Editor’s note: With the end of a year marked by weakening housing markets drawing to a close, the question on many industry professionals’ minds is "When will this market hit bottom and when will it start to recover?" In this three-part series, Inman News seeks insight from housing analysts who go deep to paint a picture of housing in 2008, compares this downturn to past cycles and seeks input from agents on how they are reacting with their business plans. (Read Part 1 and Part 2.)
Real estate agents in hard-hit housing markets are rushing into survival mode — at least that’s the case for many who plan to stick around.
That may mean working with distressed properties, developing or fine-tuning other specialties, rethinking marketing strategies, or strengthening relations with past clients. And it probably means working harder and leaner.
While membership numbers for the National Association of Realtors have largely withstood the latest market strains, there are signs of withering. Membership fell 0.51 percent in October compared to the same month last year, dropping from 1.37 million to 1.36 million, and some states have experienced much larger membership declines.
The number of Realtors in Michigan — a state that has suffered massive job losses and a significant level of foreclosures and home-price declines — fell 10.3 percent from Oct. 31, 2006, to Oct. 31, 2007. In Florida, home to several troubled real estate markets, Realtor membership declined 7.7 percent, from 157,078 as of Oct. 31, 2006, to 145,042 as of Oct. 31, 2007. Minnesota saw a 7.3 percent drop-off in Realtor membership.
Other states have seen a boom in Realtor membership, including Utah, up 9.74 percent; Mississippi, up 9 percent; and North Carolina and Wyoming, up 7 percent from Oct. 31, 2006, to Oct. 31, 2007.
Realtor membership fell 2.4 percent in California year-over-year on Oct. 31, 2007, though the total number of real estate licensees in the state — including Realtors and non-Realtors — climbed 6 percent, from 517,049 in October 2006 to 548,070 in October 2007, the California Department of Real Estate reported.
Anecdotally, Realtors in some markets have reported that industry colleagues are popping up in unlikely places: doubling as a waitress, a car salesman or a grocery bagger.
Real estate agents typically work on a commission basis and pay for their own health insurance — so zero sales equates to zero income. And even if agents maintain a real estate license, that doesn’t necessarily mean they’re making a living in real estate.
The California Association of Realtors reported a projected annual sales rate of 265,030 based on the number of resale home sales in October, which would amount to 1.4 resale home-sale transactions per Realtor per year in the state for the year. Assuming a 3 percent commission rate at the state’s median price of $497,110, that would amount to commission income of $20,879 for the year.
The U.S. Census Bureau’s poverty threshold for 2006 was income of $20,614 for a four-person household, or $13,167 for a two-person household.
The annual projected rate of resale homes was 4.97 million in October, which amounts to participation in 3.7 transactions per Realtor for the year at the latest national membership count.
If you figure a 3 percent commission for each of those deals at the national October median sales price of $207,800, that would amount to $23,065 commission income for the year per Realtor. These estimates do not account for potential income from participating in new-home sale transactions.
While some agents are participating in more sales than the average, there are those who are not closing any deals.
"Forty-three percent of people in our multiple listing service have not done a transaction in this whole year," said Marlene Bridges, a Realtor for Sherman Smith & Associates in Tustin, Calif. "A lot of people still have a license."
The Orange County, Calif., market has experienced "an amazing change," she said, "but it’s still a viable market."
She recalled just a couple of years back, when the market was booming and buyers would put an offer in within minutes of their first visit to a for-sale home. "I wrote contracts on the hood of my car," Bridges said. She remembers, too, how homes she listed for sale would be sold before she could finish designing the promotional flier.
Now, she said, the inventory of for-sale homes is soaring, there has been a surge in properties in some stage of foreclosure, and builders who once held their cards close are now welcoming agents in to assist with new-home sales.
"It’s remarkable to see that shift," Bridges said. Home sellers are offering a lot of concessions to buyers, she said, with some sellers offering to cover closing costs and offering gift cards, for example.
She guessed that it might be another year before the market begins to move back up.
Sales of properties in a foreclosure process and bank-owned (also known as real estate-owned or REO) properties have mushroomed into a major share of total home sales in some markets, and some agents are capitalizing on this trend by specializing in foreclosure and REO sales.
Tamara Dawn, a real estate broker in Sacramento, Calif., compiled statistics for Sacramento County which show that REO sales and short sales — which are sales of homes in which the sale price falls short of what the homeowner still owes on the mortgage — accounted for about 26.3 percent of total sales in the county from May 7 through Nov. 7.
A short sale can assist a homeowner in avoiding foreclosure and can be less costly for a lender than taking ownership of the property. Short-sale transactions can take more effort and time than typical real estate transactions, as they typically require extensive paperwork and can take weeks to receive a decision back from the lender on whether to approve or reject the terms of the sale.
REOs alone accounted for 22.5 percent of total sales in Sacramento County during the May 7-Nov. 7 period, and REO sales accounted for 35.8 percent of total sales in the county from Oct. 7 through Nov. 7.
As of Nov. 7, about 52.7 percent of all pending sales for the previous 30 days in Sacramento County were related to short-sale and REO transactions, while about 46.6 percent of all active listings on Nov. 7 involved short-sale and REO properties.
