Why a Data Privacy Crisis May Be the Next Major Disruption for Investors

Data privacy is becoming an increasingly critical issue, especially in the financial sector, where sensitive personal information such as bank details, loan records, credit histories, and Social Security numbers are involved. This makes industries like real estate particularly vulnerable. The rise of artificial intelligence (AI), which facilitates the transfer of vast amounts of data via apps and social platforms, underscores the need for stronger privacy laws and improved cybersecurity measures.

Recent Massive Data Breaches Raise Concerns

In 2024, we’ve witnessed some of the largest data breaches to date, with over a billion records compromised by mid-October. Companies affected include AT&T, Change Healthcare, Snowflake, Cencora, Kaiser, the U.S. Postal Service, Evolve Bank, and National Public Data, among others globally.

States across the U.S. have ramped up enforcement of data privacy regulations, and the stakes are high for real estate professionals—whether brokers, landlords, or lenders—who face hefty fines for mishandling private information.

The European Union was the first to implement strong data privacy regulations with the GDPR in 2018. The U.S. followed suit with the California Consumer Privacy Act (CCPA) in 2020, which holds particular relevance for real estate. Other states have since enacted similar laws, imposing fines up to $7,500 for intentional violations and $2,500 for unintentional ones, while also giving consumers the right to sue over breaches caused by insufficient security.

While there are no overarching federal laws specific to data privacy in real estate, each state’s individual regulations serve to protect consumers. Consumers are granted the right to know what data businesses collect, request corrections, and be informed if their information is being sold to third parties.

Real Estate’s Unique Exposure

For property managers, both large and small, tenant data collected through CRMs and online payment platforms is particularly susceptible to breaches. Additionally, international real estate transactions are further complicated by data transfers across borders, especially after the Schrems II ruling, which allows U.S. authorities greater access to data on E.U. residents once transferred to the U.S. This compels U.S. real estate firms to carefully reconsider their data-sharing practices to ensure compliance.

Why Consent Management Platforms Are Crucial?

A consent management platform (CMP) enables businesses to transparently manage user consent and inform individuals of their rights. Adhering to state and federal laws, a CMP can be updated to meet evolving privacy standards. This tool is essential for real estate professionals like agents, brokers, and property managers.

What Investors Should Know?

Investors acquiring rental properties with existing tenants need to ensure that tenant data is properly collected and protected according to legal standards. Should a breach occur, landlords could face lawsuits, and on the commercial side, a data breach can negatively impact property values and tenant retention, making assets less attractive to investors.

Proptech and Its Growing Risks

The proptech sector, encompassing companies such as Airbnb and WeWork, is growing rapidly, with an expected market value of $86 billion by 2032. With AI enabling faster data transfer across devices, ensuring data security and privacy remains a priority. While AI can facilitate rapid data exchange, it must also bolster data protection to build trust among users and investors.

Online Tracking and Social Media Concerns

Google’s decision to maintain tracking cookies in Chrome, despite privacy-focused moves by browsers like Safari and Firefox, could significantly impact real estate marketing. A change in how cookies are used could force agents to rely on their own data for marketing purposes, emphasizing the need for secure data practices.

Social Media and Data Surveillance

The National Association of Realtors reports that 97% of homebuyers begin their search online, often via social media. However, recent FTC findings suggest major platforms like YouTube, Facebook, and TikTok have engaged in extensive surveillance of consumer data. This raises privacy concerns, particularly for users sharing sensitive information during the home-buying process.

Lessons from the RealPage Lawsuit

The RealPage lawsuit highlights the risks landlords face when handling large amounts of tenant data. Recent legal cases suggest that ensuring accurate, secure handling of this data is more important than ever to avoid litigation.

Final Thoughts The real estate sector’s increasing reliance on big data exposes it to breaches, legal issues, and inaccuracies. While the adoption of AI and advanced technologies has made the industry more efficient, it has also heightened its vulnerability to cyberattacks. Even though the days of paper documents and locked filing cabinets are behind us, some may long for the extra layer of security that came with them.

In the previous post: “Is Now a Better Time to Invest in Real Estate Debt or Equity?

