(This is Part 1 of a six-part series.

(This is Part 1 of a six-part series. Read Part 2Part 3, Part 4, Part 5 and Part 6.)

From blogging to Zillow, today’s rapidly changing real estate environment continues to challenge both agents and brokers alike. What changes should you implement? Where are your advertising dollars best spent? What are the economic, demographic and digital trends that will influence your business in 2007? More importantly, what is your strategy for selecting the unique combination of innovations best suited to your personal business model? Over the next few weeks, we’ll look at what’s coming in 2007 as well as what to implement in your business to create a competitive advantage.

Economic Trends

#1: The demise of the real estate ATM machine and the high cost to consumers

One of the most serious concerns for 2007 is the high percentage of debt that today’s consumers are carrying. In 1950, the average consumer’s debt was 18 percent of his/her annual income. In 2006, that number was 117 percent. For those who have equity in their homes, we have turned our houses into ATM machines to buy cars, to pay for college, and to finance big-screen televisions or other non-essential purchases. The challenge for many homeowners is that the ATM machine has closed. They no longer have the ability to refinance their homes because of market stagnation or market depreciation. This means that unless many homeowners change their spending patterns, their debt will continue to increase. Since they can no longer use low-interest mortgage rates to finance their excessive spending, their ability to meet their fixed obligations such as mortgage, taxes, insurance and car payments may be in jeopardy.

Opportunity: If your past clients are having financial difficulties, refer them to a reputable credit counseling service in your area. You could also speak to local lenders about programs to lower the homeowner’s interest rate on their credit card debt. If they must list their home, they are more likely to hire you since you helped them cope with their debt. For those who are not having financial problems, you can create a “Save Thousands on your Mortgage” report that you deliver in person or by mail to your past clients. For owners who opted for an interest-only loan, urge them to make at least one additional payment a year to start bringing down the principal. Use your report to show them how much they will save over the term of their loan. For example, on a $250,000 loan at 7 percent, switching to a 15-year payoff saves your client $194,299 in interest payments. This represents enough money to fund a retirement account or to put a down payment on an $800,000 building that will generate substantial cash flow. On a $250,000 loan at 7 percent, a homeowner who increases the monthly payment $100 per month saves $56,780 over the term of the loan. The savings are even more substantial for the homeowner with a smaller loan. An owner who has a $150,000 loan at 7 percent saves $58,320.

#2: Foreclosure and short sales: new income streams for your business

With more than 9 million loans readjusting in 2007, many owners will not be able to afford the increase in their interest rates. Equally disturbing is the high percentage of homeowners who have opted for 100 percent financing options or who have elected interest-only loans. If these owners have to sell, they are already in a short-sale situation even if there has been no decline in prices. A typical sale requires approximately 8 percent in seller fees (i.e. 6 percent commission plus 2 percent in closing costs.) On a $200,000 property, this means the seller nets $184,000. This will not be enough to pay off the loan balance unless the seller puts 10 percent down or has owned the property long enough to pay down the loan or to experience appreciation.

Opportunity: This would be an excellent time for your past clients to refinance into a fully amortized fixed-rate loan. Currently, the differences in adjustable- and fixed-rate loans are as little as 1/4 percent, which is a negligible amount in terms of payments. Show them the difference in the payment schedules. Furthermore, the University of California, Los Angeles, is predicting a gradual decline in interest rates that will continue until mid-summer. For sellers who must sell but lack sufficient equity to close the sale, you have the option of helping them with a short sale. A better approach that protects their credit, however, is to help the sellers negotiate a personal loan to pay off the balance after their property closes. A third opportunity is to become a foreclosure specialist. When markets slow, professional investors come back into the marketplace. Consider linking to RealtyTrac.com or to Foreclosure.com. These sites allow your Web site visitors to access more than 1 million foreclosure and bankruptcy listings from your site. Better yet, both offer an affiliate program that actually pays you for the leads that you generate to their sites.

#3: The Real Estate Futures Market: equity insurance, not just title insurance

One of the most exciting innovations for 2007 is the creation of a real estate futures market. The contracts are based upon the Standard & Poor’s Case-Shiller Metro Area House Price index that tracks price changes on existing homes in 10 major metropolitan markets.

Opportunity: Expect new products to evolve that will include “equity insurance,” based upon this new stock market product. For buyers or homeowners who are concerned about loss of equity in their properties, they can “sell short” to protect their property value from a downturn. For agents who are savvy stock market investors, representing high-flying real estate purchasers may represent an important new market niche.

Want to know more about how to capitalize on the trends for 2007? If so, see next week’s article.

Bernice Ross, national speaker and CEO of Realestatecoach.com, is the author of “Waging War on Real Estate’s Discounters” and “Who’s the Best Person to Sell My House?” Both are available online. She can be reached at bernice@realestatecoach.com or visit her blog at www.LuxuryClues.com.

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