Skipping Along the Bottom

Traditionally, the real estate market has been dependent upon three key factors; home prices, interest rates and unemployment. In other words, if prices are reasonable, monthly payments are low and enough people have good incomes, plenty of homes will be bought and sold.So, how does this relate to our current market? Are we starting to see a turn around?

The NAR Home Affordability Index is the best it’s been in over 40 years. Prices have come down to the point where many buyers, especially first-time buyers are coming back into the market. We could use a little lender help with jumbo loans, but moderately priced homes are selling well in most markets.

Mortgage rates have risen lately, but they’re still at historically low levels. The Federal Reserve has pledged to keep rates low through this cycle. So, I would expect that they may take some action this summer to bring rates a bit lower. However, the jumbo loans remain a problem and I hope that lenders recognize this and will make more funds available in this segment of the market.

Now, as for unemployment, the picture is still unclear. Last month we reached 9.4% and most analysts believe it may still push higher and could take some time before returning to the 5% range. This makes the prospect for a quick recovery more difficult.
I believe a housing recovery may be underway, but it will be a slow one. We’ll be “skipping” along the bottom for a little while. Yes, we‘re already seeing signs of a bounce back in some markets. But I think overall, this market will move sideways before it gets significant traction in an upward direction.

For home sales, 2009 may be only slightly better than 2008. All these factors mean that we need to deal with the market we have. Distressed properties continue to be over 50% of all sales. If we can learn to deal with this market, we will be successful. I’m proud that all the surveys and rankings show that RE/MAX agents continue to out-produce the competition. So, keep doing what you’re doing.

Today, in 2009 we have a sales volume like we saw in 2003. Most of us did very well in 2003, and we’ll do well in 2009 too. Being resourceful and innovative is the key. Yes, the market is showing signs of a turn around, but don’t lose your focus. Respond to the challenge, and make each year your best ever.

Continued success,
Dave Liniger

The RE/MAX Int. Chairman and Co-Founder's thoughts on recruiting, retention, management and creating brokerage profitability in any market condition

Generations: 74 Million
Young Adults Will Help Create
The Next Housing Boom

As we've noted consistently in the past six months of Profit Lines, it's vital to understand that recovery from this terrible market won't happen overnight. We expect another foreclosure bubble when Alt-A loans and Option ARMs reset in 2010 and 2011, and with unemployment rates still rising, we don't foresee significant recovery in the next three years.

After that, however, we're anticipating a sustained, healthy stretch of increasing sales, values and homeownership rates. What's more, the upswing won't be built on questionable lending practices, overextended buyers or insane debt-to-income ratios. Instead, it will be based on a combination of pent-up demand and demographics. And the youngest group of adults, Generation Y, will provide much of the spark.

Another massive wave

Born between 1980 and 1995, the members of Generation Y -- also known as the millennials or echo boomers -- are like a pig in a python. Aged 14 to 29 now, they comprise a block of 74 million potential buyers, nearly as many as the 80 million baby boomers born from 1946 to 1964. When you think about the influence the boomers have had on virtually every aspect of society over the past 40 years, including the housing industry, it's fascinating to anticipate the impact of another wave that's just as massive.

The oldest millennials, now in their late 20s, are nearing the average age of first-time homebuyers -- the National Association of Home Builders puts it at 33 -- and many of them are already taking advantage of attractive buying conditions. They're moving through the household formation years of 25-44 and will soon replace Generation X (the 48 million people born between 1965 and 1979) as the primary first-timer group between 29 and 33. They will do so in much greater number.

Interesting look at birthrates

One reason for optimism in 2013 and beyond is the U.S. birthrate through the late 1970s and into the 1980s. Sue Rossi, a RE/MAX Broker/Owner in Crete, Illinois, has been studying the correlation between birthrates and housing stats for several years. Her well-constructed theory, which she has shared in her region as well as with National Association of Realtors leaders, boils down to this: A drop in births triggers a drop in sales 33 years (or whatever the average age of first-time buyers) later.

Although the connection doesn't hold up every year -- a variety of factors can push sales up or down -- it's interesting to see how shifts in births often do match shifts in home sales three decades later. Consider that the four lowest birthrate years since World War II occurred in 1973, 1974, 1975 and 1976 (see chart below). Add 33 to those years and you have 2006, 2007, 2008 and 2009. We all know how sales went in that time frame. Many things contributed to the plunge, of course, but the mid-'70s birthrates of less than 3.2 million -- sandwiched between the 4 million-plus years of baby boom and Gen Y -- certainly didn't help. This baby bust created a 25% reduction in available "average aged" first-time buyers each year, with the cumulative effect even greater.

No one should underestimate the power of first-timers. In addition to their own purchases, these buyers start vital chain reactions by enabling their sellers to move up themselves, buying from another family who's now free to move, and so on. Without them, the push at each level is missing. Millennials will begin to turn 33 in 2013, and with birthrate levels throughout the 1980s climbing steadily back toward baby boom heights, there will simply be more young adults ready to enter the housing market.

