Oct 22, 2022·edited Oct 22, 2022Liked by Quoth the Raven
My mother has been in high end real estate around Seattle for over 25 years, routinely sells 2m+ houses and has been through both of the major downturn after the dotcom and the financial crisis. Her take is for stabilizing prices with slowing sales in her market and, for what it’s worth, I tend to agree. There are 200 some licensed agents in her area and yet she has around 60 % of the listings at any given time. There are two valuable take aways from this and a caveat to follow.
One, people return to good established agents, time after time, and especially in the high end. There will likely be a large drop on the price of starter homes because these were the most over bid by the young buying population that correctly thought the time was now or never but upper and middle markets won’t budge because the buyers wont have to, the owners are less likely to lose their jobs in the coming white collar washout of junior workers, and they’re sitting on sub 3% mortgages only a fool would leave when inflation is as high as it is. Remember, houses do well in inflationary times. All the more so if you borrow $1 million plus dollars at 2.5%.
Second, if you want to crush it, be ready to grind for a long time. Sorry to say it, but if you got in during the last few years with hope of a grand income, you should probably get a different job. The old folks won’t be giving it up. And here is her caveat to new agents: there was already a movement underway to reduce commissions before all this happened. Expect that trend to continue if housing prices stabilize at these rates. 3% made sense a decade ago. Unless prices really drop it makes no sense for people to continue paying the commissions we historically have. There is also a lot of good economic research showing that agents work harder and get higher asking prices on their own homes vs. when they work for others and it just makes sense. They make money on selling. Why hang in there for another two weeks to a month for another hundred thousand to the seller on a million dollar sale when there is a $30,000 dollar paycheck waiting? I wouldn’t and most of them don’t either. When houses were selling themselves and bidders were competitive, this wasn’t an issue. It’s going to come back with a vengeance now, as will the smart people questioning the value of paying this kind of rate. My mother said she’ll retire when that finally goes down. I’d think heavily about that if I was a young up and comer.
All of this is 100% spot on. Good for your mom- she found a niche and rocked it for decades. I hope to be in a similar position someday. I agree re: commissions. My brokerage hung onto the 3% per side for so long, even requiring it in certain zips, but all of that has dropped away. KW has set the standard for the 2.5% in our area and its hard to compete. Thanks for the comment, I love hearing about different markets.
Oct 22, 2022·edited Oct 22, 2022Liked by Quoth the Raven
She’s right. 30 year broker. It’s been hard few years but exciting with the free $, now it’s just gonna get hard.
Each market is unique, migration patterns & local industry and jobs will protect some areas more than others.
Low rates will keep people in homes that might be considered underwater. If moving down in price 100k means your payment is virtually the same, the value is realized even if there’s no “equity”.
Good point, but at least in my market here in Philly, sales are down so much that it doesn't make up for it. I bet this is happening on the Main Line (expensive Philly suburb), but that's outside of my service area. It does tend to happen that the higher end neighborhoods where inspections were most likely to be waived in 2020-2021 are also seeing less depressed sales activity right now. My suburban agent colleagues are still seeing bidding wars, albeit smaller.
I remember seeing so many TikToks from RE brokers/agents talking about how people HAVE TO BUY immediately or they'll run out of time. Honestly, I think 50% of the FOMO experienced in the last few years is because of social media. Guess we'll see the flipside now. Thanks for sharing, subb'd to Kira.
Yeah, and honestly that kind of outreach only works for the low hanging fruit. It's dishonest and makes a bad name for agents everywhere. No more low hanging fruit means agents need to majorly up their games to stay competitive.
7 years in the business. I’ve always strived to save my commission income and invest in rental assets. I have multiple streams of income and a working spouse thankfully. I think the Fed will pivot in the next 12 months and rates will drop a bit or something big like the bond market will break. Otherwise the housing market is going to reprice down 25-30%. You’re correct lots of lenders and agents will find something else to do.
