Housing Crash - Realtors Quit

[Joseph Burkeson, CMI]

"Reality is the name we give to our disappointments" ~ Mason Cooley.

Housing Crash - Realtors Quit

By Patrik Jonsson
Christian Science Monitor - January 9, 2008

ATLANTA - After three years showing houses in Atlanta's hilly suburbs, Dee McMahon is finished with real estate.

Yanking up her custom-made "For Sale" signs in her North Lake neighborhood rattled her ego, she admits. But when Ms. McMahon closed her final sale, a house in Snellville, Ga., in late November, the mother of two felt a swell of relief.

"Now I can finally get my own house back together," she says. "I'm nervous about the future, but I feel happy."

McMahon is one of thousands of real estate agents across the US wandering with mixed emotions and uncertain prospects through the debris of a real estate gold rush.

As many train for new careers, return to old ones, or wait tables until prices rebound, the plight of the real estate agent ­ average age, 51 ­ reveals the human dimension of how loose lending, raw opportunity, and self-determination produced a housing bust that has stunned the US economy.

"They've tasted success and big money, and now their standard of living has been rocked and reality has set in," says John Baen, a real estate professor at the University of North Texas in Denton. "The whole [economy] has been built on real estate. When the music stops, what is left?"

Americans are still drawn to working in real estate, according to the National Association of Realtors, which says its membership rose this year to 1.35 million. That growth in the ranks may be attributed to unaffiliated agents scrambling for clout in a tough market rather than an indication that the total number of agents is rising, the NAR acknowledges.

Evidence is growing that agents, especially in hard-hit markets like Florida, California, and Georgia, are closing up shop in large numbers, experts say.

Here in Atlanta, the number of agents letting their licenses lapse is growing at a faster pace than the number of overall licenses held. Nationally, an average agent's income dropped from $49,300 to $47,900 between 2004 and 2006. Not helping that trend is the cold fact that, according to Standard & Poor's house price index, home prices dropped precipitously in 2007, breaking the record 6.1 percent annual decline in 1991.

In Cape Coral, Fla., where only 30 percent of agents sold even a single home last year, real estate agents are "dropping out" daily, says local realtor Ginette Young. The Oregon Association of Realtors reports an 11.5 percent decline statewide of licensed agents in the past year.

Many of those who leave quietly shelve their signs. Others go out big: In Gilbert, Ariz., the fastest-growing city in the fastest-growing state, RE/MAX 2000 closed 13 offices throughout the Valley of the Sun, laying off at least 20 employees and scores of contract agents right before Christmas. The company couldn't meet its expenses.

Real estate is a line of work filled with mothers returning to the workforce, older workers squeezed out of lifetime careers, and young opportunists looking to trade sweat equity for potentially big cash-outs. Indeed, the industry norm is that only 4 percent of agents choose real estate sales as a first career.

In Georgia, realty ranks had swelled to 48,000 at the peak of the market. In the end, many say, there were too many inexperienced agents hawking houses.

"There's a lot of money being spent [on real estate classes] teaching agents how to waste a year of their life," says Atlanta agent Sandy Koza. "Then you get a downturn and a bunch of people get bumped. To [experienced agents like] us, it cleans out the business a little bit."

Florida's Cape Coral, a canal-sliced beach community, saw 800 building permits a month fall to 25 to 30 in the past year. The rapid slowdown left real estate agents, investors, and brokers holding the bag on big-money deals.

"It's a gold-rush mentality," says Michael Davis, an economist at Southern Methodist University's Cox School of Business in Dallas. He has been struck by how many agents, brokers, and investors, acting against conventional wisdom of portfolio management, converted large percentages of cash holdings into only a single and somewhat risky investment: property. "I don't know whether they're ignorant or optimistic, perhaps a little of both," says Dr. Davis.

Many others became the foot soldiers in the housing boom, second- or third-careerists drawn to the self-determination, relatively low entrance costs, and perhaps even the allure of the trade as embodied by novelist Richard Ford's legendary character Frank Bascombe, an angst-driven realtor who wanders the Jersey Shore for deals and revelations.

A former computer developer, Thomas Banecke of Sandy Springs, Ga., spent most of the summer baby-sitting a new condo development ­ usually a plum assignment. But when the Atlanta condo market tanked, foot traffic dwindled to almost zero.