Dawn compiled the statistics while working on a short-sale transaction – she said she is hopeful that lenders will warm up to short-sale transactions as a way to assist distressed homeowners out while avoiding steeper costs associated with foreclosed properties.
Norma Gonzalez, a Realtor for Liberty Realty in Las Vegas, said that she has been pursuing short sales to keep her business going during a time of slowing sales.
"I work with a lot of first-time home buyers," she said. "They’re reluctant to buy. A lot of (them) keep waiting for a better deal."
She said she has also been fielding calls from some past clients who are now over their heads in mortgage debt and facing the prospect of foreclosure. "They didn’t estimate how quickly the market was going to turn," she said, adding that she works to refer them to credit counseling and other housing programs.
In this slowing sales environment, Gonzalez is also working to supplement her real estate income with a side business venture — an online health and beauty and supply business.
Working with foreclosures
In October, Nevada led the nation for the 10th straight month for its high rate of foreclosure activity, with one foreclosure filing for every 154 households, data company RealtyTrac reported in November.
Foreclosure filings were up about 197 percent that month compared to the same month last year, while nationwide foreclosure filings rose 94.2 percent, with a nationwide rate of one foreclosure filing for every 555 households. Las Vegas ranked fourth among metro areas in October for its rate of foreclosures, and Sacramento ranked ninth.
"A lot of people are crying to us" who face the prospect of losing their homes, said Cecilia B. McNaughton, a broker associate for Annie Vogelpohl Real Estate in Fairfield, Calif., a city between San Francisco and Sacramento that has also experienced a rising rate of foreclosures. "We have to be psychologists, too."
McNaughton, who has been working with foreclosure properties, said that the median price in her market area has fallen about $50,000.
Short sales seem to be on a faster track these days, she said, and it took just five days to get an answer back from the lender in one recent case.
"They’re beginning to smell the coffee now," said Lucie Silverio, a Realtor colleague who works at the same company.
McNaughton said that foreclosure investors are more active in the market, and that could be a sign that the market is headed toward recovery.
While the overall real estate market is relatively strong in Houston, foreclosures are rising there, said Victoria Torres, a Realtor for RE/MAX Professional Group in Houston. Torres, who has worked in the real estate business for four years, said she is hoping to develop a specialty in short sales.
"So many people are in trouble," she said. "You do have to get up (to speed with) what the market is doing." The clients she has worked with on short sales are facing foreclosure for different reasons, ranging from family problems to a rise in monthly payments associated with adjustable-rate mortgages.
Bucking the trend
Not all market areas and market segments have been hit hard by the foreclosure problem. While the subprime mortgage market meltdown and associated credit crunch have national implications, there are some markets that have experienced a strong sales pace and home-price appreciation.
Many markets in Florida have suffered, though John Willis, a Realtor for Watson Realty Corp. in Gainesville, Fla., said he is having his most successful year since he joined the industry eight years ago.
"Our market was one of the last ones to slow down in the state," he said. He has turned down about 30 condo listings because of the difficult sales environment for those properties. "I told them if they are willing to take a bath, try selling them (now)," he said.
He estimates there is perhaps a 16-month supply of inventory. But vacant land is still moving, he said, and about half of his business is related to land sales.
He works with a lot of out-of-state and international buyers on land and residential sales, and notes that some international buyers pay cash. In some cases, the buyers are purchasing a home for their children to live in while they are attending the university in Gainesville, with plans to sell when they graduate. Many out-of-state buyers are California residents, he said.
Patrick Thies, a Realtor for Schiller Real Estate in Elmhurst, Ill., also said he is having one of his best years despite the national slowdown. And colleague Joyce Okal said the luxury market is performing well, while the entry-level homes are sitting on the market longer.
"We see a larger price drop and more confusion in the lower (price) brackets. It’s the oddest market — they should be buying like crazy," Okal said.
Likewise, the market hasn’t suffered much in the pricey Pacific Palisades, Calif., area, said Gregory J. Pawlik, a Realtor for Coldwell Banker Previews International.
"We haven’t seen a huge discount" in pricing, he said, though a home that listed at $1.5 million last year might be listed for $1.2 million this year, and some buyers are digging in on the sidelines.
"They are sitting there waiting for someone to say, ‘The market has bottomed out,’ " he said. "The move-up buyers are still there," and those who are buying are not speculative buyers, he added.
Meanwhile, Nancy Troxell, a Realtor for RE/MAX of Santa Clarita, Calif., said she hasn’t participated in a real estate transaction since July. "It’s dried up," she said, and the market has been slow for the entire year.
Buyers, she said, are "concerned about the market declining farther — they’re afraid to find themselves upside down."
While she enjoyed working with sellers during the boom years of the market, she said that some buyers were "going way beyond their comfort level" to purchase a home. "The loans being made were just way over the top," she said.
It was easy for agents to get comfortable and complacent when the sales were moving fast, she said, noting that this slowing market will require real estate agents to get "back to basics."
Troxell said she is also working on a side career outside of the real estate industry during this slowing market.
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