At the Future of Real Estate Summit (FORES) held in January 2020, Qualia CEO Nate Baker sat down with Williston Financial Group (WFG) founder Patrick Stone. The pair discussed the future of the title and mortgage lending industries.
Stone, who is known for his extensive and prophetic knowledge of the real estate market, shared his predictions around consolidation, technology adoption, and an impending economic downturn. (Click here to read Stone’s predictions from FORES.)
In the five months since FORES, much has changed. The coronavirus upended real estate transactions and catalyzed swift action and innovation among many mortgage lenders and title & escrow businesses. We recently spoke with Stone again to discuss his past predictions from FORES and how his predictions have shifted due to an unprecedented pandemic.
Technology as a stabilizing and uniting force during COVID-19
In January, Stone said technology that drives efficiencies and lowered fixed costs would help businesses run more lean operations in the next economic downturn. The downturn came much quicker than anyone anticipated due to the unpredictability of the coronavirus; however, Stone accurately predicted the value of technology during a time of strained resources.
While title & escrow operations were declared essential services by the federal government, local shelter-in-place orders and social distancing measures made real estate closings especially difficult. These challenges were mitigated through the use of cloud-based technology that enabled remote operations among title & escrow professionals.
As a follow up to the FORES discussion, we asked Stone what role technology will play during the current and continued volatility of COVID-19. “The awareness and need to operate digitally has increased dramatically and so has investment [in digital solutions],” he said. “The focus on data has also gone up phenomenally since the pandemic. I believe now we will see data being of paramount importance.”
Stone also commented on how coordination challenges are dissolving as the industry turns toward digital solutions during COVID-19. “Never have I seen more collaborative conversations than now about how to make the [real estate transaction] process more efficient and streamlined,” Stone said.
Consolidation: a continued trend
In January, Stone said that consolidation would accelerate in the next downturn. This consolidation would be driven by increased state-level oversight which would cause underwriters to dig more deeply into their agents’ files, thereby overburdening some title & escrow operations. Stone noted that consolidation would also be driven by the increased need for cyber security and other compliance requirements that would eventually shrink the pool of title operations.
In our most recent discussion with Stone, he said that he still expects consolidation to play a role in the current economic downturn (and for many of the same reasons); however, the rate of consolidation will be difficult to fully predict due to many unknowns associated with the coronavirus. For example, the economic impact of the pandemic will vary across state lines as governors enact different timelines for reopening. Additionally, it’s still unclear if a second wave of the virus will take place and how it will impact local economies.
Lenders will see a narrowing of technology vendors
At FORES, Stone noted that lenders typically drive the speed of change in the real estate market. Again, Stone’s assertions were correct. Lenders, who had previously been slow to adopt eNotes, registered a record number of eNotes in March 2020 (the first month of the coronavirus). Lender acceptance of RON enabled title & escrow businesses to move forward with remote closings as well. According to data from ALTA in 2019, only 14% of title companies offered some form of digital closing. A few months later, ALTA released new survey data which indicated that nearly 30% of title agencies offered digital closings during COVID-19.
In our recent discussion with Stone, he provided his predictions on where lenders will focus their digital investment post-coronavirus.
Stone said that due to the high volume of refinance transactions during the low interest rate environment of the pandemic, lenders are paying more attention to verification of income (VOI) and verification of employment (VOE) among borrowers. As a result of this (and other demands for similar technology that enables security and accuracy), lenders are getting much more specific about their technology needs. He predicts a narrowing of technology vendors among lenders as a result of these specified demands.
“We [as an industry] are slow to learn things,” Stone said. “However, I do think there is greater awareness of the need to make the process faster, more efficient, and cost effective.” Stone predicted that lender investment in technology to solve coordination problems will continue to grow.
Purchase trends after the pandemic: a potential surge in homeownership
To wrap up the discussion, Stone ended with a prediction for a resurgence in homeownership coming out of the coronavirus. In the past decade, millennial homeownership rates fell 20% while rent figures drove upward at an exponential rate.
“This pandemic has put in the center of [millennial’s] minds the importance of owning a home,” he said. The psychological impact of being in a small, rented space in a lockdown became very real for many millennial renters who had previously prioritized mobility over homeownership.
Stone believes that the starter home subdivisions popularized a few decades ago will come back. “Once those come back the affordability will be much more reasonable for a lot of homebuyers,” he said.
Overall, Stone’s predictions indicated a positive outlook for real estate. Despite the devastating impact of the coronavirus, the real estate market will likely see growth and innovation. These changes will arrive as a result of new demands among consumers, lenders, and title & escrow businesses post-pandemic.