Is Real Estate Still Fun?

Maybe yes…maybe no. It depends who you’re talking too. There is something different about this current downturn in the market.

Brokers have been used to cyclical markets and for the most part they are pretty tough lot. I talked with a 30 year plus veteran of real estate that has had a family business for well over 30 years. In today’s economy how long can one go without a profit? He said next Sept. is the litmus test for him…and he owns his own building, but what about the small to medium sized brokerage that is paying $7,000 to $9000. Per month rent to fight the current market battle, when will they decide if the business is still fun?

An agent of a national brand franchise told me yesterday her broker is answering his own phones and has cut all advertising and promotion from a company standpoint.

Some would suggest residential real estate hasn’t been much fun for a long time, maybe since the advent of RE/MAX or the 100% commission concept, where the agent pays a desk fee. This concept has driven the average commission from 50% to over 70% in the last 30 years.

When a brokerage adds to the commission owes, the cost of operation the risk vs. rewards picture doesn’t look good at all. It is my belief that by the end of 2008 as many as 30% of the small to medium sized brokerages including franchises will close their doors in Southwest Florida dispersing their agent count across the larger independent companies and large franchise based companies, resulting in a 10 to 15% loss in agent count as well to the industry. The decrease in agent count is not a bad thing, because the fact remains we don’t need 2 million real estate agents to do 5.6 million transactions nationally.

Today the harsh reality of the market is sales have decreased by 50% since the boom times. Values have plummeted and consistently appraisals are coming in lower than the asking price. This tells me the average consumer just doesn’t get it. Zillow reported last week their survey showed that well over 36% of those surveyed thought the price of their home actually went up last year. (Come on now!)

The news media has taken the industries advertising dollars in one section of the paper and beat us up in nearly ever other section. i.e. Front Page, Business and Local news.
We all know bad news is what sell’s newspapers, and we know they are having increasing difficulty sell them anyway. Newspaper readership is down all over the country, with several major area newspapers going out of business. (Philadelphia for example)

For over the past year real estate activity has been down, sales down, listing inventories at all time high’s, open house activity at a stand still, mortgage defaults at all time highs, short sales are back in vogue and foreclosures are climbing as homeowners are willing to just walk away.

The current mortgage market is reserved to those borrowers with perfect credit. Buyers are confused by the media and slow to pull the trigger to purchase even on the best of buys, leaving sellers angry with anyone who doesn’t have a quick fix.

Thousands of sub-prime lenders are gone from the marketplace along with many more thousands of workers. Many brokerages have all ready closed shops, while another 30% will by the years end. Builders have cut construction crews, slashed home prices of current inventory by up to 40% and many just walked off and abandoned homes that weren’t completed. Thus leading to our current economic owes…The old saying is: “If you’re out of a job it’s a recession…If I’m out of a job it’s a depression.”

How did we get to this point? Greed and the Push for Profit! How bad will it get? We have probably seen the worst of it and the market has come very close to bottoming out, yet there will be more foreclosure’s and short sales along a long slow recovery for the real estate industry leading to a prolonged buyer’s market with extremely good buy’s. When will the current buyer’s market end? Probably well into 2010!

Some of the pundits have said no government bail out…yet, the Bush administration has agreed to a 200 billion dollar tax stimulus package, They also said: “Nor would their be any substantial relief for Wall St. who have lost their shirts,”

Yet, days later they are bailing out Bear Stearns with a stock that was selling for over $170. per share one year ago.

Chase bailed them out of collapse at $2.00 per share, with government guarantees, so no maybe we haven’t seen the complete end to it. However, one must remember the bright side of this.

There are 130 million households in America, approximately 35 million of those are renters, and another 27 million own their home outright, according to the U.S Census Bureau data. Even should we hit 2 million foreclosures that is only 1.5% of the U.S. Households? But, remember why we are here greed and profit. Why should we bail out lenders who financed people with 520 credit scores with 100% financing. These people have nothing to lose by walking off and renting again, letting the taxpayer pay for their mistakes, or, the investor who wanted to buy pre-construction and flip the property for a handsome profit before ever closing on the property.

The bottom-line is simply real estate always has been and always will be cyclical in nature, and driven by supply and demand. The fact remains:

· Like all other markets we are driven by supply and demand
· We do not need 2 million Realtors to do 5 or 6 million transactions
· Fair lending practices must be in place
· People with 520 credit scores should not be able to buy houses
· It’s not the governments job to bail out people who shouldn’t have been in the market in the first place
· Lenders who loaned into those scenarios should not be bailed out nor should their investors
· Part of the correction is walk away owners returning to the rental market and qualified first-time home buyers and true long term investors taking those properties off the market.

In a cyclical business the deepest fear is that the good market won’t last forever. Yet, the same is true for the bad market, as it won’t last forever either. The buyer market will continue for the next several years because it was long overdue for correction on the affordability index. This is good news for Realtors who understand how to get buyers, and investors who can profit from the buyers market. Especially first –time buyers it might well be there best hope for the future.

The bottom-line is, I see us scooting across the bottom for several years in a long over due buyers market while this major price adjustment takes place. When we look at this in retrospect we will come to remember what really drives the market:
· First-time home buyers
· Death
· Divorce
· Job transfer
· Empty-nesters
· Investors

Remember this: Our Creator doesn’t decide when someone is going to die based on the interest rate or the economy. When it’s all said and done people will buy and sell on the factors listed above, understanding we still need the Realtor…we just don’t need 2 million of them. And 1.3 million of them are with the national Association of Realtors. They are part of the problem in that they benefit from quantity not necessarily the quality. Note: We need far less Realtors, far less MLS services, far less mortgage broker’s, we don’t need a bank on every corner like gas stations used to be. With online capabilities where they are today, we probably 8 to 12 regional MLS services would be plenty. Educational requirement and fees increased should take the Realtor count to somewhere between 500,000 to 700,000. The same is true for Local Boards of Realtors, and State Associations. (Like the Regional MLS’s; there should be, fewer Regional Associations all funded by fewer Realtors.)

The fact remains today is one of the best times in years to buy a home! It’s affordable, interest rates are low, and inventory is up…it just doesn’t get any better than that.

Submitted & Posted for
Bob Burns CRS, e-PRO, RECS Industry Consultant

P.S. Agents who truly want to survive the cut, must mentor under one who has a System that focuses on building and maintaining a Quality Business-Base, a Follow-Up System for high touch repeat business and Referrals. And finally have a Lead Generation System that helps them meet their Job Description of uncovering at least 1 new prospect to buy or sell a home each and every working day. If you don’t have it you just as well get out now!