With mortgage rates on the rise, the U.S. residential real estate market has entered a period of transition after some of its best years on record. Will this transition lead to reduced investment in the innovation that has transformed mortgage finance and spawned a variety of new business models in recent years?
The impressive pace of investment in real estate innovation in recent years will be hard to match. In 2021, venture-backed proptech companies raised nearly $21 billion – according to Crunchbase. And that doesn’t include the substantial sums that large, established players have poured into enhancing their transaction processes.
But despite a rising mortgage rate environment and a slowdown in the deployment of venture capital, the pace of innovation is unlikely to slow because there remains an enormous opportunity for real estate companies to use technology to scale their business rapidly, while achieving new levels of efficiency. Moreover, the market has grown and evolved to such an extent that sustained investment in innovation has become table stakes.
Established lenders are unlikely to throttle back on innovation in any significant way in the medium- to long-term, particularly in areas where that innovation can reduce operating expenses. And newer models, such as iBuyers and Power Buyers, rent-to-own, single-family rental investments, and fractional ownership will continue to make the real estate market more liquid and deeper. That means home buyers and sellers, real estate agents, lenders, developers, and other market participants can expect further transformation in their ability to initiate, evaluate, negotiate, manage, and finance real estate transactions.
“But despite a rising mortgage rate environment and a slowdown in the deployment of venture capital, the pace of innovation is unlikely to slow because there remains an enormous opportunity for real estate companies to use technology to scale their business rapidly, while achieving new levels of efficiency. Moreover, the market has grown and evolved to such an extent that sustained investment in innovation has become table stakes.”
Five areas of innovation are driving the transformation of the real estate transaction experience for market participants and will remain critical despite market fluctuations.
- Streamlined, digital document management and eClosing: Making the completion of mortgage documents more efficient is an important step to improving the real estate transaction experience. Docutech provides an end-to-end, integrated digital mortgage experience, from document generation to eDelivery, eClose and fulfillment, that helps lenders accelerate the real estate transaction closing process.
- Remote online notarization (RON). The pandemic greatly accelerated the adoption of RON, offering home buyers, sellers and borrowers greater flexibility, convenience, and the safety of closing their home purchase or refinance transactions remotely. RON is now approved in 40 states, offering a fully digital process in which electronic documents are eSigned and eNotarized, and it’s expected that the volume of remote notarized transactions will continue to increase.
“Instant” title decisions fueled by data. Comprehensive, accurate public record data is the fuel powering the automation of the title production process, opening the way to “instant” title decisions, which in turn supports digitizing the real estate transaction closing process. More than 95% of refinance transactions now flow through First American’s Clear2Go® automated title decision engine. Based on our own risk profile, First American has achieved a fully automated underwriting decision on 50% of its residential refinance and home equity transactions, and another 40% of those are partially automated. Building on our success with refinance automation, we are now focusing our resources on increasing the automation of purchase transactions.
“The history of innovation demonstrates that it never stops. Economic and competitive forces keep driving innovation forward, so count on still more progress in the transformation of real estate transactions despite the market adjustment to rising mortgage rates.”
- A faster, increasingly digital closing process. Demand for a streamlined real estate transaction closing process is the secular shift driving the growth of Endpoint, First American’s digital-native, full-service title and settlement services company. In addition to serving real estate professionals and home buyers, Endpoint has a growing list of proptech and institutional customers who see it as an important partner in providing a more digital, integrated closing process. Digitizing the more complex commercial real estate closing process inspired First American Title’s launch of ClarityFirst®, the first end-to-end digital title solution for commercial real estate. It serves as a central point of management and communication for a wide range of parties to commercial real estate transactions, including developers, lenders, investors, brokers and attorneys.
- More efficient funding of transactions. Overlooked in many innovation discussions is the opportunity to streamline the transfer of funds in a real estate transaction. The ability to manage the escrow process more efficiently and transfer funds any time can significantly enhance the efficiency of the closing process. First American’s banking capabilities and its FlexClose service from FirstFunding have opened a way to fund real estate closings at any time, even outside the federal wire cut off, creating more convenience and flexibility for all the parties involved in a real estate transaction.
The history of innovation demonstrates that it never stops. Economic and competitive forces keep driving innovation forward, so count on still more progress in the transformation of real estate transactions despite the market adjustment to rising mortgage rates.