race to consolidate to improve market share profitability.
The younger average age of the next decade’s homebuyers will decline even though the average age in the world is increasing. As fewer people move, a smaller number of transactions will occur. The predominant buyer will increasingly be a Millennial or Gen Z with a digital native mindset. Those firms that embrace buyers with this “technology” worldview will emerge as tomorrow’s leaders. Industry consolidation will then follow, just like what has already occurred in so many other industries over the past two decades of digital transformation.
Fortunately, there is still time to act. Most firms already have some sort of digital transformation strategy in place. The important thing is to keep investing and staying current with industry innovation.
To learn more on disruptive trends, read 3 Ways Technology Disruption Forever Changed the Real Estate Indsutry.