How blockchain will affect the real estate market

Blockchain has the potential to change the financial industry as we know it.  If the bitcoin crowd has their way the worlds monetary policy, and banks along with it will be turned on their head.  While we might not see that kind of global revolution, blockchain has disruptive potential.  Even the real estate industry could see some massive changes as the adoption of blockchain technology grows over the coming years.  

The blockchain revolution reminds people of the internet revolution.  The internet was a new technology that had a lot of potential but nobody knew what to do with it.  30 years later and now the world would not be able to live without it.  The blockchain revolution feels very similar.  This is technology that is very powerful but it hasn’t found out exactly how it will reach mass adoption yet.  So lets take a look at how blockchain could affect the world of real estate.  Even though blockchain is still in its infancy, there are already plans underway to disrupt real estate.  Lets take a look at some of the possibilities we may see in the future.

Property Titles

In recent years many cities and counties have put tax records online.  This has been a major convenience to residents and anyone seeking the public records in general.  However, blockchain has something much bigger in mind.  A blockchain is at its core a decentralized ledger with no central authority to trust.  Another aspect is that its possible to prove ownership of an asset of something.  When these properties are combined its easy to see how all ownership of properties could be stored on a blockchain.  Before we get into all the ways this can help reduce friction in the real estate world, lets first talk about who the losers would be if this gets implemented. Title Insurance is a 15 billion dollar a year industry.  This means the business of guaranteeing a valid deed is costing individuals that much per year.  If properties could be verified via the blockchain using a private/public key solution that number goes to zero.  Talk about disruption, implementing this solution would destroy an entire industry overnight. The good news is that other industries would spring up and property owners would have much more control over their assets.  Imagine being able to add verified information about your property to the blockchain in real time with no fees.  You get a new roof?  You can have the roofing company sign all the details of the type of roof, the warranty and all other information into the blockchain for anyone to see.  Any other sort of changes to the house could be logged onto the blockchain as well.

Smart Contracts

Put simply, blockchain technology is great at cutting out middlemen.  Banks and Lawyers in particular come to mind in terms of a real estate transaction.  Smart contracts are contracts that are recorded on the blockchain and will not execute unless all terms a met, the most amazing part of this transaction is that no human intervention is needed in order for the contract to execute.  So lets paint a picture of what the future could look like.  You work with The Reeves Team to find your dream home.  You come to an agreement with the seller on terms.  The Reeves Team writes a smart contract that you and the seller both agree too.  The contract states that within 10 days the buyer must sign off that they have inspected the home and approve, it would also state that the agreed upon amount of funds must be deposited into the smart contract by a specified date.  Once those funds have been added and the buyer and seller have both signed the smart contract on the date of closing the smart contract would automatically move the deed from the seller to the buyer and move the funds from the smart contract to the seller.  If all terms were not met the funds would simply be returned to the buyer.

Democratization of ownership

Imagine if you wanted to invest in a new casino being built in Las Vegas.  Unless you are very wealthy and well connected your dream is not going to come to reality.  With blockchain that all changes.  If the builder wants to raise funds they can issue tokens that represent ownership stake in the property.  Investors can then purchase those tokens at very small increments.  Right now if you were to invest in a Las Vegas casino as its being built you would potentially have to wait years to liquidate.  With the blockchain you could sell your shares to another willing buyer instantaneously on a secondary market.  

While blockchain is still very new hopefully this article helps you to see the potential that exists to drive efficiencies and create friction-less transactions in Real Estate and every other financial marketplace.  We believe you will start to see a major shift in the real estate market to blockchain based solutions in the coming decade.

Do you agree that blockchain is a game changer or is this all just hype?  Let us know if the comment section below! 

Is The Arizona Housing Market Slowing?

All seems well with the Arizona economy and the housing market in particular.  Home valuations have stayed fairly strong and mortgage rates have came back down from the highs we saw in the last quarter of 2018.  So everything is great then, nothing to see here right? Well that might not be the case.  The Reeves Team has decades of experience in the Arizona housing market and we are starting to see some early signs that point to a potential downturn in the near future.  We are going to dive deep into the indicators we are looking at that point to some troubling times ahead. While the prices are currently maintaining at current levels, other key levels are starting to slip.  The days on market, inventory and absorption rate are all trending in the wrong direction.  We will break down what each of these means and show the graphs to help explain what we are seeing.  You can always count on Troy Reeves and The Reeves Team to keep you informed in an always changing market. 

 

Sold Days On Market

Days on market takes a look at how long it takes a home to sell.  This is a key indicator of the housing market because it shows how long the average house is sitting before it is sold.  As you can see from the chart above the days on market is trending upward at a fairly sharp pace.  We went from around 60 days on market during October to nearly 75 for the month of February. This is certainly something to be concerned about.  This is however only one data point we use to judge the market on The Reeves Team.  It is also worth noting that this only takes into account homes that actually sell. If a home is listed for a long time but doesn’t actually close it will not be considered in this metric.  So to get a better understanding of the big picture we also need to look at inventory.

Inventory

As you can see from the chart above the Inventory has spiked up significantly as well in the month of February.  Inventory lets us know how many homes are currently on the market in Arizona.  If more people buy a home in a current month than list a home the inventory will go down.  If more people put their home on the market than sell their home the number will go up.  The inventory chart lets us know that more people have been putting their home on the market than there have been sales since April with a significant jump up in February.  With more availability buyers will be able to be more choosy and prices could sink down. 

Absorption Rate

The absorption rate does a great job of showing us the larger picture.  It shows how long it would take for the current inventory to be sold off if there were no more listings.  We had a low of about 2.2 months.  Since then we have jumped up to nearly 3 months in February.  The most concerning portion of this graph is the largest jump was from January to February. When you see large jumps like this its highly possible the trend may be reversing and we could soon be entering a buyers market.

Prices

Now lets take a look at prices.  As we mentioned previously prices are holding up pretty well at this point.  If this were the only metric you looked at you would think things may continue on like this for the foreseeable future. Unfortunately it does not tell the whole story.  Prices much like days on market only show the homes that were sold.  What this chart shows us at The Reeves Team is that sellers have not caught on to the changing market yet.  Sellers have not started cutting prices yet, and because of that less homes are being sold which is causing the spike in the Inventory.  In the coming months if there is nothing that changes you can expect the prices to start dipping as the inventory and days on market continue to climb.

What do you think of our analysis of the current market? Do you agree we could see a dip in prices or do you think we will continue to maintain our current levels? Let us know in the comment section below.