Mr. Banecke is now back in the computer business and is putting his real estate career on hold. In some ways, he says, the cold housing market forced real estate agents, especially rookies, to confront their own abilities, schemes, and dreams. Upfront costs, marketing, association fees, and the crucial contacts are either more costly or harder to procure than an aspiring real estate agent usually expects, Banecke says.

"This kind of thing will wipe up a whole bunch of people who thought they could do this to make a living," he says.

As for McMahon, the Atlanta agent, she still had a nice listing book and plenty of leads when she called it quits. In the end, unreliable buyers, surly sellers, and a lack of office camaraderie contributed to a decision that solidified when home sales and prices dipped. "I was waiting for a time to kind of swing out," she says. She's planning to become a high school science teacher.

One problem for out-of-work agents is that their skills may not transfer easily to other careers. California is waiting to hear on a $9 million federal retraining grant after 6,000 people lost their jobs in the housing industry since September.

But Dr. Baen of the University of North Texas is optimistic about their futures. "These people are hustlers, hard workers. They're used to getting on the phone," he says. "They'll end up in insurance, in mutual funds, in retirement planning, and commodities."

[bdoles2]

I was with a GMAC agent yesterday and they said the roster has dropped over 600+ agents in the last 5 months.

I'm finding many of my previous agent email addresses are bounced back.

[James H. Bushart]

Looks like a lot of donut money going down the toilet for some folks....

[bdoles2]

Indeed!

[ldapkus]

Originally Posted by jbushart

Looks like a lot of donut money going down the toilet for some folks....

I'll selling my Dunkin Donuts stock.

[bdoles2]

So much for walking in with a half dozen donuts and a cup of coffee in each hand.

[Emmanuel J. Scanlan]

Originally Posted by bdoles2

So much for walking in with a half dozen donuts and a cup of coffee in each hand.

Might not be Starbucks coffee as they are hurting as of late. They replaced the CEO and are restructuring which includes a large number of undeperforming location closures. One news story even quoted them as saying the downturn was directly related to the current housing situation.

[Doug Edwards]

More likely $7 cup of coffee with a sexy name is the cause.

[ldapkus]