Interesting comment about a 25-30% reprice unless the FED pivots.
My take: a FED pivot will not matter. 130 years of data, going back to pre 1900 provides ample evidence. RE runs in 10-15 year cycles. 4-6 years up, 2 years at plateau, 4-6 years down. Irrespective of what the FED does. (With the past couple years as an outlier due to ultra low rates, FOMO, and helicopter money).
In the GFC prices peaked in mid to late 2006, following a 4 year run up coming out of the dot com bubble. The FED did not pivot until late 2007. Prices were already falling significantly at that point. Lehman went belly up in late 2008. The FED continued to drop rates. Home prices continued to fall and did not bottom out until late 2010, early 2011. Nearly 4 years after the FED pivot. Then a year or more of plateau before prices started going up. And they had mostly stopped rising in 2019, before the massive monetary stimulus that helped fuel the two year outlier.
One can’t totally rely on historical data, of course. But the reality is that the cycle has always been the same. For 130 years. And if it is the same again, irrespective of what the FED does, prices will continue their downward drift for the next 3-5 years. In historical terms, we are just at the beginning of the correction.
Another factor to consider. Prices need to return in real terms to 2012 levels, in order for the household income to price ratio to revert to the historical mean. Will they fall that far? Probably not. But it is not outside the realm of possibility. There is, in my view, a long long way to go.
Lastly, one cannot discount the psychological effect of being underwater. Anyone who bought within the past 2-3 years and put down a minimal amount, overpaid for the property, and used the ultra low rates to qualify may already be underwater. If not, they are likely to be there soon. Add huge increases in utility costs, taxes, and massive inflation in other areas and what appeared affordable in mid 2021 does not look so good today. Having been on the wrong side of the trade in 2009 I can say with certainty that the desire to extricate oneself from being significantly underwater with no relief in sight can cause people to take action to get out, no mattter the cost.
Never paid close attention to real estate but to your point when researching RE cycles recently came across this site where they provide a little more depth to what you're saying.
Oct 22, 2022·edited Oct 22, 2022Liked by Quoth the Raven
Wow. Very interesting. Thanks. He’s obviously an expert and I’m just an amateur who enjoys looking at macro issues. It would be interesting to know when that was written. Because he wrote that the “boom” was still to come. Which I suppose is true, if you bought in 2019 and then enjoyed the run up in your asset value over the next three years. But It’s pretty clear the boom is over. The only questions are how fast, how far, and for how long do real estate prices fall. At this point only time will tell.
He makes the same case I did, that the last boom ended in 2007. And that after a year or two of plateau, the average run up is 14.6 years. (My view was shorter). Which pretty much brings us to where we are today, on the precipice of a bust.
Glad for the younger generations a bust in inbound. The amount of mortgage debt some young people are taking on in relation to their income has been sad to watch. Hopefully higher rents will start coming down a few years into the downward cycle.
Copy. So he wrote that piece in 2020. Makes more sense now. 2020-2021-into early 2022 the boom. And coming up, the bust. It’s a long way down from here.
My experience with RE agents is that too many are spoiled, lazy and ethically challenged. I’ve never encountered such an opaque industry before where information is so hidden. Sorry for the honest, hard-working ones who get hurt in the coming downturn, but I hope the arrogant, sleazy ones get their comeuppance.
Maybe this is naïve of me, but I like to think that the pool of remaining realtors after the correction will be higher quality. I'd like to see our reputation as a profession repaired. This has the potential to be the silver lining of the shit storm we're about to go through.
Take if from me. The remaining agents will be way better in a few years. The top in 06 had a crew of misfits and basic criminals and they were weeded out pretty quick as the easy money evaporated.
Unfortunately based on my experience as a retail buyer over a few decades in my case it has been about 50/50. Unfortunately some of this may be a reflection of them getting those buyers/sellers who just waste their time so when someone like me comes along they see an opportunity to "make it up" by investing less time with higher reward. Do not have a problem with big rewards if you're damn good at your job but some want to charge "full retail" while providing sub-par service.
