Editor’s note: Inman News is talking to agents and brokers who have persevered through past real estate cycles and is offering their perspective on business strategies that they have used in past cycles and those that they are employing in the current market downturn. This is the third part in a multipart series. See Part 1: "Agent leans on experience, Internet"; and Part 2: "Broker counsels agents through slow spell."
This is the first recession for most members of the National Association of Realtors — and it will be the last that some of them will experience as Realtors, says Al Mayer, a real estate coach and industry veteran of 43 years.
The trade group’s membership grew about 86.2 percent from 1998 to 2007, reaching 1.34 million last year. And about two-thirds of the current members have joined the industry in the past 10 years, said Mayer.
Some agents won’t make it through this time, he said. "They don’t know what to do. A lot of them are throwing up their hands, saying, ‘I’m done, I’m out of here.’ "
Mayer has seen several real estate market swings during his time in the industry, including the housing slump during the 1980s savings-and-loan crisis. He recalls the time, decades ago, when interest rates soared and put conventional financing out of reach for many buyers.
While interest rates are comparatively low today, the drop in home values has been more significant in the latest downturn, Mayer said.
"We didn’t see the significant losses of value you see today. We’re coming off a bubble — a bubble created by unrealistic expectations in the market."
There was not such a buildup in home values prior to the savings-and-loan collapse, he said.
Loose lending practices, including exotic and no-doc mortgage products, and outright fraud allowed the continued escalation of home prices. "Prices got up much higher than they should have. Loans were available that we should never see again," he said.
There was too much building in some market areas, and too much selling to investors.
Mayer, a Tucson, Ariz., resident who now works as a real estate coach at Real Estate Champions Inc., said that at the peak of the housing boom about one-third of all sales in the Phoenix area were to investors and speculators.
"So that’s a phantom market. There weren’t enough human beings in Phoenix to occupy all of the houses," he said. Builders had ramped up production, though the buyers in some cases were not buying the homes to live in them.
There were similar trends in other areas, he said. "They got hot — a bubble. Investors came in, (and) more product was being built than there were human beings to occupy them. And now we’re paying the price."
The U.S. financial markets are far more globally connected today than they were in decades past, he also said, and housing markets around the globe will be impacted in varying degrees, either directly through their own reliance on loose lending or indirectly by the fallout from the financial crisis.
"We didn’t have a world economy then to the extent we have now. The financial markets are so tied together worldwide. It’s going to take us awhile to work out of it."
Market slumps are typically every 10-15 years, and they have a way of "pruning out" the underperforming industry professionals, he said.
Those agents who list properties must be clear with sellers about the importance of pricing in today’s market, he said.
"If you can’t sell property in the top 10 percent in the marketplace, it just ain’t going to get sold."
And that means if there is a 10-month inventory of for-sale properties, a property that is priced similarly to all of the other homes on the market could take 10 months to sell, while a property with a lower price could move more quickly.
He said that online advertising is the place to market these days, and noted that it wasn’t much of an option in the 1990s and it didn’t exist in the ’80s.
"Get yourself out of written media — get out of classified advertising. Get out of fancy (magazines). Buyers today are on the Net."
Buyers who are waiting for the bottom of the market will inevitably miss it, he said — "it’s six months past by the time we know it’s happened." And while buyers may hold off on a purchase because of worries about continuing price declines, a rise in interest rates during that waiting period could negate the price drops, he said.
It may be 2010 or 2011 before the real estate markets rebound, he said, and that all depends on the speed of the turnaround in the financial markets.
Surviving in the real estate market today doesn’t mean that agents have to work 80 hours per week, he said, but it does mean that they need to focus on "direct income-producing activity. How much time is face-to-face, phone-to-phone with someone you can do business with?"
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