Bearish outlook sees worst recession since Depression

Bulls and bears debate sting and reach of housing downturn

Thursday, January 10, 2008

By Glenn Roberts Jr.
Inman News

NEW YORK -- Nouriel Roubini, professor of economics at New York University's Stern School of Business, is calling it the worst housing recession since the days of the Great Depression.
Nouriel Roubini Speaking during a session at the Real Estate Connect NYC conference on Wednesday, Roubini said he believes that a U.S. economic recession began in late 2007 and "is going to be much more severe" than economic recessions earlier this decade and in the early 1990s, with credit problems spreading across the financial system and impacting all forms of home loans, commercial real estate loans and even auto loans, among other forms of financing.
"What we're worried about today is a systemic financial crisis. This is a severe, massive problem. It's going to take years to adjust," said Roubini. Home prices have already fallen 15 percent to 20 percent in some areas from their peaks during the latest housing boom, with housing starts tumbling 40 percent and sales sliding about 50 percent, he said.
If prices fall 30 percent from the peak, that would represent about $6 trillion in lost value and millions of homeowners with negative equity, he said.
Other real estate market experts shared their views on the future of the real estate market during the "Bull vs. Bear" debate, and expressed varying degrees of worry.
Dottie Herman Dottie Herman, president and CEO for Manhattan-based brokerage company Prudential Douglas Elliman, said that mortgage interest rates were at about 19 percent when she entered the real estate business, though properties were still bought and sold even during those times.
"Do I think we're going to go through some painful times? Yes."
The credit crisis is a problem that will touch everyone -- and it is not just isolated to the real estate market, she said.
The housing downturn may serve to make housing more affordable for buyers who are in the market, and has provided an ample selection of properties on the market.
There are lessons in the downturn, Herman said, about loose lending practices and consumer education about home loans.
Consumers are ultimately "responsible for what they're purchasing," she said, and "some people gamble."
As for the New York City market, "we're still a bargain compared to some other places outside of the country," she said.
Barry Ritholtz The five stages of grief, which you might learn about in a college psychology class, are very telling about the discussions over the slumping housing market, said Barry Ritholtz, chief market strategist of Ritholtz Research and CEO and director of equity research for Fusion IQ.
The first stage, he said, is denial. At first, when the housing market began to slow, some analysts and experts said it would be short lived.
At the next stage, there was an admission that there was a housing problem but a denial that it was impacting the overall economy.
That digressed to talk of the housing market downturn's slight impact on the economy that was relatively contained, followed by claims that there were impacts to the economy but they were already accounted for in stock prices, Ritholtz said.
The next stages of grief, he said, are depression and acceptance. The National Association of Realtors trade group shares some blame for releasing "sunny forecasts," he said, that he believes did not accurately reflect the spiraling market.
Wall Street's system for packaging and selling mortgage risk as securities is in need of an overhaul, as "nobody really knows how to value them," he said, and it will be a "painful process" when Wall Street fully recognizes and purges the problems.
Roubini said that Federal Reserve officials kept interest rates too low for too long, contributing to the current state of the market, and "regulators were asleep at the wheel" with the mortgage securitization model that is now "a little bit of a monster."
The securitization "food chain" has been rife with conflict of interest, he said, as companies and entities involved in the process make money off of fees while they "shove the risk to someone else."
Noah Rosenblatt "There are a lot of tentacles in this credit crisis," and the fallout has the potential to reach pension plans and other financial sectors, said Noah Rosenblatt, founder of the UrbanDigs.com blog and a real estate agent for Citi Habitats.
"We know we had a debt problem. Stupid things were going on. Wall Street took advantage of it like they always do. It's a demon and we're paying the price for it. It's going to make the housing recession worse," Rosenblatt said.
But a recession also presents an opportunity, he said, and a chance to correct a market that had moved so fast for so long. It definitely is going to take time, he said, as the prolonged period of lax lending standards will not be mended in the short term.
"This is a necessary but good thing for us to go through. We should go through this and accept it. This has to happen," he said. "We need this downturn."
To watch an InmanTV video of the Bull vs. Bear debate, click here.

***

Send tips or a Letter to the Editor to glenn@inman.com, or call (510) 658-9252, ext. 137.
Copyright 2008 Inman News

[James H. Bushart]

Market downturns like this are good and I agree with that part of the preceding article that points it out.

It not only provides bargains but serves as the means for the system to cleanse itself. The real estate salespeople who will survive this will be much better for having done so, as will the home inspectors.

Pruning the tree, if you will, should help us bear better fruit.

[Peter C. Russell]

Originally Posted by jbushart

Market downturns like this are good and I agree with that part of the preceding article that points it out.

It not only provides bargains but serves as the means for the system to cleanse itself. The real estate salespeople who will survive this will be much better for having done so, as will the home inspectors.

Pruning the tree, if you will, should help us bear better fruit.

Don't forget all the hack contractors too!!!!

Cleansing can be a good thing although somewhat painful.

[Russel Ray]

My Realtor email newsletter list is down to 22,756 people from a high two years ago of 28,889, so apparently a lot of Realtors have jumped ship. Fortunately, Jim is going strong and my own businesses are booming like never before. I think marketing persistently and consistently during the good times is paying off extremely well in the current bad times.

[gporter]

I have seen a big downturn in open houses in Orlando. I think they have given up.

[dbronsted]

My little area of the North Georgia Mountains is not doing to well. A lot of Realtors have quit...a few brokers have closed shop and moved on....a couple of real estate companies have the building they were in up for sale (like they will sell). A friend of mine is a loan officer for a local bank. She says she has given up applying for loans for folks because the sally maes and fanny maes are not loaning money to anyone. Basically she cant get anyone approved. Most of the homes that sell around here are second homes ..a lot are luxury log cabins. Builders are turning in the keys to spec homes that they cant sell. And since most of the family's here depend on the housing industry there are gonna be a lot of family's getting very hungry this winter. Its really sad. I cant help but think that gas prices had a lot to do with this down turn. They say the economy is improving in other sectors but we are not seeing it. Our local movie theatre owner said he ran the movie for two people the other night. Im trying not to pay all this any attention but it is hard to ignore. Hopefully things will turn around this spring.

[ldapkus]

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