This is not unique to your industry but think since the rewards are easily observable when selling/buying people tend to be able to do the math on agent commissions based on time invested.
R.E is sucks in Miami. Overpriced in a market where salaries are among the lowest in the country. I sold my home in 2020 and I never felt better, it was a money pit, the utilities, the maintenance and taxes through the roof. R.E. is a liability not an asset it's the new American nightmare unfolding...
In Orange county NY residential transactions peaked with a dollar volume just over a billion dollars in 2006. By 2009 that handle had decreased over 70%. Multifamily, and condo deal flow was even worse as lenders went lights out on these markets with draconian lending standards.
A lot of agents dropped out and offices scaled back on advertising budgets and became very stingy on commission splits with agents. I expect this to repeat and I also think a lot of the "100%" commission broker business models to bring down the hammer and claw into the commission pie once again.
I'm in the business but I no longer am a principle broker and did not keep track of the transactions during the latest period.
I just checked. In 2018 sales volume reached the 1 billion dollar mark for the first time since 2006 in Orange county. It stayed there in 2019 and then broke to 1.3 Billion in 2020 when the covid madness drove migration out of the rotten apple. 2021 is about 1.7 billion and YTD 2022 is 1.25 billion.
I think we won't hit 1.5 billion for this year. Next year? If the reduced traffic we're seeing is any indicator I would anticipate maybe a 50% or more drop in volume.
Those of us who have lived through tough markets before are more than willing to share insights for surviving and thriving.
Education and honesty are the keys. Sadly? Those two items are hard paths for many agents to admit they must pursue.
2007-2011 were my best years of my 22 year full time career. I look forward to the culling of the herd again.
My mother has been in high end real estate around Seattle for over 25 years, routinely sells 2m+ houses and has been through both of the major downturn after the dotcom and the financial crisis. Her take is for stabilizing prices with slowing sales in her market and, for what it’s worth, I tend to agree. There are 200 some licensed agents in her area and yet she has around 60 % of the listings at any given time. There are two valuable take aways from this and a caveat to follow.
One, people return to good established agents, time after time, and especially in the high end. There will likely be a large drop on the price of starter homes because these were the most over bid by the young buying population that correctly thought the time was now or never but upper and middle markets won’t budge because the buyers wont have to, the owners are less likely to lose their jobs in the coming white collar washout of junior workers, and they’re sitting on sub 3% mortgages only a fool would leave when inflation is as high as it is. Remember, houses do well in inflationary times. All the more so if you borrow $1 million plus dollars at 2.5%.
Second, if you want to crush it, be ready to grind for a long time. Sorry to say it, but if you got in during the last few years with hope of a grand income, you should probably get a different job. The old folks won’t be giving it up. And here is her caveat to new agents: there was already a movement underway to reduce commissions before all this happened. Expect that trend to continue if housing prices stabilize at these rates. 3% made sense a decade ago. Unless prices really drop it makes no sense for people to continue paying the commissions we historically have. There is also a lot of good economic research showing that agents work harder and get higher asking prices on their own homes vs. when they work for others and it just makes sense. They make money on selling. Why hang in there for another two weeks to a month for another hundred thousand to the seller on a million dollar sale when there is a $30,000 dollar paycheck waiting? I wouldn’t and most of them don’t either. When houses were selling themselves and bidders were competitive, this wasn’t an issue. It’s going to come back with a vengeance now, as will the smart people questioning the value of paying this kind of rate. My mother said she’ll retire when that finally goes down. I’d think heavily about that if I was a young up and comer.
All of this is 100% spot on. Good for your mom- she found a niche and rocked it for decades. I hope to be in a similar position someday. I agree re: commissions. My brokerage hung onto the 3% per side for so long, even requiring it in certain zips, but all of that has dropped away. KW has set the standard for the 2.5% in our area and its hard to compete. Thanks for the comment, I love hearing about different markets.