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Why a Data Privacy Crisis May Be the Next Major Disruption for Investors

Has the U.S. Housing Market Finally Begun to Thaw After the Pandemic?

It seems like the housing market might be showing signs of life. According to a recent report from Redfin, pending home sales in early October have seen their largest year-over-year rise since 2021, with a 2% increase in the four weeks ending October 6.

This news is likely to be welcomed by real estate investors who have felt the market has offered limited opportunities over the past few years. However, it’s important to take a cautious approach—one promising statistic doesn’t necessarily indicate a broader trend.

Is the Housing Market Truly Recovering?

Let’s explore the different factors at play.

Interest Rate Reductions: A Critical Factor or a Red Herring?

The Redfin report links the surge in pending sales to the Federal Reserve’s much-anticipated rate cut announcement in mid-September. According to Redfin, this announcement prompted buyers to re-enter the market in late September, despite mortgage rates having already been falling for weeks before the cut.

This psychological boost is crucial. Although buyers were aware of the falling rates beforehand, many seemed to be waiting for a formal signal to act. This could be attributed to a lingering fixation on the ultra-low rates of 3% to 4% that buyers enjoyed before 2022.

Any rate cut announcement serves as a nudge for prospective buyers, making them feel that now might be the right time to purchase, even if mortgage rates had been decreasing already. In an unstable mortgage market, such announcements hold significant influence.

However, mortgage rates are just one piece of the puzzle when analyzing housing market performance. As noted by Investopedia, the real estate market is driven by four primary factors: interest rates, demographics, economic conditions, and government policies.

Demographics: Shaping the Market

During the pandemic, demographic shifts had a profound effect on U.S. real estate, with major population movements like the Sunbelt migration fueling booms in cities such as Phoenix and Austin, which later became unaffordable for many.

Age is another key demographic factor, and the millennial generation’s pent-up demand continues to be a driving force behind the rise in home purchases. Despite the challenges of the past few years, millennials who have longed to become homeowners are now entering the market in greater numbers, as more properties become available.

Rising Inventory: A Sign of Stabilization

A key factor contributing to the market’s stabilization is the growth of housing inventory over the last year. The pandemic had a significant impact on the availability of homes, with sellers hesitant to list properties due to COVID-19 restrictions and, later, higher mortgage rates.

Some homeowners, particularly those upgrading to larger homes, found it financially challenging to sell and take on higher mortgages. Others, however, simply chose to wait for a more favorable market.

Although the latest Realtor.com report shows that inventory remains down by 23.2% compared to pre-pandemic levels, we are seeing an upward trend. For instance, new listings have been rising since last year, with a 5.7% year-over-year increase for the four weeks ending October 6.

As of September 2024, some states have even surpassed their pre-pandemic inventory levels, including Tennessee, Texas, and Idaho, with others, like Washington, close behind.

Vulnerabilities in Certain Regions

However, not all regions are showing positive signs. For example, some areas, particularly those affected by extreme weather, have seen inventory spikes not because of market recovery, but due to homeowners trying to offload damaged properties they can’t afford to repair.

For instance, regions like Florida and North Carolina, hit by hurricanes, have experienced increases in home listings, but these may reflect a response to climate-related challenges rather than market health.

Opportunities for Investors

Investors should be discerning when choosing markets, focusing on regions where inventory is growing due to increased home construction rather than climate-related distress. States like Idaho, Utah, North Carolina, and Texas, which are building new homes, offer potential, though caution is needed in areas prone to natural disasters.

The Midwest and Northeast, meanwhile, still face significant challenges in recovering to normal market conditions. These regions have lower rates of new construction, meaning inventory remains scarce, which could present both opportunities and difficulties for investors.

The Bottom Line

The U.S. housing market is showing signs of recovery, but the situation remains complex and varies by region. Interest rates play an essential role in unlocking the market, but investors should also consider other critical factors, such as homebuilding trends, climate risks, and government policies. While the market is heading in the right direction, it’s crucial to examine regional differences carefully before making investment decisions.

In the previous post: “Is Now a Better Time to Invest in Real Estate Debt or Equity?

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