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MIS 3090:
IT for Financial Services
Real Estate and IT
April 24, 2012
April 24, 2012 2/37
Fannie Mae
Originallythe Federal National Mortgage
Association, founded by Congress in 1938
– part of FDR’s New Deal initiative
Buy mortgage loans from banks and other
institutions and package them into mortgage-backed
securities which they sell to investors
They independently provide mortgages to people
with bad credit or mortgage with unusual criteria
such as zero down payment or interest only loans
Traded on NYSE (Ticker: FNM)
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Freddie Mac
Federal Home Loan Mortgage Corporation
Competes with Fannie Mae
Also buys mortgages in the secondary market
They also provide mortgages to people with
bad credit
Traded on NYSE (Ticker: FRE)
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Industry Background
Real Estate Industry GDP, 1991 and 2001 *
GDP, 1991 and 2001 Contribution to Total GDP
Percent
Trillion Of Total
$1,171.7
$1,200.0 14.0%
+70% 11.6%
11.5%
$689.1
$600.0 7.0%
$0.0 0.0%
1991 2001 1991 2001
Note*: The real estate industry includes all economic activity of owners, lessors, lessees, buyers, sellers, agents, and developers of real
estate. Companies engaged primarily in the construction of buildings for sale (operative builders) are classified under the
construction industry.
Source: Bureau of Economic Analysis, U.S. Commerce Department
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New Home Sales
New Home Unit Sales, 1968 to 2002*
Annual Change,
1997 – 2002: 4.6%
Thousands 1,200
600
0
68 70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 '00 '02
Source: U.S. Bureau of the Census, 2003
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Existing Home Sales
Annual Change,
1997 – 2002: 4.7%
Existing Home Unit Sales, 1968 to 2002*
Thousands 6,000
3,000
Approx 4 times the rate of new homes
0
68 70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 '00 '02
Source: National Association of Realtors, 2003
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Declining Mortgage Rates
Mortgage Rates, 1984 to 2003
16%
9%
30-Year FRM
1-Year ARM
2%
84 86 88 90 92 94 96 98 00 02 03
Source: Freddie Mac, 2003
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Supply of Homes
Month’s Supply of Existing and New Homes, 1991 to 2001
8.9
Months 9
Supply
8.1
6
Existing Homes
4.6
4.1
New Homes
3
1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001
Source: National Association of Realtors; U.S. Bureau of Census, 2003
Increased housing demand kept unsold home inventory at historically low levels.
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Looking Forward …
Single Family Debt-to-Value Ratios, 1952 to 2010e
60%
35%
Mortgage
Home Value
10%
1952 1960 1970 1980 1990 2000 2010e
Source: Federal Reserve Board, 2003
Future housing demand will also be influenced by the increased use of mortgage debt
which was expected to continue to rise through 2010.
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U.S. Immigration
Immigration to the U.S., 1950s – 1990s
Million 10.0 9.3
7.3
5.0 4.4
3.3
2.5
0.0
1950-1960 1960-1970 1970-1980 1980-1990 1990-2000
Source: Bureau of Citizenship and Immigration Services
Immigration into the United States, which continued to grow, will have a significant impact
on home ownership rates in the years to come ...
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Growth in Online Use
Penetration of Online Search in Home Purchases, 1995 - 2003 *
Homebuyers Searching Online PC & Internet Penetration, U.S. Adults (18+)
Percent Percent
of Total of Total
80% 100%
65% 75%
73% 69%
64%
50%
41% 50%
40%
9%
0%
2%
1995 2001 2003
0%
1995 2001 2003 PC Users PC Users Online
Source: “2001 Realtors & The Web,” National Association of Realtors; 2003 National Association of Realtors Profile of
Home Buyers and Seller; Harris Interactive; Kannon Analysis
Use of the Internet as an information source in buying a home increased significantly.
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Sources of Information
Usefulness of Information Sources, 2003 (1)
(Top Box Response = Very Useful)
(2)
Real Estate Agent 71%
Internet 57%
Yard Sign 48%
Open House 45% Where do homebuyers
Builder 40% find their information?
Newspaper Ad 30%
Home Book or Magazine 23%
Relocation Company 15%
Television 9%
Percent of
0% 50% 100% Respondents
Note(1): Only of those homebuyers who used each source.
Note(2): Agents are licensed sales workers who provide their services to a real estate broker on a contractual basis. Brokers, on the other hand, are
licensed business people who sell real estate owned by others. Brokers manage their own brokerage company, advertise properties, and handle
other matters related to the business. Brokers manage and supervise agents. The term Realtor is a registered collective membership mark that
identifies a real estate professional who is a member of the National Association of Realtors.
Source: 2003 National Association of Realtors Profile of Home Buyers and Sellers
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Information Sought Online
Type of Information Sought Online, 2003
Percent of 100% 93%
Respondents
50%
22%
6% 4%
0%
Properties For Information Real Estate Real Estate
Sale About An Area Company Agent
Source: 2003 National Association of Realtors Profile of Home Buyers and Seller
When going online, the majority of home buyers searched primarily for information on
properties for sale.
