The economy is improving and demand for real estate is strong, but the California Association of Realtors’ CEO said there are things in the industry that still keep him up at night.
The CEO, Joel Singer, spoke of his concerns about the real estate industry Thursday as the keynote speaker at the “Conversations” event held by North San Diego County Association of Realtors at the California Center for the Arts, Escondido.
In the short term, Singer said, the marketplace and the economy are improving while demographics are also getting better statewide.
Demand for real estate is going to be strong for the intermediate term, he said, because there’s been five years with almost no construction, causing households to double and triple up.
In the past four to five months, the market has been transitioning from distressed to more traditional sales with a 25 percent investor market and a 30 percent all-cash market statewide -- and San Diego’s figures are likely higher, Singer said.
Last spring felt like the boom periods of the 1970s and mid-’80s, Singer said, but the boom was justified.
“It was justified because it was cheaper to buy than to rent,” Singer said.
What concerns Singer about the recovery is that the number of first-time homebuyers is lower than it should be, and lending standards are “unbelievably difficult.”
He said this was the worst downturn and it takes time to get out of it -- but the economy is stronger and better positioned for a safe level of growth moving forward.
One of the biggest threats to the marketplace has to do with the value system in the United States, Singer said.
CAR has found through surveys that almost no one wants to be a lifetime renter, yet California’s homeownership rate is about 55 percent -- compared with a rate of 65 percent nationwide.
He said homeownership should be attainable but affordability is constricted in the state.
A lack of homeownership hurts families and also hurts the economy, Singer said.
Singer said he hopes real estate as an industry is “scoping our business correctly,” and it’s important to take care of clients, but that agents are also in the business of homeownership, and “if homeownership is diminished, it diminishes us, although I’m more concerned about what it does to the U.S. as a whole,” he said.
Singer said he loses the most sleep over policies that would adversely affect homeownership. He said he would be very concerned if the mortgage interest deduction were to be threatened, which he said would suggest that homeownership isn’t important.
Proposed bills to change Fannie Mae and Freddie Mac, such as the PATH Act and the Johnson-Crapo bill, could possibly either eliminate two-thirds of financing or increase interest rates overnight by 75 to 100 basis points, Singer said.
“If you don’t care about homeownership, that’s not a problem,” Singer said.
He said he isn’t concerned about Realtors being replaced by technology because buying and selling a home is an expensive transaction that happens infrequently – with a turnover rate of 14 to 16 years.
“This isn’t like selling a book or airline tickets or stock or even an insurance policy, because this is the classic transaction. Buying a home is a classic transaction and it requires someone with expertise,” Singer said.
He added that every house is different, unlike books, which are the same from any retailer.
He does worry about Realtors’ competition with houses for sale by owner, and people who are in the business but “not really in the business.”
Between 1999 and 2001, the average Realtor in California had 12.5 transaction sides. Now that more technology has been introduced, that number has dropped to five.
“Few industries can add technology and see productivity decrease,” Singer said. He said it’s a structural problem in the industry, which makes it easy for people who are not really in the business to be in the business.
Agents could be doing five transactions because on four of the transactions, they have to do the work for the agent on the other side, he said.
While Trulia and Zillow won’t take over the jobs of Realtors, they do reduce costs that were once paid for exposure in the form of advertisements -- which allows people to be in the business at a lower cost.
“The real path to the future is the local expert who understands the marketplace, who is the counselor, adviser and fixer, but who also is incredibly good with technology,” Singer said.
One tip he had for the group of Realtors in the audience Thursday was to host open houses during the week -- a lesson he learned from an Orange County Realtor who created his business through open houses.
The notion was that only serious leads would come during the week, Singer said.