An extremely confident bunch

Millennials are an interesting generation. The children of boomers, they're on the verge of becoming the major consumer force. As a group, they're less well off than their parents were at the same age, but they don't seem to mind. Despite being burdened by steep college loans, higher prices for everyday goods and an uncertain job market, they're also extremely confident, mobile and positive about their futures. Many are marrying earlier, without large nest eggs. Others see moving back home as a prudent way to save some money and wait out the economic turbulence.

Those who've entered the housing market -- drawn by the perfect storm of historically low interest rates, attractive prices and the $8,000 tax credit -- expect much from their Realtors. They want access. They want answers. And they want ongoing communication through text messaging. As a RE/MAX Associate in Denver told us the other day, "Our older clients make appointments with us. The younger ones are liable to show up at any time, wanting us to take them to a house they just saw online. They just want to know, 'How fast can I get the information?' and 'How available are you?'"

Their expectations in housing are different too. Their lifestyles are active, urban and social, so they generally favor smaller homes near recreation, restaurants and friends. Many would just as soon live in a townhouse or condo as in a large single-family home -- mowing the yard is not what they want to be doing on a Saturday afternoon. And though some embrace the charm of older homes, most prefer newer buildings filled with the technology and modern amenities they grew up with.

As the millennials continue to age, their choices will have a major impact on the housing inventory and the direction of new construction. Already, urban and new-urban developments are sprouting up around the country. Eventually, some housing types not fitting their needs, in both urban and suburban settings, may become obsolete.

Boomers in waiting mode

The oldest baby boomers, meanwhile, are now in their early 60s. Many have put their retirement and relocation plans on hold because they've lost 40% of their 401(k)s and a large portion of their home equity. Some are scared to death because their plans to retire and live on savings and profits from their home sale have been sidetracked. Many can't afford to leave the workplace, and instead are paying off credit cards, saving money and finding ways to extend their careers.

Instead of retiring and moving to Arizona or Florida, many boomers will likely downsize locally and stay closer to their children, grandchildren and friends. Trouble is, with the jumbo mortgage market as tight as it is now -- though it is showing signs of improvement -- other people aren't positioned to buy their homes. And with the ongoing drop in prices, many boomers don't want to sell now anyway because they know what their home was worth four years ago and are reluctant to sell at the price they might get today.

Boomers, with more urgency than the younger groups, are focused on saving as they try to rebuild their financial lives. The vast majority, though, have been spenders and consumers their whole lives, and although perhaps 10% will hold on to their new-found frugality, the other 90% will return to old habits once the storm has passed, the recovery is in full swing and their confidence has returned. That's not a bad thing at all; the economy needs people to spend money, as does the housing industry. As calm returns, the boomers will start to retire in massive numbers, opening workplace opportunities for younger people to advance and earn more.

Growing demand

Despite the current lack of buyer interest, a reservoir of pent-up demand is building in every age group: Gen Y couples who are content with renting or living with parents until their careers get going and their incomes cover their lifestyle expenses with something left over; Gen X families who have outgrown their homes but are delaying moves because of employment concerns and the tough economic times; boomers who no longer need five bedrooms but are hunkered down and postponing their downsizing or relocation plans. Eventually -- we think it will be in four years or so -- they'll all feel secure enough to take the next step. Sales will rise and our industry will return to normal, although it will be a new, different normal than before.

Of course, many other factors -- the rise of immigrant and minority buyers, the continuing struggle with foreclosures, the increase of women as single homeowners, the health of the overall economy, the state of homebuilding, and much more -- will also help define the new landscape. We'll cover more of these in upcoming Profit Lines, as well as at the Summer Conference in August.

Ultimately, although the styles and traits of each of these three generational groups are radically different, the course of life in America remains fairly predictable. And as always, the flow of home sales depends on sizable groups of people following patterns we've seen for a century: People in their 20s get married, buy homes and start families; people in their 30s and 40s outgrow their houses and move up; people in their 50s, 60s and 70s sell their houses and buy something smaller or move into retirement units. The current recession, for all the damage it's done and continues to do, won't change that basic equation.

We still face many challenges before the millennials fully flex their buying muscles and help put housing back on track. But in addition to working with distressed properties, cutting expenses, considering mergers and doing the other "right now" things that will help you succeed in today's difficult environment, take time to look around your community for signs of this growing economic force. And then start thinking about how you can connect with it. The key, as with most things, is to be ready before it arrives.

Coming Up

In the next Profit Lines, we'll look at how immigration and minority buyers will impact the housing industry in the coming years. We'll share our own thoughts as well as some key insights from the latest "State of the Nation's Housing" report by the Joint Center for Housing Studies of Harvard University. Some of the forecasts and strategies might surprise you.

Final Thought

We can't say it enough -- so we won't stop saying it: You ought to be joining your fellow Broker/Owners and Managers at the upcoming Summer Conference, Aug. 16-18 in Chicago. The seminars will be great, we'll all have some fun, and the ideas you'll pick up in formal sessions and informal conversations will directly impact your business. It's not too late to register.

