In past recessions, unemployed workers and the housing sector were like two climbers roped together on the side of a mountain face in a fierce gale.

When investment in new-home construction picked up, that would create jobs and boost spending, spurring more homebuying and construction and helping lift the economy out of the doldrums.

This time around, with homes continuing to enter the foreclosure process at an alarming rate and adding to the real and "shadow" inventory of homes, few economists expect new-home construction to drive down unemployment or ignite a recovery.

Editor’s note: While 2009 thankfully did not offer an economic repeat of the panic that struck Wall Street in 2008, it was nonetheless another painful year for the real estate industry and nation as a whole. In this report, Inman News reflects on the major news events of the year. 

By MATT CARTER and ANDREA V. BRAMBILA

1. The economy: an unemployment, construction disconnect

In past recessions, unemployed workers and the housing sector were like two climbers roped together on the side of a mountain face in a fierce gale.

When investment in new-home construction picked up, that would create jobs and boost spending, spurring more homebuying and construction and helping lift the economy out of the doldrums.

This time around, with homes continuing to enter the foreclosure process at an alarming rate and adding to the real and "shadow" inventory of homes, few economists expect new-home construction to drive down unemployment or ignite a recovery.

Although the pace of job losses is expected to slow in 2010, the economy will grow slowly next year and unemployment will remain high, despite promising signs that housing is "finally on the road to recovery," economists with the University of California, Los Angeles, Anderson Forecast said in a year-end report (see story).

Unemployment, which ranged between 4 percent and 6 percent for most of the first decade of the 21st century, surged past 9 percent in 2009. It’s not expected to peak until the first quarter of 2010, at 10.5 percent, and is likely to remain above 10 percent for the remainder of the year, according to the forecast.

Consumer spending is expected to grow at an annual rate of 2 percent, well below the 3 percent to 3.5 percent historical trend line.

In seven previous downturns, U.S. gross domestic product (GDP) has grown at an annual rate of 6 percent once a recovery takes hold. This time around, after rebounding to a 2.8 percent annual rate in the fourth quarter of 2009, real growth in GDP is expected to limp along at an anemic 2 percent in 2010, before climbing to 3 percent in 2011.

In 2005 — at the height of the boom — resale homes sold at a rate of more than 7 million per year, and housing starts exceeded 2 million.

Housing is expected to make gains in 2010, just not explosive ones. The Mortgage Bankers Association (MBA) projects that new-home sales, which declined from 485,000 in 2008 to a projected 391,000 in 2009 — which would be a record low in Census data dating back to 1963 — will climb back to 483,000 in 2010 and 609,000 in 2011.

Housing starts are expected to follow a similar arc, not surpassing the 906,000 mark set in 2008 for two years. The MBA expects housing starts to grow from a projected 557,000 in 2009 to 743,000 in 2010 and 1.025 million in 2011.

Sales of existing homes, which bottomed at 4.9 million in 2008 and are projected to barely break the 5 million mark in 2009, could be on track to climb to 5.55 million in 2010 and 6 million in 2011, the MBA said.

Next: 2. A new lending landscape …CONTINUED

2. A new lending landscape

If 2009 will be remembered by millions of Americans as the year they locked in a record-low rate on a mortgage, untold others will do their best to forget that it was the year they were turned down for a loan.

It was the best of times and the worst of times in mortgage lending, as a massive government program to keep dollars flowing into mortgage lending kept interest rates low, but tight underwriting standards left many out in the cold.

Experts say mortgage rates probably have nowhere to go but up next year, and that underwriting standards could get tougher still.

The Federal Reserve is expected to wind down by the end of March its $1.25 trillion in purchases of mortgage-backed securities (MBS) guaranteed by Fannie Mae, Freddie Mac and Ginnie Mae. While private investors will continue buying them, the government’s MBS purchases were credited with helping keep mortgage rates low in 2009.

Since the collapse of the secondary market for private-label MBS in the late summer of 2007, financing for the vast majority of mortgage loans flows through securities guaranteed by Fannie Mae, Freddie Mac and Ginnie Mae. Ginnie Mae guarantees payments on MBS backed by government-insured loans, mostly by the Federal Housing Administration (FHA) but also by the Department of Veterans Affairs (VA).