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Value of Online Features
Value of Online Features, 2003
Photos 78%
Detailed Property Information 77%
Virtual Tours 47%
Interactive Maps 40% Enter Google Maps…
Neighborhood Information 32%
Ral Estate Agent Contact 26%
Percent of
0% 50% 100% Respondents
Source: 2003 National Association of Realtors Profile of Home Buyers and Seller
Features valued most highly by home buyers searching online were photos and detailed
property information.
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Coldwell Banker (Example)
123 Main Street
Save to your profile
Multiple Photos
Finance Tools
Extensive Details
Jay Burnham
Coldwell Banker
Residential Brokerage
54 Dodge Street
Beverly, MA 01915
Easy ways to contact me
for more information
Call me direct: (978) 233-2828
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Websites Used
Websites Used As Information Source, 2003
Realtor.com 53%
Multiple Listing Service 39% www.bostoncondos.com
Real Estate Brokerage Website 38%
Real Estate Agent Website 29%
Local Newspaper Website 19%
HomeSeekers.com 9%
Real Estate Magazine Website 5%
MSN House & Home 3%
Other Websites 9%
Percent of
0% 30% 60% Respondents
Source: 2003 National Association of Realtors Profile of Home Buyers and Sellers
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Key Online Competitors …
Top Real Estate and Rental Sites, March 2003
Brand/Channel Unique Audience Time Spent On Site
Realtor.com 4,583,000 32 minutes
Homestore.com 3,611,000 7 minutes
HomeGain.com 1,175,000 5 minutes
Yahoo! Real Estate 1,091,000 8 minutes
Century 21 979,000 22 minutes
RE/MAX 767,000 5 minutes
Coldwell Banker 730,000 14 minutes
Apartments.com 688,000 9 minutes
Rent.com 567,000 14 minutes
ZipRealty 469,000 9 minutes
Source: Nielsen/Net Ratings, 2003
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Business Model (Homegain)
Example of Referral Fee *
For example, Realtor receives 3% gross commission on a
$150,000 sale
Realtor’s gross commission ($150,000 x 3%) $4,500
Referral Fee to HomeGain ($4,500 x 25%) $1,125
Realtor's commission ($4,500 - $1,125) $3,375
Note*: Assumes two sides to the transaction and a total commission rate of 6%. Realtor’s commission is before any
broker’s split of the commission, if applicable.
Source: Company articles and web site, 2003
HomeGain charged Realtors $29.95 month to subscribe to the site.
Members receive an average of 30 real-time buyer and seller leads per month.
Leads include such information as address of home for sale, number of
bedrooms and bathrooms, approximate total square footage, property type
(for example, single family detached), and desired selling price.
Realtors also pay a referral fee to HomeGain if the lead results in a closing. The
referral fee is 25% of the gross commission.
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Real Estate Broker Commissions
Estimate of Real Estate Sales Commissions, 1997 to 2002e*
In Billions
Annual Change = 10%
$80.0
$67.3
$60.0
$53.9 $56.2
$48.8
$41.5
$40.0
$0.0
1997 1998 1999 2000 2001 2002e
Note*: Assumes a constant commission rate of 6%.
Source: U.S. Bureau of Economic Analysis Estimates, 2003
The Bureau of Economic Analysis estimated that real estate commissions reached over $67
billion in 2002. The average commission charged on home transactions dropped to 5.12%
in 2002 from 5.48% in 2001
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Disintermediation Potential
Internet Presence of Real Estate Brokers, 2000 and 2002
Percent 90%
Of Brokers
87%
85%
82%
80%
2000 2002
Source: The 2001 National Association of Realtors Member Profile; The 2003 National Association of Realtors Member Profile
The potential disintermediation of newspapers is foreshadowed by brokers’ investments to
build their presence online.
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Website Activity
Website Activity of Real Estate Brokers, 2002
Brokers by Website Inquires Percent of Business From Website
Percent Percent
Of Brokers Of Brokers
40% 35% 50%
39%
25% 27% 32%
20% 25%
13% 16%
12%
0% 0%
None 10 or 11-30 30+ None 10% or 11% - 26%+
Less Less 25%
Number of Percent of Business
Inquiries Generated by Website
Source: The 2003 National Association of Realtors Member Profile
52% of brokers with websites reported getting at least eleven online inquiries in 2002, but.
70% of then said that no more than 10% of their total business came from their websites.
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For Sale by Owner
Most Important Reason For Selling Home As FSBO, 2003
Reasons for FSBO
Method Used to Sell Home
Did not want to pay commission 46%
Real Estate Sold to relative, friend, or neighbor 25%
Agent
83% Buyer contacted seller directly 10%
FSBO Did not want to deal with agent 8%
14%
Agent was unable to sell home 4%
Seller has own license 4%
Home-
Other buying Other 3%
2% Company
1% 0% 25% 50%
Source: 2003 National Association of Realtors Profile of Home Buyers and Sellers Percent of
Respondents
The primary reason cited by sellers for selling direct or FSBO was their desire not to pay
agents’ commissions, though a large number also knew their buyer directly.
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For Next Class…
Guest speaker, Mr. Rick Burke from Commerce Bank
Read
− Internet Customer Acquisition Strategy at Bankinter
− Case questions will be posted shortly
April 24, 2012 35/37
QUESTIONS?
???
April 24, 2012 36/37
THANKS!!
GO
CATS!!
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