For five years, weâ€™ve heard agents and managers say they were
â€œwaiting for the market to come back.â€ Well, it has, but funny, it
doesnâ€™t look anything like they expected. Now what?
For five years, we (and others) have argued the housing market wasnâ€™t
just entering a downward curve of the business cycle, but experiencing a
fundamental transformation. Sure, a recession brought on by
overspending and over lending has hastened the change, but real estate
was destined to look differently by now because of many other long term
factors. Demographics were altering the kind of homes needed, and the
timeframe for buying the first, second and third times. Inflation,
notably in energy, foodstuffs, healthcare and college tuition has been
reshaping the credit position of consumers for almost twenty years.
Technology, and a run up in agent commissions, office space and
marketing costs, nibbled the profit margin of brokerage to historic
Add it all up and the housing industry was destined to look different by today even if credit bubble hadnâ€™t burst.
Still, there persisted a nostalgia (or delusion) amongst many real
estate practitioners that the market would someday â€œreturnâ€ to normal.
True, many of those agents and brokers have left the industry while
waiting for the return. But plenty of wishful thinkers remained
Â convinced that someday, â€œthe market would come backâ€ and they would be
back on easy street.
Well, they were right on the first part. The market has come
back. But surprise, surprise, itâ€™s not Easy Street but Rocky Road that
must still be travelled.
Letâ€™s run the numbers: According to recent data, the housing market has returned to many â€œpre- and near-bubble levels. Inventory has fallen to mid-2005 levels as of December 2011, continuing a trend of less homes for sale month-over-month.
Certainly, there are many foreclosures waiting to push that number up
in 2012, but even in the states that have the most pending-foreclosure
inventory, the bring-to-market rate will be slow as courts, banks,
politicians and industry lobbyists slow up the process. That should help
manage further price decline rates. In New York, it is estimated that
it will take the courts 8-10 years of bureaucratic process to clear the
foreclosures. So the impact of foreclosures might be considered a new
fundamental market feature, not a short-term business trend. Nationwide,
the overall months supply of homes, at 7 months, basically continues to
Likewise, home prices, while down from bubble days, are back
on track. Case-Schiller puts average sales price right about mid-2003
levels, which were at 16-year highs. If you chop the bubble out
of the graph, todayâ€™s home prices are right where they should be, given
multi-decade tends, and a severe global recession.
Some people might argue that while price is â€œbackâ€ it is still headed
lower; thatâ€™s possible, and likely, in the states with lots of
foreclosures yet to come. But thatâ€™s a concentrated set of markets, and
many areas are experiencing flat or slight upticks in prices as natural
equilibriums in supply and demand, as well as slight improvements in
employment numbers have occurred. Appreciation is occurring in many
places, too, such as the new energy-boom states and farm land regions,
as food inflation and new technology create hotspots of growth. Still,
itâ€™s important to remember that even if we dropped back to pre-2000
levels in housing, they would all be â€œupâ€ in the long-term trend of
Of course, the challenge for the housing industry isnâ€™t that
the market metrics are back to their slow, steady incline. It is that
the fundamentals of that incline have changed. While plenty of
single family homes are being sold, the credit conditions of those sales
are significantly different. More all-cash deals and strict credit
conditions require real estate brokers to be far better at
pre-qualifying their customers and hyper-targeting their marketing
efforts. Increasing demand in rentals has created opportunity for some
brokers, but too few have prepared their organizations to efficiently
(and profitably) handle the rental boom that is brewing. They might
catch up, but they are losing out on the cash flow today.
The good news is that a lot of brokers did prepare for the return.
They spent the last five years radically rewriting their playbook. Many
killed newspaper marketing for good; others reinvested that money into
building fantastic video marketing channels. At least half of real
estate agents, according to NAR numbers, have decided that social media
is a great way to keep up with friends and family that can send them
referrals. Brokers have taken control of their data (and its costs),
refocused on target marketing, and eliminated redundant â€œlead
generationâ€ fees on their own listings. Some have even done the hardest
work of all: closing expensive offices scattered across town, and
invited expensive non-producing agents to go be non-productive somewhere
The question today is: now what? Where are we going now that the market has â€œcome backâ€ to pre-boom levels?
There are many indicators already in the market. Brokerages are
learning how to handle downward pressure on margins with new technology
and techniques to move property faster (staging, auctions, video
marketing). Agents are improving their skills with qualifying consumers
and walking away from tire-kickers. Consumers themselves have come to
terms with market and equity realities, and moved away from the
investment-speak of housing towards a utility-value model, reflected in
smaller homes with smaller mortgages.
The housing market is returning to a healthy state â€“ albeit one that
looks radically different than it did during the boom. In every market,
there are plenty of consumers getting good deals, and brokers producing
solid profits. Changes in the core sales, marketing and management
practices of the business have absorbed many of the lessons of Â the
recession and are ready for the next business cycle. Now its time to
look at new challenges, in profitability, performance and
predictability, that consumers want from the brokerage industry.
The market is back. Now itâ€™s time to decide what weâ€™re going to do with it.
Now, things are really going to get fun!