That’s made Fannie, Freddie and FHA — along with private mortgage insurers who provide a backstop for Fannie and Freddie when borrowers put less than 20 percent down — the final arbiters of underwriting standards on most mortgages. Lenders may adopt their own, tighter standards, but unless they are willing to keep the loans they make on their own books, they can’t be any looser.

With demand for loans backed by the Federal Housing Administration increasing sixfold during the downturn, claims on FHA’s insurance fund have reduced its capital reserve ratio below a 2 percent statutory minimum established by Congress in 1990.

Although FHA says the premiums it collects on loans it makes in the future will be enough to cover its losses in all but the direst scenario, it plans to tighten underwriting standards and may raise mortgage insurance premiums in 2010.

FHA will increase the amount of upfront cash homebuyers must bring to the table, raise minimum FICO scores for new borrowers, and reduce maximum seller concessions from 6 percent to 3 percent, Housing Secretary Shaun Donovan told lawmakers in December.

The Department of Housing and Urban Development is also considering raising FHA mortgage insurance premiums, Donovan said.

The real estate industry is anxiously awaiting further details on the changes, which will be announced in January, because FHA-backed loans have become one of the few options available to borrowers who don’t have 20 percent downpayments.

In the 12 months ending Sept. 30, FHA insured almost 30 percent of total purchase loans and 20 percent of total refinances in the housing market, according to HUD.

Nearly 80 percent of FHA-backed purchase loans were to first-time homebuyers and in the second quarter of 2009 nearly 50 percent of all first-time buyers in the entire housing market used FHA-insured loans, HUD said.

Private mortgage insurers tightened their standards long ago, particularly in markets hit by price declines.

Fannie and Freddie have also made numerous changes that shrink the effective size of the "credit box," or pool of eligible borrowers. On Dec. 12, Fannie implemented a minimum 620 FICO score and 45 percent debt-to-income ceiling as part of its rollout of its Desktop Underwriter Version 8.0 software.

Next: 3. Loan mods, short sales and foreclosures …CONTINUED

3. Loan mods, short sales and foreclosures

Loan servicers started putting a greater emphasis on short sales in 2009, even as the Obama administration’s loan modification program seemed as if it might be overwhelmed by a rising tide of foreclosures.

Unemployment and pressure from the "shadow inventory" of properties on banks’ books will continue to threaten home-price stability and an economic recovery in 2010, experts said.

Short sales were up 22 percent from the second quarter to the third quarter of 2009, and 127 percent from a year ago, according to a report issued at the end of the year by the federal banking regulators (see story).

Real estate brokers and agents say loan servicers often miss opportunities to approve short sales, and instead foreclose on homes, which they end up selling at an even greater loss.

Brokers and agents’ frustrations in dealing with lenders has helped spawn a cottage industry of companies that offer services, technology or training to expedite sales of distressed properties — sometimes charging fees that are passed along to consumers.

Some brokerages have their own in-house departments that may take charge of negotiations or shepherd paperwork for short-sales and bank-owned transactions through to completion (see story).

The Obama administration on Nov. 30 released long-awaited guidelines under which it will provide incentives for loan servicers and homeowners to engage in short sales when borrowers eligible for the Home Affordable Modification Program (HAMP) don’t qualify for a loan modification (see story).

Many in the real estate industry see short sales as a better alternative to loan modifications in some cases, because of the high probability that borrowers will redefault on a loan modification.

A recent report by a Congressional Oversight Panel overseeing the $700 billion Troubled Asset Relief Program (TARP) noted that the HAMP program wasn’t designed to help "underwater" borrowers or unemployed homeowners with fewer than nine months of jobless benefits.

The Treasury Department has estimated 40 percent of borrowers who are granted permanent loan modifications will redefault over the next five years, the report said (see story).

Next: 4. Homebuyer tax credits …CONTINUED

4. Homebuyer tax credits

Real estate industry lobbyists consider winning an extension and expansion of a temporary homebuyer tax credit, at an estimated cost to taxpayers of $10.8 billion, to be one of their greatest victories in 2009.

But it could prove to be anticlimactic if the tax credit — equal to 10 percent of a home’s sale price, up to $8,000 for first-time homebuyers — only pulls demand for homes forward, instead of producing a lasting boost in sales.