She’s right. 30 year broker. It’s been hard few years but exciting with the free $, now it’s just gonna get hard.
Each market is unique, migration patterns & local industry and jobs will protect some areas more than others.
Low rates will keep people in homes that might be considered underwater. If moving down in price 100k means your payment is virtually the same, the value is realized even if there’s no “equity”.
Great info, thanks again for insights
Inspectors will get a bounce from a moderating market as purchase contracts with inspection contingencies will come back
Good point, but at least in my market here in Philly, sales are down so much that it doesn't make up for it. I bet this is happening on the Main Line (expensive Philly suburb), but that's outside of my service area. It does tend to happen that the higher end neighborhoods where inspections were most likely to be waived in 2020-2021 are also seeing less depressed sales activity right now. My suburban agent colleagues are still seeing bidding wars, albeit smaller.
I spoke with an appraiser a few weeks ago who told me his shop went from about 250 appraisals a month to the mid 40's. That's going to leave a mark!
I remember seeing so many TikToks from RE brokers/agents talking about how people HAVE TO BUY immediately or they'll run out of time. Honestly, I think 50% of the FOMO experienced in the last few years is because of social media. Guess we'll see the flipside now. Thanks for sharing, subb'd to Kira.
Yeah, and honestly that kind of outreach only works for the low hanging fruit. It's dishonest and makes a bad name for agents everywhere. No more low hanging fruit means agents need to majorly up their games to stay competitive.
7 years in the business. I’ve always strived to save my commission income and invest in rental assets. I have multiple streams of income and a working spouse thankfully. I think the Fed will pivot in the next 12 months and rates will drop a bit or something big like the bond market will break. Otherwise the housing market is going to reprice down 25-30%. You’re correct lots of lenders and agents will find something else to do.
Interesting comment about a 25-30% reprice unless the FED pivots.
My take: a FED pivot will not matter. 130 years of data, going back to pre 1900 provides ample evidence. RE runs in 10-15 year cycles. 4-6 years up, 2 years at plateau, 4-6 years down. Irrespective of what the FED does. (With the past couple years as an outlier due to ultra low rates, FOMO, and helicopter money).
In the GFC prices peaked in mid to late 2006, following a 4 year run up coming out of the dot com bubble. The FED did not pivot until late 2007. Prices were already falling significantly at that point. Lehman went belly up in late 2008. The FED continued to drop rates. Home prices continued to fall and did not bottom out until late 2010, early 2011. Nearly 4 years after the FED pivot. Then a year or more of plateau before prices started going up. And they had mostly stopped rising in 2019, before the massive monetary stimulus that helped fuel the two year outlier.
One can’t totally rely on historical data, of course. But the reality is that the cycle has always been the same. For 130 years. And if it is the same again, irrespective of what the FED does, prices will continue their downward drift for the next 3-5 years. In historical terms, we are just at the beginning of the correction.
Another factor to consider. Prices need to return in real terms to 2012 levels, in order for the household income to price ratio to revert to the historical mean. Will they fall that far? Probably not. But it is not outside the realm of possibility. There is, in my view, a long long way to go.
Lastly, one cannot discount the psychological effect of being underwater. Anyone who bought within the past 2-3 years and put down a minimal amount, overpaid for the property, and used the ultra low rates to qualify may already be underwater. If not, they are likely to be there soon. Add huge increases in utility costs, taxes, and massive inflation in other areas and what appeared affordable in mid 2021 does not look so good today. Having been on the wrong side of the trade in 2009 I can say with certainty that the desire to extricate oneself from being significantly underwater with no relief in sight can cause people to take action to get out, no mattter the cost.
