Matrix Blog

Brokers, Agents, MLS, NAR

Not Much Of The Pie Remains, Anyway You Slice It

September 7, 2005 | 10:26 pm | |

New York Magazine had a recent story on the glut of real estate brokers in Manhattan. Like the housing market, there seems to be an endless supply of individuals looking to make their fortune in real estate. Well, it looks like reality is beginning to set in.

Doing the Math (annual):

27,081 brokers in Manhattan
less
20,000 residential sales per year (2 sides x 10,000 sales)
equals
1.4 brokers for every sale per year.

See a previous post, Out of Commission

This is a national phenomenon.

Since the entry into the brokerage profession is relatively simple, the employment should be more reactive to changes in the real estate market as compared to many other professions. Boom in the housing market = surge in brokers.

I have no stats on it, but I suspect the fallout rate, Darwin’s survival of the fittest should correlate as well. However, the large number of drop outs creates more opportunities to enter the profession.

The Big Picture also posts this chart, which was originally taken from PIMCO. It compares the trend of real estate agent hires versus manufacturing jobs. The chart is misleading since the lines don’t really cross at the “X” because the scales are different, but the trend is apparent, real estate or service jobs are increasing and traditional factory jobs are declining as a percentage of the population.

Also taken from the Big Picture, which was taken from Mike Panzer, this chart relates membership in the NAR as a percentage of US total population and total labor force. The trend spiked in the late 1970’s and trended downward until the past few years.

I look at this chart very skeptically. I wonder if the NAR became a more effective organization in the mid-1970’s for such a pronounced jump, almost overnight.

With current membership running at 1.1M members, thats pretty significant, anyway you slice it.



Out Of Commission

September 1, 2005 | 8:35 pm |

Despite unusual examples of higher brokerage commissions, as was raised in the recent New York Post Story: Climbing Commission [Note: Reg.], only a small number of brokers are making significant income during the current real estate boom.

Why?

Well, most sellers have the perception that since properties have generally doubled over the past five years, commissions should have followed suit, since the commission is a percentage of the sales price. This is the topic of an excellent article in Slate.com called: Bubble-lusions – Why most real-estate agents aren’t getting rich.

One of the reasons that individual real estate brokers are not doing as well as everyone thinks, is based on the economics principle “zero-profit condition.”

In a business with free entry, new participants will keep entering until no money remains. And becoming a real-estate agent is almost free…With all these new agents swarming onto the scene, the price they charge may remain constant, but the number of houses each sells will not.

In other words, as more agents flood the market to get a piece of the pie, there is less of that pie to go around.



With Oil In The Mix, Asset Prices Are Expected To Simmer Down

August 28, 2005 | 12:18 am | |

houseupstairs

Greenspan said today that the US housing boom is sure to end eventually and there should be a drop in home prices.

[Webmaster’s Note: I’m am fairly certain most people do not believe the housing boom will go on forever so tell us something we don’t know.]

A weakened housing market would take the punch out of an inflation threat and therefore the pressure off the Fed to keep raising short term rates. Consumer spending is reported to account for 70% of the US economy and this driven largely by the ability to tap home equity.

housinginhand

To date, some US economists believe the “wealth effect” of housing are offsetting the negative influence of rising oil prices. [Note: Paid Subcr.] The ability to pull equity out of the housing sector has helped consumers maintain discretionary spending despite rising oil prices.

Besides rising oil prices, labor costs are expected to rise keeping pressure on the Fed to raise short term rates.

The Fed believes that home prices will continue at their brisk pace through the third quarter, before easing in the final quarter of the year.

Here’s a great article written last May called “Don’t Buy Housing Bubble Propaganda” by the webmaster of one of the best economic blogs out there: Big Picture

The author discusses mortgage rates and changing demographics better than any article I have read on this topic. One item of particular interest: More than 80% of all stock purchases are speculative. According to the NAR, housing is currently at 23% which seems to pale in comparison, doesn’t it?


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Investors As Wild Card

August 22, 2005 | 7:54 am |

cardhouse

Investors are the wild card of the current housing boom [Note: Subscription]. The NAR released a report last spring that said 23% of all homes purchased in 2004 were for investment and an additional 13% were vacation homes. Presumably, ratio of investors to owner occupancy will be even greater in 2005.

Here lies the problem for investors…

The rental market has taken a large hit over the past 4 years as lower mortgage rates have converted would-be renters into buyers. The free flow of capital stimulated rental development up until the past year, when it switched to condo development as prices rose rapidly. Now the increase in investor activity may drive down rents [Note: Subscription], placing more pressure for investors to sell quickly and not hold out for a higher price.

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Housing Boom Squeezes Low-Income Workers: Study

August 9, 2005 | 1:22 pm |

According to a study released Tuesday by the Center for Housing Policy

Surging housing prices are putting the dream of a home beyond the reach of middle and low-income workers in many cities around the country

The center is an advocate for affordable housing.

Home ownership has seen significant expansion over the past 10 years with Fannie Mae now claiming that 69% of Americans own their homes.

Wages have held flat for community workers and aren’t likely to rise in the near future. The median home price is consistent with that of the National Association of Realtors [Note: PDF].


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