Realtors vulnerable to market swings

Nearly 40 years ago, when my mother decided to take a break from nursing, she was persuaded by a local Realtor to earn her real estate license and join his firm. I didn’t see the symmetry between nursing and real estate then, and I don’t really see it now, but she thought it was a great opportunity. Unfortunately, she was not a success. The business was truly 24/7, even back then, and she never saw her family.

But that’s the kind of commitment these folks make. Agents who are truly successful are marvels, really, as they do make huge sacrifices to work with buyers and sellers when they need their agents. The flip side of that, of course, is that they are their own bosses and can take an afternoon off if need be.

The real estate industry employs hundreds of thousands of full- and part-time workers in this country. But theirs is an industry completely at the will of the swings in our economy. The supply and demand of available homes, office buildings and other real estate are strongly influenced by the availability of financing for developers who develop land into residential and business properties. Thus, during periods of tight credit and declining economic activity, real estate activity is low. Changes in tax laws and interest rates also have a great impact on the real estate industry.

Reflecting a slower market, sales of new one-family houses in August 2006 were at a seasonally adjusted annual rate of 1,050,000, according to estimates released by the U.S. Census Bureau and the Department of Housing and Urban Development. This is 4.1 percent above the revised July rate of 1,009,000, but is 17.4 percent below the August 2005 estimate of 1,271,000. The median sales price of new houses sold in August 2006 was $237,000; the average sales price was $304,400.

Like so many other industries, the real estate business has benefited from the advent of information technology. More consumers are using the Internet as a tool in the home-buying process. According to the National Association of Realtors (NAR), more than half of home buyers use the Internet to narrow down home choices. The ability to see photos online, take virtual tours and make fast comparisons among homes greatly streamlines the buyer’s process.
According to Realtor Magazine, median gross personal income for brokerage managers was $86,000 in 2004; for broker owners, it was $89,100; for new sales associates, it was $38,300. For associates with six to 10 years’ experience, the median was $83,400 in 2004. The magazine also reports that the majority of professionals continue to split their commissions with the brokerage. The median split is 71 percent.

In 2004, 69 percent of Americans owned their homes, up 5 percent from 10 years prior.

Accompanying this ownership growth has been a remarkable and unprecedented “disappearance” of renters. Despite the rising population, the total number of renters in the U.S. has actually declined in the past decade. Experts credit better tools for measuring the risk of housing loans, higher financial literacy on the part of borrowers and home ownership counseling to help reduce defaults.

One relatively new market for Realtors is the nation’s more than 77 million baby boomers who have extensive spending power and a very clear idea of what they want in a home. These are folks who expect to work past traditional retirement age, and they maintain healthy, active lifestyles that help ensure they live longer.

What do baby boomers want? Many want to buy their retirement homes earlier rather than later. They may want to use it as a vacation retreat while they are still working, so they like to purchase properties near water or other recreational outlets. They are interested in finding homes that can accommodate a wide range of physical abilities and medical needs. They want easy accessibility to services they need, and they want to locate in areas that are well-wired for online activity. In fact, they may be more interested in these amenities than they are in unlimited square footage.
The Wall Street Journal recently reported that the golden age of so-called “McMansions” may be ending. McMansions, characterized as oversize, sprawling homes on small lots and built in predictable styles by developers, are being sold by boomers in favor of smaller, more efficient homes. Now that the kids are grown and gone, the folks don’t need that big house anymore. And rising energy costs have spurred many empty-nesters to put those big homes on the market and downsize.

There are lots of McMansions on the market, and apparently they’re hard to move because of high-cost and rising interest rates. Many of the young families looking for one of their first homes don’t have the means to take on such a huge financial challenge. Builders have gotten the message and are staring to focus on smaller properties with only two or three bedrooms instead of five or six. The trade is apparently better construction, higher-quality materials and much less space to maintain.

While the demands of a real estate career haven’t changed, back when my mom entered the real estate business, my parents’ house payment was $127 a month, and my folks were scared to death. Now I’m lucky if I can keep our utility costs below that.