Prior to the inception of the internet and the adoption of its use by the real estate industry, details relative to real property was largely within the exclusive province of the agents and brokers. Multiple listing services, property transfer information, existing liens and mortgages, etc. were, until the proliferation of the internet difficult, if not impossible, for potential buyers to obtain. The internet changed all that but many real estate professionals have attempted to hold on to their control of such information which has precipitated considerable litigation (Darlin). The battle that is raging is between a real estate industry attempting to remain competitive in the market place and consumers demanding more autonomy and more information.
B. Marketing and Customer Demand
There is no denying that the real estate market is suffering through one of the worst periods since its tremendous growth following the end of the Second World War. Presently, due to unemployment and a struggling economy, the demand for housing has slowed. Yet, supply and demand considerations are unique when it involves residential real estate. Typically, if demand increases in economics the reaction is to increase the supply correspondingly until a balance is found. Unfortunately, the unique nature of real estate makes it less susceptible to typical demand and supply economics (Maisel). Unlike other commodities, which is really what real estate is, real estate is essentially a local matter and not dependent on national trends. In typical fashion, an over-supply of homes lowers the prices while a corresponding an under supply will result in higher prices but, unlike other commodities supplies cannot be transferred from one market to another in an effort to stabilize prices. Real estate is tied to the land and is, therefore, not capable of moving to satisfy the demand. Thus, real estate becomes a local concern.
Nationwide the concern is over interest rates, pricing trends, new housing starts and a plethora of other housing factors that experts claim influence housing prices. When examining the overall housing market these indicators are important but because real estate remains a local matter the prudent real estate professional does not allow these factors to interfere with the operation of his business. Some of these factors may be influencing real estate sales in a particular and some may not. The successful agent or broker is one who keeps a careful eye on the factors that are at work in a given market and adjusts accordingly. If one is working in a heavily industrialized area, watching production projections is important and will likely influence the demand in near future while working in resort type areas an agent must be mindful of such factors such as weather trends and the aging of the population.
In short, national trends in real estate sales make for interesting discussion but it is the factors affecting local supply and demand that are essential for the typical real estate agent and broker. Homes may be selling quickly and at high prices in one locale while languishing on the market for months and at reduced prices somewhere else. This condition has characterized the United States' housing market for most of the past decade and continues to the present. Still, many agents and brokers have managed to make money in this economy. These agents have managed to leverage the situation to their advantage by adjusting their selling strategy and approach to the market.
The good news for the real estate industry is that this continued decline in prices and unit sales cannot continue forever. The reality is that supply and demand must eventually balance. People must live somewhere. Presently, the market is recovering from a sustained period of growth in housing starts, inflated housing prices, and huge demands. The struggling economy has caused new housing to slow down, prices to drop rapidly, and demand to decrease to levels not seen in many years. This situation cannot continue forever. Eventually all those who have been delaying purchasing will have to make a move toward purchasing a home. This will serve to push prices back up as the demand will, at that time, exceed the supply causing prices to again raise. The likelihood of prices reaching the same levels enjoyed around the turn of the century is minimal but prices cannot continue to fall once the demand is increased.
C. Financial
The struggling economy has impacted not only the price of homes and the rate at which homes are selling it has also impacted how those who are buying real estate finance their purchases. The United States real estate...
During this period, loans were being made to individuals who traditionally did not qualify for mortgage loans. The result of this process was a huge spike in home buying that was highly profitable for the real estate industry but, in the end, caused a severe drop in the real estate market and collateral problems in the banking business. In response to the problems that developed, the U.S. Congress and the government regulatory agencies that control the standards for determining mortgage eligibility established new rules. These new rules apply to only government backed insured mortgages but in today's market that applies to nearly all mortgage activity. Private mortgage money is difficult to procure and tends to be as conservatively provided as government backed mortgages.
The new mortgage changes began to take effect during calendar year 2009. These new changes affect nearly all lenders and will impact nearly all aspects of the mortgage process. These changes will affect who is eligible to qualify for mortgages and, until such time as the buying public becomes accustomed to the new rules, it can be expected that these rules will have a chilling effect on the mortgage loan market.
One key change is the requirement that all new hires applying for mortgages must be able to provide minimum 30 day pay stub documentation before being able to close on a new loan. Technically this is not a new requirement in that it has been a suggested guideline by both Fannie Mae and Freddie Mac for some time but it has been largely ignored until the new rules were put into place. Historically, lenders have overlooked these guidelines and allowed such loans if the new hire could document his employment history and his new salary. With the new rules, however, new hires cannot realistically expect to close on a new home for at least four to six weeks after beginning work. Despite outcries from various segments of the economy, all lenders have held firm on this rule to the frustrations of many otherwise qualified individuals seeking new homes near their new jobs.
The second significant change involves the appraisal used by lending institutions. The appraisal business was subject to much abuse during the no documentation loan period and new regulations by Fannie Mae and Freddie Mac require that all appraisals be done consistent with the Home Valuation Code of Conduct (HVCC) guidelines (Miller). These guidelines were designed to improve the reliability of home appraisals and to eliminate inaccurate appraisals. In the no document loan period, fraud in the appraisal business was rampant and the hope is that the new HVCC guidelines will provide some measure of uniformity in the industry relative to appraisals.
A third change is that lenders are no longer allowed to consider the trailing co-borrowers' prior salary in the calculation of eligibility. Prior practice allowed the lender to consider such income as part of the calculation process but for a variety of reasons including the struggling economy and high rate of unemployment an unemployed co-borrower's prior salary is no longer a consideration.
In addition to the documentation changes discussed above there were a number of timing and technical loan closing requirements enacted subsequent to the housing and banking collapse that occurred in 2007-2008. These changes have added another layer of difficulty for those seeking to buy or sell a house in the present real estate market.
D. Human Resource
The significant downturn in the real estate market has created problems for everyone involved in the industry. One of the more serious problem areas is in the procurement and management of the personnel involved in the operation of a real estate office (McCormick). During the boom years real estate offices had no difficulty attracting new agents; hiring qualified appraisers; and meeting payroll requirements for auxiliary staff. Today, that is no longer the case. Thousands have left the area of real estate sales and many of those who have remained are struggling to maintain themselves financially. For a human resource professional in the real estate industry, the present difficulties facing the real estate industry are considerable and most successful real estate companies have determined that outsourcing the functions usually managed by human resource professionals is economically prudent and frees the management of the office to perform other valuable functions such as business development, financial services or property management. Typically,…