© 2009 RE/MAX International. Permission is granted to RE/MAX Affiliates to reproduce or forward this newsletter in its entirety, provided this notice is retained. All other rights reserved.

RE/MAX Sales Associates Ranked Most Productive Two National Surveys Find RE/MAX Agents Average Most Sales

(Denver, CO June 4, 2009) – Two respected surveys of the nation’s top real estate brokerages reveal that RE/MAX Sales Associates outperform their competitors by a significant margin. Based on transactions closed in 2008, The REAL Trends 500 Survey, found that RE/MAX Sales Associates averaged 13.2 transactions per agent, which was 36% higher than their closest competitor. In The RIS Media Power Broker Survey, RE/MAX Sales Associates were also ranked the highest of all national real estate franchises, averaging about 12 transactions, nearly 33% higher than the next ranked competitor. REAL Trends also said that RE/MAX Sales Associates have been the most productive in their survey for several years running.


“There are many ways to measure success in our profession, but it all comes down to how many sales do you close?” said Margaret Kelly, Chief Executive Officer of RE/MAX International. “The economy has hit the real estate industry especially hard, but the most professional Sales Associates will always find a way to be successful in any kind of market.” While there are about 70,000 brokerages selling residential real estate in the United States, these two national surveys only include the elite, the very best performing brokerages from each company. RE/MAX brokerages represented 23% of all those ranked in both surveys. In both surveys, other companies were represented by higher numbers of Sales Associates, but even with their superior numbers they didn’t come close to the individual performance of the RE/MAX Sales Associates. Sales Associates affiliated with RE/MAX also averaged higher dollar volume in their sales than all other competitors. The REAL Trends 500 Survey revealed that RE/MAX Associates averaged $3.2 million, which was 31% above the second place organization. In The RIS Media Power Broker Survey, RE/MAX Associates also averaged over $3 million in sales, more than 36% better than the company ranked second.

“In today’s housing market, the consumer prefers experienced professionals who can get results, and we’ve always felt that our Associates are the best in the business, but these surveys provide the facts. We’re very proud of this recognition,” says Kelly. “Our Associates perform better because they have more experience and hold more professional designations.” RE/MAX University provides advanced training through a comprehensive cross-platform educational organization. Sales Associates can receive training at home or in the office via the RE/MAX Satellite network, on Extranet web sites, in regional classrooms, or on DVD’s from an extensive educational library. In direct response to the current real estate market, RE/MAX has encouraged its Associates to earn the Certified Distressed Property Expert (CDPE) designation. Over 5,000 Associates responded and have registered for the two day course within the last 60 days alone. With this training RE/MAX Associates will be able to better assist families in finding their way through a very challenging housing market. RE/MAX Associates have another competitive advantage, Leadstreet, the proprietary online lead generator, which has provided more than 6.6 million leads without any referral fee RE/MAX is also experiencing success overseas. Within the last six months Master Franchises have been sold in eight countries, Albania, Bahamas, Brazil, Ecuador, India, Macedonia, Singapore, and Uruguay. With these additions, RE/MAX is now in more than 70 countries, an international presence greater than any of its competitors.

RE/MAX RAISES MILLIONS FOR CHILDREN'S MIRACLE NETWORK

Children's Miracle Network, based in Salt Lake City, UT, is proud to announce that RE/MAX real estate agents raised more than $8 million for the charity in 2008. From the time that RE/MAX began its relationship with Children's Miracle Network in 1992, RE/MAX Associates worldwide have raised more than $93 million for the cause.

"We are so proud of the support our agents have shown for Children's Miracle Network, especially during this economic downturn," said Mike Reagan, Senior Vice President of Brand Marketing at RE/MAX International. "The bottom line remains that the millions of kids with health challenges, who benefit from Children's Miracle Network, still need our help, and we're glad so many of our dedicated agents have been able to give so much to these deserving kids."

RE/MAX International is the official real estate sponsor of Children's Miracle Network, and offers many options for real estate agents to become involved with the charity. Through The Miracle Home® program, exclusive to RE/MAX, Sales Associates are able to donate a portion of every transaction to Children's Miracle Network. Each year, these donations made by RE/MAX Associates across North America directly help children in need by supporting hospitals in the Children's Miracle Network.

"Words can't describe how grateful we are to have the support of RE/MAX and their extensive network of real estate agents," said Val Durrant, Senior Director, Major Accounts for Children's Miracle Network. "We continue to cherish our relationship with RE/MAX, and look forward to another great year of support in 2009."

About Children's Miracle Network
Children's Miracle Network is a non-profit organization dedicated to saving and improving the lives of children by raising funds for children’s hospitals. Each year the 170 Children's Miracle Network hospitals FOR IMMEDIATE RELEASE provide the finest medical care, life-saving research and preventative education to help millions of kids overcome diseases and injuries of every kind.

To learn more about Children's Miracle Network visit: www.childrensmiraclenetwork.org

If you would like to donate to Children's Miracle Network when you have a closing please indicate so on the CMS Donation line of the Commission Request Form and we will do the rest!

Have a happy and safe 4th of July!