Never paid close attention to real estate but to your point when researching RE cycles recently came across this site where they provide a little more depth to what you're saying.
https://propertysharemarketeconomics.com/18-point-6-property-share-market-economics/
Wow. Very interesting. Thanks. He’s obviously an expert and I’m just an amateur who enjoys looking at macro issues. It would be interesting to know when that was written. Because he wrote that the “boom” was still to come. Which I suppose is true, if you bought in 2019 and then enjoyed the run up in your asset value over the next three years. But It’s pretty clear the boom is over. The only questions are how fast, how far, and for how long do real estate prices fall. At this point only time will tell.
He makes the same case I did, that the last boom ended in 2007. And that after a year or two of plateau, the average run up is 14.6 years. (My view was shorter). Which pretty much brings us to where we are today, on the precipice of a bust.
Glad for the younger generations a bust in inbound. The amount of mortgage debt some young people are taking on in relation to their income has been sad to watch. Hopefully higher rents will start coming down a few years into the downward cycle.
Like you am also a (very) amateur macro observer.
Based on internet archive 8/13/2020
https://web.archive.org/web/20200813111535/https://propertysharemarketeconomics.com/18-point-6-property-share-market-economics/
Copy. So he wrote that piece in 2020. Makes more sense now. 2020-2021-into early 2022 the boom. And coming up, the bust. It’s a long way down from here.
That's the way! Good for you and godspeed.
probably it would be best for the RE market to reprice 20-30%
best for the market and not as great for sellers
My experience with RE agents is that too many are spoiled, lazy and ethically challenged. I’ve never encountered such an opaque industry before where information is so hidden. Sorry for the honest, hard-working ones who get hurt in the coming downturn, but I hope the arrogant, sleazy ones get their comeuppance.
Maybe this is naïve of me, but I like to think that the pool of remaining realtors after the correction will be higher quality. I'd like to see our reputation as a profession repaired. This has the potential to be the silver lining of the shit storm we're about to go through.
Take if from me. The remaining agents will be way better in a few years. The top in 06 had a crew of misfits and basic criminals and they were weeded out pretty quick as the easy money evaporated.
Unfortunately based on my experience as a retail buyer over a few decades in my case it has been about 50/50. Unfortunately some of this may be a reflection of them getting those buyers/sellers who just waste their time so when someone like me comes along they see an opportunity to "make it up" by investing less time with higher reward. Do not have a problem with big rewards if you're damn good at your job but some want to charge "full retail" while providing sub-par service.
This is not unique to your industry but think since the rewards are easily observable when selling/buying people tend to be able to do the math on agent commissions based on time invested.
R.E is sucks in Miami. Overpriced in a market where salaries are among the lowest in the country. I sold my home in 2020 and I never felt better, it was a money pit, the utilities, the maintenance and taxes through the roof. R.E. is a liability not an asset it's the new American nightmare unfolding...
Fewer realtors? I'm trying to see the downside of this.
Did you see what gain of function research they are doing in Boston?
https://youtu.be/_WTZo9ieBKY
In Orange county NY residential transactions peaked with a dollar volume just over a billion dollars in 2006. By 2009 that handle had decreased over 70%. Multifamily, and condo deal flow was even worse as lenders went lights out on these markets with draconian lending standards.
A lot of agents dropped out and offices scaled back on advertising budgets and became very stingy on commission splits with agents. I expect this to repeat and I also think a lot of the "100%" commission broker business models to bring down the hammer and claw into the commission pie once again.
I'm in the business but I no longer am a principle broker and did not keep track of the transactions during the latest period.
I just checked. In 2018 sales volume reached the 1 billion dollar mark for the first time since 2006 in Orange county. It stayed there in 2019 and then broke to 1.3 Billion in 2020 when the covid madness drove migration out of the rotten apple. 2021 is about 1.7 billion and YTD 2022 is 1.25 billion.
I think we won't hit 1.5 billion for this year. Next year? If the reduced traffic we're seeing is any indicator I would anticipate maybe a 50% or more drop in volume.