6 Real Estate Tech Trends in 2024

With 2024 just around the corner, real estate tech founders would do well to understand current industry trends impacting their M&A prospects. Despite a tightened real estate market, opportunities to grow and raise funding abound. Consider the following:

1. Interest rates are stabilizing, boosting market confidence

Since March 2022, the Fed has raised its benchmark interest rate 11 times to the highest level it’s been in 22 years. Now that inflation, as measured by the U.S. consumer price index, has sunk from a 9.1% peak last year to 3.7%*, the Fed is slowing down its aggressive campaign to bring it down. This, and the central bank indicating rates will stay "higher for longer," suggest that interest rates are set to stabilize.

For real estate tech founders, this is good news. Though it tightens the housing market by driving up mortgage rates, it also eases interest rate uncertainty, thereby injecting more stability into the market at large. Investors who hesitated to fund real estate tech companies before may be more willing to now that they are more confident in where interest rates will be over the next 1-2 years.

2. Housing shortages are fueling the new home construction tech sector

It’s no secret that the U.S. is experiencing a record housing shortage. Since the 2008 recession, home construction has lagged behind demand as developers try to avoid overbuilding. On top of that, existing homes for sale are in short supply as higher mortgage rates deter homeowners from selling and giving up their locked-in low rates.

However, the lack of resale inventory has fueled fresh demand for new builds, and construction is picking up. In September, the pace of new home sales was up 33.9% from a year ago. Newly-built homes now account for nearly a third of single-family homes for sale, compared to the normal 10-20%.

Though housing supply will likely remain constrained for the foreseeable future, real estate tech companies that serve the construction sector are better positioned to attract investors’ attention. As of November 10’s close, the S&P Homebuilders Select Industry Index is up 26.72% this year compared to last, outpacing the S&P 500’s 15.46% gain.

3. Lower transaction volume may be leading to a property management tech boom

Higher mortgage rates and low inventory have led to a drop in real estate transactions. According to a Redfin report published in July, "just 1% of the nation’s homes have changed hands this year, the lowest share in at least a decade." More recently, the National Association of Realtors (NAR) reported existing home sales in September fell to a seasonally adjusted annual rate of 3.96 million, the lowest it’s been since 2010.

Though property transactions could pick up next year, higher-for-longer interest rates and a prolonged housing shortage will likely keep them down. Consequently, real estate tech that doesn’t rely on trading real estate, like rental and property management software, is best poised for M&As. According to Grand View Research, the global property management software market is expected to grow at a compound annual growth rate (CAGR) of 8.1% from 2023 to 2030.

4. Rise of remote work is boosting the vacation rental tech industry

According to the U.S. Census Bureau, the number of people primarily working from home tripled from 5.7% (roughly 9 million people) in 2019 to 17.9% (27.6 million people) in 2021. Furthermore, a McKinsey survey shows that 58% of Americans (roughly 92 million people) can work from home at least part-time. Consequently, many are choosing flexible work schedules that lower the need to stay in one spot.

Unsurprisingly, the vacation rental industry has benefited from this trend. In Q1 2022, Airbnb’s fastest-growing category by trip length was long-term stays (28 days or longer), more than doubling in size from Q1 2019.

5. Office vacancies are opening new opportunities for building tech

The rise of remote work has put office building owners in a tough spot. In Q2 2023, the U.S. office vacancy rate hit a record high of 16.4%, leaving owners with less rental income to pay their mortgages and lower profits. To make matters worse, higher interest rates and a credit squeeze have made it harder to refinance expiring property loans. Now $1.5 billion in U.S. commercial real estate debt—the bulk of which was financed when rates were near zero—is coming due before the end of 2025. Naturally, office building valuations and sales have suffered as a result.

To mitigate the office crisis, more building owners will explore government-incentivized commercial-to-residential conversions and Class A building upgrades to attract more tenants at higher rents. Founders who create point solutions for such property management innovations may attract M&A interest, especially from bigger companies looking to consolidate software tools for building owners into one platform.

6. Shrinking buyer’s agent commissions are increasing value of listing side products

In a landmark ruling, NAR and several large U.S. brokerages were ordered to pay $1.8 billion in damages for illegally inflating agent commissions. The court ruled that the standard practice of having the home seller pay the buyer’s agent (aka "cooperative compensation") was anti-competitive. Similar lawsuits targeting agent commissions are underway nationwide. Though it will take years for these cases to fully play out, buyer’s agent commissions are clearly in for a change.

If sellers no longer have to pay buyer’s agents, the money pool on the buyer side of the transaction could shrink. Thus, real estate tech that focuses on monetizing the seller side looks like it might provide the most value right now. This is why Zillow, for example, has acquired a string of listing side products over the last few years, including ShowingTime, VRXMedia, and Aryeo. Founders of similar products may want to consider similar deals.

Real Estate Tech & M&A Opportunities

Ultimately, knowing when to sell your real estate tech business is tough, especially in an uncertain market. But now that the smoke is beginning to clear around interest rates and other trends, you may find yourself in a better position to entertain M&A opportunities. Regardless of your current plans, best practices include monitoring key SaaS metrics internally and considering selling while you’re ahead. When market dynamics change again, you may be glad you did.

This material and the opinions voiced are for general information only and are not intended to provide specific advice or recommendations for any individual or entity.

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