The fear that sales would peter out if the credit was allowed to expire Nov. 30 helped motivate the industry’s full-court press on lawmakers for an extension.

The credit was not only extended — it now applies to homes under contract by April 30 and closing no later than June 30 — it was also expanded to allow current homeowners who have lived in their homes for at least five consecutive years out of the past eight to claim a credit of up to $6,500.

The credit was previously available only to first-time homebuyers meeting strict income limits. Income limits have been raised from $75,000 to $125,000 for individuals, and from $125,000 to $225,000 for couples.

Nevertheless, the extension wasn’t everything the industry had hoped for. Former real estate broker Johnny Isakson, R-Ga., had introduced a bill that would have raised the ceiling on the tax credit to $15,000 and lifted first-time homebuyer and income restrictions altogether. But the Congressional Budget Office estimated the cost of a similar bill introduced by Isakson in 2008 at $34.2 billion.

In the end, the real estate industry won a more modest extension of the homebuyer tax credit by getting it tacked onto another bill extending federal unemployment benefits.

Lawmakers made lobbyists "promise, practically in blood, that we would not come back," and ask for another extension, said Linda Goold, the National Association of Realtors’ director of tax policy (see story).

While it’s probably easier to have the new, expanded homebuyer tax credit expire in the spring, when home sales traditionally surge, it will go away at about the same time the Federal Housing Administration is expected to tighten underwriting standards, and just after the Federal Reserve is expected to wrap up a program that has kept mortgage rates low (see story).

Next: 5. Appraisal woes and the Home Valuation Code of Conduct

…CONTINUED

5. Appraisal woes and the Home Valuation Code of Conduct

The National Association of Realtor’s June push for an 18-month moratorium on rules governing appraisals for loans slated for purchase by Fannie Mae and Freddie Mac fueled much frustration, controversy and debate throughout the year. The Home Valuation Code of Conduct (HVCC) took effect on May 1.

Since then, Realtors have complained that many appraisals have come in too low, derailing sales. The rules are intended to prevent lenders from exerting pressure on appraisers to meet a certain value when issuing their appraisals. Supporters say they have succeeded in that regard.

Critics, however, say the rules mean that lenders are more likely to use appraisal management companies (AMCs) as third parties between them and appraisers in order to comply. In addition to cutting into the market share of independent appraisers, critics say that such companies generally operate nationally and therefore their appraisers often aren’t familiar with the local area of a property.

Critics also say such companies don’t pay enough to employ experienced appraisers or encourage appraisers to take the time to make an accurate valuation.

Some Realtors also say such appraisers tend to use foreclosed or distressed properties as comparable properties, resulting in "lowball" offers. As a result, sales often fall through when the appraisal doesn’t validate the agreed-upon sales price and the bank won’t fund the loan.

In this way, critics say appraisal rules disadvantage buyers who need financing and make all-cash offers more attractive to sellers.

Appraisers say market conditions, not new rules, are to blame for problems Realtors perceive with the appraisal process. Since June, NAR has continued to challenge HVCC rules, though a bill passed by the House this month addresses some of the association’s concerns. HR 4173 would supersede HVCC rules. It stipulates that lenders compensate appraisers "at a rate that is customary and reasonable for appraisal services performed in the market area of the property being appraised." It also allows anyone with an interest in a real estate transaction to ask an appraiser to consider additional information about a property, provide further detail, substantiation or explanation for their valuation, and correct errors in the appraisal report.

Next: 6. Real estate brokerage cost-cutting, consolidation, mergers and realignments …CONTINUED

6. Real estate brokerage cost-cutting, consolidation, mergers and realignments

You might have expected that what’s been described as the biggest economic downturn since the Great Depression would thin the ranks of Realtors, real estate brokerages and franchisors.

But as 2009 came to a close, it appeared the real estate industry had managed to dodge much of the carnage seen in others, like investment banking.

At the end of November, the National Association of Realtors reported 1.13 million dues-paying members, down 17 percent from an all-time peak of 1.37 million in October 2006.

Membership nevertheless remained up 48 percent from a decade ago, when 762,611 men and women called themselves Realtors. NAR’s membership actually rebounded slightly in 2009, growing by 19,956 from the low for the year in March.

