Real Estate, The Fed, and You

The Chairwoman of the Federal Reserve has been making serious noises about raising the cost of funds, and causing interest rates to rise at long last.  Although the timing is not certain, it does seem clear that rising rates should start by the middle of this year.  Obviously, that is big news for real estate, since mortgage rates direct affect sales of properties; as the cost of monthly ownership goes up, people can afford to pay less for the home or building, and the number of people who can qualify at all goes down. Clearly, although there are broad signs of economic improvement across most of the country, the Fed is worried about disturbing the fragile real estate recovery, and rightly so.  However, rates have been so low for so long that there seems to be no other alternative, so the question is simply when it will happen.


The funny thing about the effect of rising mortgage rates on real estate is that buyers don't seem to be spurred by talk of rising rates.  Until rates actually go up--then they rush to act.  Therefore, in a way, rates going up will help us, since our problem locally is that languishing prices have caused buyers to hesitate and dither, since they don't seem to be worried that anything they are considering will get sold while they are on hold.  Once they see the consequences of having waited, they begin to feel some urgency.  And that causes bidding wars, competition, and, ultimately, rising prices.  The buyers then face a double whammy, of rising mortgage costs and increased sales prices.  So why don't they act before this begins to happen?  Only specialists in consumer behavior know!

New Careers

The backbone of the real estate industry has always been people who are entering a second career, and this current economic crisis will surely produce folks who are looking for them. There are several factors that make mid-life entrants successful in real estate: maturity; life experience, including often significant personal real estate and relocation experience; savings, pensions, or other financial cushions; contacts; and transferable sales skills. Our history has shown that people who enter real estate in a down period tend to do better over time, probably because they are forced to learn skills and strategies that those entering in boom times don't always acquire. Also, those starting in the profession now will be training and getting licenses now, and will be ready to take advantage of the recovery just down the road.

It may also be possible for those retooling from other jobs to receive economic stimulus money for the interim period. I am looking into this with local job center officials. Both residential and commercial fields are always eager for new blood and new backgrounds, but it takes time to get up and running, and will probably take longer in this economy for new agents to earn a living selling real estate (In case there are readers who do not know this, real estate agents are 1099 independent contractors, who are paid entirely on commission). However, there are many wonderful things about being an independent contractor, and we like to point out that it is one of the original "equal pay for equal work" industries. You eat what you kill, as we also say. Good agents do well in every kind of market, and this one is no exception.

So, if you are reading this during your job search, you might want to consider real estate, where your relationships and prior skills can help you launch a new career today!

Optimism

Well, I felt a little ashamed as I read the front page article in today's New Haven Register Business section. I guess I'm more pessimistic than others about the Obama recovery plan, and let's hope I'm wrong. After all, the whole point is to make people WANT to buy; it doesn't even really matter whether or not the incentives even make sense. I also read in the New York Times today that most who listened to the President's speech last Tuesday were left with a positive impression of the government's current handling of the economy. That's good news.

I suppose I should be forgiven for being more down than most, since real estate would be at the bottom of anyone's list of thriving industries right now. However, in the end it doesn't matter what I think--it only matters whether others are spurred to action by the program. I have been saying that I think first-time homebuyers are the ones who least need incentives, since they have no history with which to compare today's conditions. In addition, they don't have houses to sell before they can buy. One could look at it another way, though: If those at the beginning of the chain go out and buy property, everyone further along can then sell and buy another property themselves.

As many have said, much of the current crisis comes from a lack of consumer confidence, which is now at its lowest rate since measurement began in 1967. Every recovery scenario depends upon getting that number up, since economics turns out to be more related to what people think in many cases than to what the graphs say. Most of us realize that a great deal hinges on jobs, since almost no one will buy what they don't need if they think they might not have a job in the near future. Convincing people that jobs will be preserved and created is key, and, unfortunately, can't be done in one location or in one sector of the economy.

The next few weeks, which take us into the traditional spring buying and selling season, will be critical for any hope of a real estate recovery this year. I'm keeping my fingers crossed, but you shouldn't bother doing that--just go out and buy some property!