The oldest among the post-millennial cohort are already entering the real estate market, with 13 million expected to soon become credit eligible. Will the current homebuying process meet their expectations?
Algorithms, Hamilton, iPad, true crime, two royal weddings, K-pop, the Ice Bucket Challenge, binge-watching, Pokemon Go, the dress, podcasts, so many superhero movies, and a whole lot more — no matter how we look back on the 2010s, I think we can agree they were a whirlwind.
A lot of changes happened in the real estate industry in the last decade, too: as smartphones and mobile apps saturated our lives (think: Uber, Amazon, Postmates, and Airbnb), the ubiquity of on-demand anything transformed how we do almost everything, including the way we shop for homes. As Jeff Andrews writes in Curbed, in the past decade or so, Zillow and Redfin evolved from simple, real estate search engines to powerhouse platforms with a myriad of attached services. Technology also transformed the search experience: The internet of things now gives people access to homes without needing a real estate agent or homeowner to let them in, and virtual reality now allows people to tour a home from the comfort of their couch.
If the 2010s changed how we search for homes, the 2020s will certainly change the way we buy them. And that’s not just guesswork: Numerous, venture-backed startups have entered the real estate technology space — many of them iBuyers — each trying to eliminate the seemingly endless pain points that are part of the current homebuying and selling process. And that work is timely, if not a tad late: As the next generation of homebuyers — that is, Generation Z, born between 1997 and 2012 — fully enters the market, they’re going to expect a process free of those pain points. Why? Because they’ve never known a world without digital connectivity, and that’s the experience they have each day with their most-loved brands.
According to a Morning Consult report, Generation Z is on track to be the largest, most ethnically-diverse, best-educated, and most financially-powerful generation ever. In the coming years, their distinctive habits will play an outsized role in shaping American culture and commerce. And they expect a lot from their customer experience. Their most-loved brands include Google, Netflix, YouTube, Amazon, and Oreo. Four out of five of those brands are tech companies — tech companies that constantly change and innovate to meet the needs of their customers. But according to experts, the incredible customer experience provided by those brands has been slow to make its way to the mortgage industry.
Paraphrasing Andrews, one of the reasons may be that the post-search stage of the real estate transaction is still largely done through offline paperwork, often requiring resubmission of the same information to multiple parties. Blend President and former Fannie Mae CEO Timothy Mayopoulos wrote earlier this year about the three forces modernizing lending, noting that consumer expectations are growing exponentially, but in the mortgage space, consumer expectations are generally not being served by mortgage providers, despite the fact that it costs more than $8,000 to originate a mortgage.
“In order for the lenders of today to be the lenders of the future, financial institutions must meet these new expectations,” Mayopoulos wrote. “This will be accomplished largely through technology. Consumers want to be able to perform all aspects of homebuying in a manner that is consistent with shopping for other goods and services. They expect it to be simple; they don’t care about regulatory complexities that lenders face any more than they care about the logistical difficulties that Amazon faces in getting the product to you in less than 24 hours.”
The consumer finance industry has recently seen an assortment of companies grow in popularity, largely due to the fact that they figured out how to deliver that fresh, tech-company customer experience. Companies like SoFi, LendingClub, and Affirm challenge traditional lending. Robo-advisors like Betterment, Ellevest, and Wealthfront challenge traditional investing. Simple, Varo, and Chime challenge traditional banking. But it’s not only a game for the newcomers. Goldman Sachs — celebrating its 150th anniversary this year — launched its consumer banking division Marcus in 2016 and has seen $55 billion in Marcus deposits since then. This year Goldman Sachs also partnered with Apple to launch the Apple Card. These new and more seasoned consumer finance companies alike are setting a new standard for the “way of doing things,” taking complicated processes and making them incredibly simple, transparent, and digital. They are evolving to meet customer expectations, especially those of the younger generations.
According to a recent TransUnion analysis, at least 8.3 million first-time homebuyers will enter the mortgage market between 2020 and 2022. And the Gen Zers are coming. Another TransUnion analysis from earlier this year reports the number of Gen Z consumers with a mortgage — that’s right, there are already Gen Zers buying homes — rose by 112 percent from the second quarter of 2018 to the second quarter of 2019. The number of Gen Zers who are credit eligible (meaning they’re 18 years or older) climbed to 31.5 million in the second quarter of 2019, and over the next three years, another 13 million Gen Zers are expected to become credit eligible. So, what can the real estate industry do to meet the expectations of these savvy, digital-native Gen Zers who will soon enter the market for homes?
Taking a page from the consumer finance industry, we should double down on digital transformation. Elevating the homebuying process to deliver that “tech-company customer experience” should be paramount. It’s easier said than done, and it will require a giant leap forward to make that experience possible, but we strongly believe it will be worth it.