Instead of going out of business, big real estate brokerages and franchisors cut costs, and in some cases consolidated or realigned.

In August, two Chicago real estate brokerages that closed a combined $2 billion in sales in 2008 — Prudential Preferred Properties and Rubloff Residential Properties — merged to become Prudential Rubloff Properties.

In a series of deals, GMAC Real Estate’s Canadian-based parent company, Brookfield Residential Property Services, proceeded to sell off company-owned brokerages to owners that would stay within the franchise — and then announced a merger with Columbus, Ohio-based Real Living.

Brookfield RPS sold Boston-based Hammond Residential Real Estate back to founder Saul Cohen, and New Jersey-based Gloria Nilson GMAC Real Estate to investors led by real estate veteran Dick Schlott. San Francisco Bay Area-based luxury broker Pacific Union GMAC Real Estate went to principals of Morgan Lane Marin Inc., while HomeServices of America Inc. picked up Chicago-based luxury broker Koenig & Strey.

While Brookfield RPS had announced plans to rename GMAC Real Estate after acquiring GMAC Home Services LLC in 2008, it ended up doing more than simply rebranding.

The merger of GMAC Real Estate and Real Living, announced in November, brought 10,000 agents at 600 offices and a combined annual sales volume of about $20 billion together under the Real Living name, with Brookfield RPS as the parent company.

Toronto-based Brookfield RPS, which operates the Royal LePage and others brands in Canada, grew to 30,000 sales associates across North America, with about $50 billion in annual sales.

Before it could complete that move, Atlanta-based Metro Brokers jumped ship to Realogy Corp.’s Better Homes and Gardens Real Estate franchise.

Metro Brokers — which had been affiliated with GMAC Real Estate since 2001 under an agreement that wasn’t scheduled to expire until 2014 — claims to be Georgia’s largest brokerage, with 2,300 agents, 28 offices and $1.1 billion in 2008 sales.

Metro Brokers was the 10th brokerage to affiliate with Better Homes and Gardens Real Estate, allowing the company to claim 4,200 sales associates in 14 states

Realogy, whose franchise group also includes the Century 21, Coldwell Banker, Corcoran Group, ERA and Sotheby’s International Realty brands, started the year rebutting speculation that it would be dragged down by the massive debt it took on when it was taken private by a subsidiary of hedge fund Apollo Management.

Realogy soldiered on through a tough year, trimming its losses and turning a small profit in the third quarter.

Next: 7. Mobile innovation: smartphones and apps …CONTINUED

7. Mobile innovation: smartphones and apps

Some of the most talked-about stories at Inman News this year focused on major online real estate companies or brokerages that launched mobile-phone applications. Those companies include Zillow, Facebook, Better Homes and Gardens Real Estate, Corcoran, DocuSign Inc., Redfin, Coldwell Banker and ZipRealty, among others. Yelp released an updated iPhone app using augmented reality technology, which is the layering of data on top of the visual output from a smartphone’s camera. French company MeilleurAgents.com uses the technology to provide real estate valuations for properties a user is looking at while walking down the street. In a partnership with Inman News, the California Association of Realtors also announced iPhone applications that provide access to news stories and market data.

New mobile-phone applications tailored for real estate are moving beyond for-sale property searches, which are now considered the norm, and into areas once reserved for personal computers, such as lead generation and management, market research and analysis, and customer relationship management. Clients can also often contact agents for information about a property with a single click. Some apps are designed to detect the user’s location and reveal nearby open houses and homes for sale, and even turn-by-turn spoken directions to those properties. One iPhone app, TourNarrator, stores clients’ house-tour info. (Click here to read an Inman News series on mobile trends in real estate.)

Experts say developers who try to create a single app for all platforms are doomed to failure. Instead, they suggest developers build an app for a specific platform and put extra effort toward a good user interface. A poor user experience will turn off consumers, they say, possibly forever.

Some question the relevance of mobile phone apps when only 12 to 14 percent of U.S. mobile subscribers have smartphones. That compares to more than 80 percent who own phones with text-messaging capability. Nevertheless, some view mobile platforms, not Web sites, as the future of real estate technology. Click here for a list of the 15 best iPhone apps for mobile real estate agents.

