‘Normal’ real estate market creates new winners, losers

Who will win and who will lose in next year’s housing markets?

While the answer depends largely on individual initiative, history can suggest some trends that might be repeated now that the nation’s long-booming housing markets are settling into “normalized” levels.

The winners:

• Longtime homeowners who haven’t over-tapped their equity should be sitting pretty on a comfortable cushion that will afford them a number of options and opportunities. Those who want to keep their homes can hope to earn steady and still attractive returns on their investment in their home and continue to take advantage of the income tax deductibility of home mortgage interest and property taxes. Equity-rich homeowners also can still tap their equity cushion, albeit at a higher interest rate, to remodel or make other home improvements. Senior citizens can obtain a reverse mortgage to turn their home equity into a lump sum or income stream for their retirement years. And homeowners who want to sell can walk away with hundreds of thousands of dollars in gains that are excluded from taxation if they meet the requirements of the federal tax code.

• Real estate practitioners who reduce their overhead expenses and position themselves for market realities can continue to be successful even though a true market downturn likely will cause a sizable number of their competitors to exit the business. Those who learn the ropes of the short sale and foreclosure niche markets will have new opportunities when homeowners who aren’t sitting on a comfy equity cushion become forced to sell their homes due to such financial difficulties as divorce, disability or loss of employment. Seminar instructors who are well versed in such topics could capitalize on this opportunity as well.

• If home sales transactions decline before the ranks of real estate practitioners thin out, competition for listings and buyers will get even hotter, and that could mean more opportunities for companies that offer real estate marketing and advertising services. The caveat, of course, is that many pros will find themselves in much greater need of marketing services, but with much smaller budgets to spend on them.

• If the housing markets turn decidedly downward and for-sale homes begin to languish unsold, marketing outlets also will benefit from real estate practitioners’ need to spend more money to mollify angst-ridden home sellers and attract ready, willing and able buyers. Expect those cheesy statues of St. Joseph to resurface from wherever they’ve been buried as well. Expect whoever sells them to make a killing.

The losers:

• Renters who have been waiting for the supposed housing bubble to burst may end up with soap in their eyes. The problem with their expectations of huge declines in home prices is that considerable pent-up demand still exists in many markets among others who are similarly situated on the wait-and-see fence. Any sign of softer prices could be very short-lived as those fence sitters jump into the market and push valuations up again. Meanwhile, renters miss out on the tax deductions, equity accumulation and other perks of home ownership. They may be in a position to capitalize on a downturn if a true madness-of-crowds mentality takes over the housing markets; yet whether they themselves would have the courage to take action against that tide remains to be seen.

• Sellers who miscalculate the direction of the local market may find themselves sitting on overpriced and stale listings that will fail to appeal to today’s savvy buyers. Experienced real estate agents will need to talk truth to these folks and explain the realities of the market to them. Overpricing is a particularly serious misstep for homeowners who experience financial trouble and need to sell quickly to avoid foreclosure on their home. Tip: Buyers who want to make a purchase offer contingent on the sale of their own home might find sellers more willing to consider such offers.

• Real estate trade associations may find themselves with fewer members and correspondingly less revenue from dues and sales of products and services, if their membership rolls decline as practitioners exit the business. Less revenue forces associations to make difficult decisions about their staffing and program levels.

• Mortgage brokers and lenders dependent on refinancing have already suffered setbacks in the current climate of higher interest rates. This trend is likely to continue, although opportunities remain in purchase-money, home equity and reverse mortgages. Architects and building contractors may experience a decline in their businesses if higher interest rates discourage homeowners who otherwise might have borrowed money to finance a remodeling project or an addition to their house.

• Home builders who have purchased too much land, built more homes than they can expect to sell or misjudged the demand for new houses at various price points could find themselves in an uncomfortable squeeze that would give buyers greater leverage in negotiations. Builders who have stocked up on new-built and apartment conversion condominiums in certain frothy areas may be particularly at risk in the new year.

Marcie Geffner is a real estate reporter in Los Angeles.

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