* * * * HARD CORE REAL ESTATE TALK * * * *
I seem to recall reading somewhere about 3 months ago that the administration was forecasting growth in of the U.S. economy of 4%. Since that time, I've read the same predictions from several "authoritive sources". Whenever I see such a prediction, I can merely say to myself. . how???
BE PREPARED! I also believe that a lot of folks simply believe that if we expect good things to happen, good things will happen. I believe that we real estate practitioners need to look at facts and figures and not rely on "feelings". The Boy Scouts are the authorities here with "BE PREPARED". In many ways, survival in the real estate business today is like wilderness survival. If real estate practitioners are prepared, we will survive this market catastrophe in far better shape than if we simply stand by and wish for the best.
Michael Mussa, senior fellow at PIIE and former chief economist at the International Monetary Fund (IMF), predicts that real GDP growth in the world will be 4.2 percent in 2010 over 2009, and real GDP growth in the United States will be 4.0 percent from the middle of 2009 through the end of next year. . . MORE. . .
These folks remind me of the real estate prognosticators who continue to claim that the real estate market has "bottomed".
Not everyone agrees. The Congressional Budget Office, staffed by a cabal of truth seekers and radicals who continue to confound the President of the United States with facts and figures, projects a gloomy 2010.
Elizabeth Warren, Chair of the Congressional Oversight Panel, a prognostigator I greatly admire for her candor and reliance on facts and figures, stated in February 2009: What effect is this recession having on the middle class? "America's middle class is at a turning point. The outcome of this recession will either be a significantly strengthened middle class--which has less debt and a stronger safety net, both on its own and through new government regulation--or the middle class we once knew will disappear. [In that case,] America will move to a two-class economy--a substantial upper class that's financially secure and then a very large underclass that lives paycheck to paycheck." . . . MORE. . .
ON FORECLOSURES, Dr. Warren has zeroed in on what I believe to be the most pernicious and generally overlooked cause of the economic decline and the likely failure of the economy to recover at the rate predicted by Congress, the White House and the NAR. Negative equity, home owners who owe more for their homes than the market value of that property has made about 20,000,000 home owners prisoners of their home mortgage and effectively removed many from the consumer market. How can the economy grow when the consumer pool is shrinking??
"Mortgage foreclosures pose a special problem. Millions of people could make market-rate payments on 30-year fixed mortgages for 100% of the current market value of their homes. But these can-pay families are driven into foreclosure because they cannot pay according to the terms of the higher-priced mortgages they now hold, and refinancing options are limited or nonexistent.". . . . MORE. . . .
HAS THE REAL ESTATE MARKET BOTTOMED? That depends on where you are located and what highs the prognosticator is using to come to the conclusion that the real estate market has "bottomed".
WHAT IS THE NEW PARADIGM? The real estate market has a BASE of about 80% of the numbers reported. What does that mean?
It means that:
- the actual home buying pool is about 80% of what we think it is.
- only about 80% of home owners are in a position to buy or sell.
- only about 80% of home owners have sufficient equity to be able to sell with net proceeds.
- only about 80% of the home owners who wish to MOVE UP are able to do so.
- only about 20% of the homes purchased during 2004-2007 have positive equity.
It also means that agents and brokers who plan to survive the next several years in the real estate business will need about 20% more cash to fund overhead because the ROI could be about 20% less than in the past.
It also means that the market can only sustain about 80% of the real estate licensees who wish to make a living in real estate sales.
If you plan to survive as a real estate practitioner, don't put your head in the sand and hope for the best.
Positive thoughts don't make things happen. Hard work, planning and execution is what makes things happen.
THE NEW PARADIGM requires that real estate practitioners know the market, focus on niches that have a chance of success. If a real estate agent focuses on listing homes for sellers who desire to "move up", be careful and make sure that they have sufficient equity to finance their plans.
THE NEW PARADIGM requires that listing agents who propose to list and sell homes for relocating home owners understand that the subject property has a far lower market value than the owner believes (or "feels"). Listing agents must be tough with unrealistic sellers who believe that they should be able to sell for more than the market will pay or that appraisers will value.
THE NEW PARADIGM requires that many prospective buyer contacts are from opportunistic consumers who believe the advertising and industry rhetoric that claims real estate is easy to by without consideration of credit, cash or investment.
THE NEW PARADIGM requires that agents stay on top of changes in their market area, plan their work schedule, continue training to know the changes in the law and real estate practices, i.e. foreclosures / short sales / appraisals and more.
THE NEW PARADIGM requires that we know our business and run our business in a business like manner.
Courtesy, Lenn Harley, Broker, Homefinders.com.