Next: 8. Rising use of social media: a tale of tweets, friends and followers …CONTINUED

8. Rising use of social media: a tale of tweets, friends and followers

The real estate industry was abuzz with the rising use of social media sites like Facebook and Twitter this year. An article about tweeting in March was one of Inman News’ most visited stories of 2009. As these social networks grew, agents had to figure out the right way to use them to grow their businesses and manage their reputations.

Inman News columnists gave their take on the trend throughout the year. Among their advice:

–The first step is to establish a presence. The next step is to be hypervigilant about that presence; everything you post will be there for posterity. Separate personal from business accounts — no sense in leaving those wild party photos for your clients to see.

— Build your brand so that you become familiar to your potential customers, but don’t engage in direct marketing. People online are very sensitive to ads and recognize when someone is trying to sell them something. You’re better off reaching out to people as a person, rather than as a potential spammer.

Those who are reluctant to hop on the bandwagon say social networking sites are full of nonsense, waste time, are only for young people, and/or impel them to reveal personal information they would rather keep to themselves.

Much of the time the leads these sites generate are time-consuming and don’t go anywhere, critics say. Others say such sites can result in social media overload and turn people off when they become more like spam than personal messages.

But supporters of the sites say social networking is a great way to leverage your expertise and build trust with potential clients. People should remember, they add, that social media is neither free nor a quick fix nor a substitute for skilled service; it takes time to use and to build a following, and an agent still has to be able to follow through and provide value.

Next: 9. NAR’s RPR: the Realtors Property Resource …CONTINUED

9. NAR’s RPR: the Realtors Property Resource

In November, the National Association of Realtors announced its $12 million acquisition of technology from Cyberhomes.com to assist in its development of Realtors Property Resource, an online real estate database that will provide Realtors with data on every property in the United States.

Some industry experts interpret the venture as an attempt by NAR to remain relevant to its membership amid the proliferation of social media and data-rich third-party sites. NAR says the database will only be available to Realtors and will provide them with valuable information that must now be purchased from other sources.

The new service will include parcel information on 140 million properties, both commercial and residential, including public record information, details of prior transactions, multiple listing service-provided information, zoning information, and transfer tax information. It will also provide foreclosure data, default stats, market condition reports, neighborhood demographics, school data, and consumption statistics.

Blogger and industry consultant Brian Boero calls RPR "a serious move to lift property information above the broad plain of local silos."

The service will even take on Zillow’s Zestimates with a new Realtor Valuation Model that would use Realtor input in the often contentious business of appraisals. RPR plans to sell data to lenders, investors and government agencies as part of its business model.

MLS buy-in with the upstart RPR is not a certainty, though. NAR wants to trade MLS listings information in exchange for free access to the database. Yet, some NAR members fear RPR could develop as a national MLS system that will spell death to local MLSs and intrude on the businesses of the association’s appraiser members.

The association has assured that the service "is not a national MLS, and will carry no offers of cooperation and compensation." Though some have predicted clashes between the RPR and local MLSs.

Next: 10. The drive online: online marketing and analytics take hold…CONTINUED

10. The drive online: online marketing and analytics take hold

This year saw a growing interest in Web analytics and a continued drive to reach potential clients online. With the massive online audience for all things real estate, real estate professionals can watch page views and other visitor statistics to attract new business. Analytics include page view and unique visitor numbers, hits on landing pages, and bounce rate (the percentage of people who arrive on your site and then leave without looking at anything else).

Such measurements can drive business decisions, and major real estate brokerage companies are paying close attention to consumers’ online behavior and where they are spending their ad dollars. Century 21 decided to shift its TV ad budget online.

Analytics can help companies figure out who their customers are, what customers like and don’t like on their site, whether a change made on their site makes a difference, how many lead forms are filled out, where leads come from, whether leads result in sales, and whether their search-engine optimization needs work.

Importantly, Web analytics make agents more efficient by helping them choose marketing strategies and measure their effectiveness instead of just doing something and hoping it sticks.

This year saw the real-time real estate analytics site Woopra leave beta and Google’s launch of its Sidewiki tool to allow users to leave their opinions of a site and how it works. Inman News columnist Gahlord Dewald has offered some end-of-year advice on how to improve your Web analytics in the year ahead.

***

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