Normal Market Produces Buyer Opportunity
Published: July 28, 2006
Buyers scurry, afraid of buying at the height of the market.
So why aren't builders running scared? Because the underlying principles of a good market remain sound in the midst of the market fears. While nationally, the industry has cooled to "more sustainable levels," according to the National Association of Home Builders, "The Bureau of Labor Statistics reports strong job gains in many of the fastest-growing states, with 37 states exceeding their pre-recession peak levels of employment in 2005."
The group recently released a mid-year housing report on its real estate trends website, HousingEconomics.com. A cooling of the market this year will still result in the third highest level of housing starts in the last few years.
That's why you keep seeing building projects going up. Definitely, not as many houses are being constructed in 2006 as last year, but the NAHB report points to several positive market growth indicators in various regions across the country.
Job growth is continuing upward. Unemployment is dropping. Businesses continue to expand and economists across the country continue to estimate that the need for more housing will stretch beyond the current inventory surplus.
The National Association of Realtors still is holding to 2006 being another very strong year -- the third highest on record. NAHB members are still bull on the housing market. What we're seeing in '06, it seems, is a transition year. For buyers who have no choice but to buy because of social or lifestyle reasons (birth of new baby, marriage, retirement, in-laws moving in, new job, relocation, etc.) they will buy now and unwittingly pick up a great deal.
For buyers who are too skittish about the market, they will miss a financial boosting opportunity. In markets where it has normalized (D.C., Miami, Chicago, Phoenix) buyers who buy based on rock-hard solid economic evidence, will be excited in a few years that they bought a house low and now stand to earn a handsome profit a few years later.
Ask anyone in the D.C. area if they would have bought property in 1990 (the last time the market took a time out) and held it to today. They would grin.
At that time the average home price was about $179,000, prices were dropping and the job market was faltering. Today, housing prices are up over last year by 4 percent, employment is up nearly 64,000 jobs compared to a year ago and the job market is still chugging along in the D.C. area. Home sales have leveled off and rentals are skyrocketing. I smell opportunity.
We have 20 percent more jobs headed this way in the next four years over the last four years -- that would be 256,000 jobs. While other areas may not be as robust, they are still growing. If the new employees don't buy houses, they'll rent and that's causing pressure on rents as they begin growing nationally at a double-digit rate for some areas.
M/PF YieldStar, a real estate market intelligence firm, estimates that 2006 and 2007 will be boom years for rental markets and multi-family housing starts. Occupancy rates surpassed an average 95 percent mark in the 4th quarter of 2005 for the 57 metropolitan areas the group tracks.
The real item to watch for buyers is the interest rates. As buyers keep waiting for prices to "bottom out," their buying power evaporates with the ever growing interest rates. Just a year ago, a household with an income of $100,000 could afford a $450,000 price range. Today, that same income is now dropped to about $394,000 simply because of the interest rate power. Current rates stand around 6.8 percent nationally and experts are talking about hitting the 7 percent mark before the end of the year.
In addition, as the jobs keep growing, the rentals will disappear and pent up demand will nearly burst forth in another few months. Buyers -- pull out your checkbooks and get on board now while the market has leveled. There's a reason they call it a "buyers" market.
Why aren't the builders fearful? With the job growth, you have to live somewhere, and workers will live in either one of their new units to purchase or one of the new units to rent.
NAR: Local Markets Drive Real Estate Competition
July 27, 2006
On a national basis, average commissions have significantly declined since 1991
Real estate markets are essentially local and competition within local markets is fierce, including competition among agents associated with the same firm, Pat Vredevoogd Combs, National Association of Realtors(R) president-elect, testified before the House Financial Services Subcommittee on Housing and Community Opportunity at yesterday’s hearing.
Agents openly compete for local listings from potential sellers and for potential buyers on the basis of reputation, level of service and price. On a national basis, average commissions have significantly declined since 1991, said Vredevoogd Combs.
"Commissions or the price for real estate services are independently established by each firm or broker, as are the commission splits with the affiliated agents. Many agents are permitted to set their own commission rates and have the ability to negotiate what services to provide to their clients within prescribed limits set by their broker," said Vredevoogd Combs, broker-owner of AJS Realty, in the highly competitive market of Grand Rapids, Mich.
There are approximately 2.6 million real estate licensees in the United States. Nearly 1.3 million of these are Realtors(R). All Realtors(R) are members of NAR and subscribe to a strict code of ethics. There are a large number of firms competing in every market, and a growing number of largely independent contractor agents ensuring that the real estate industry remains fiercely competitive. "Firms and agents compete at the neighborhood level with each other for listings and sales. I would say this is a model of competition and a competitive industry," she said following her testimony.
"Those who have criticized the real estate industry as anti-competitive are oversimplifying the issue by looking at real estate as one national market, which is not the case. Real estate is local and competition should be measured at a local level," said Vredevoogd Combs. She cited a recent report published by professor Steven Sawyer of Pennsylvania State University who addresses an important implication that industry critics have ignored. Specifically, Sawyer found, "The evidence suggests that it is inappropriate to consider the U.S. real estate industry as a common or singular market. The local variations in firm, franchise level competition varies to a point that there are few, not many commonalities."
NAR reports that today consumers have access to a vast amount of information about the home buying and selling process. Even so, home buyers and sellers still depend on real estate professionals for their information, experience and expertise to assist them with the complex task of completing a real estate transaction. In the most recent NAR survey of homebuyers, 77 percent reported that they used the Internet to search for homes. The report also found that of those homebuyers who use the Internet to search for a home, 93 percent of them still use a real estate agent.
As technology continues to evolve, so too will the real estate professional's use of the Web. Some of the areas where real estate professionals are focusing their technology interests in the use of the Web include increased reach to a wider audience of potential buyers and sellers, innovative visualization technology, seamless transaction technology, and real-time delivery of listing information. "Before the local Multiple Listing Service was widely available, the only source for a buyer to get information was directly from a broker. Having a shared computerized database expands the search and access to available inventory. The MLS is a powerful force for competition," said Vredevoogd Combs.
The benefit of the MLS system has been widely recognized, including by the Government Accountability Office which has stated, "The MLSs provide important benefits to consumers by aggregating data on homes for sale and facilitating brokers' efforts to bring buyers and sellers together." The MLS enhances competition by exposing sellers to the largest number of homebuyers. Competition would be significantly reduced without the use of MLSs because it would be extremely difficult for small or new and independent brokers to succeed if they lost access to the large inventory of listings currently available through the MLS.
"Working for America's property owners, NAR provides a forum for professional development, research, and the exchange of information among its members and to the public and government for the purposes of preserving the free enterprise system and the right to own real property," said Vredevoogd Combs.
NAR's testimony maintains, "Recent claims that NAR is limiting competition, protecting high commissions and limiting access to the listing information on the Internet are simply not true. A close look at the real estate industry shows that it is more competitive than ever, and access to information is at an all-time high. Realtors(R) add value to the transaction - not because we have any unfair advantages - but simply because our members share an unparalleled dedication and love for what they do."