Market Perspective 2007: Focus on Strategies for a Market for Buyers

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Commentary by Ken Harthausen

When I'm asked to offer a perspective on the short-term outlook on the real estate market, I'm leery of taking on the role of a fortune teller. I'm not a short-term guy and I suspect neither are other real estate professionals who have spent their careers helping people buy and sell their homes. That said, perspectives on the remainder of 2006 and the market outlook for 2007 is my topic for this article.

After a five-year period of virtually untrammeled growth, the housing industry has decidedly entered a down cycle. Sales data on existing homes and new homes have reflected declines throughout 2006. Inventories of available homes have been growing in most local markets. Finally, in the September 25th monthly release of home sales data by the National Association of REALTORS® (NAR), it was announced that home prices declined nationally in August 2006. News headlines promptly pointed out that this was the first national decline in 11 years.

Of course, none of these evidences of a slower market inspire celebration. On the other hand, cycles during which the market slows, and even contracts, have always been a fact of life in the industry. Though 2006 may well prove to be the third or fourth highest year on record for home sales, I have actually heard licensed real estate professionals say, "The market is in the tank." To those folks, my response is, "Let's keep some perspective. Instead of thinking in the short-term and sensationalizing, let's take a longer view."

Individuals who are committed to a long-term career in residential real estate take steps and position themselves to survive downturns and thrive in any market environment. Rather than bemoan the waning of the past five years of frenzy, savvy professionals are already poised to seize opportunities in a buyer's market. Two such strategies are: building business among first-time home buyers, and looking for ways to maximize revenue through business alliances.

Educate and Boost Confidence of Potential Home Buyers
While slowing appreciation and actual depreciation in home prices are not market conditions that please homeowners and sellers, both conditions can be great news for potential home buyers-especially first-time buyers who had been convinced they were priced out of homeownership.

The dream of homeownership is not a fad; it is part of the fabric of our culture. Helping first-time buyers to achieve that dream has long been one of the most personally rewarding aspects of my career in the real estate industry. The same is probably true of many real estate professionals.

Now is an excellent time to reach out to educate first-time home buyers and deliver empowering messages that boost confidence in the ability to buy a home. I use the term, "reach out," not as a euphemism for sales and marketing campaigns, but as a call to act as a guide and advisor, providing objective information about the home buying process and financing choices. First-time home buyers from all walks of life need assurance and assistance in order to understand the complex transactions they are poised to enter when they decide to buy a home.

A comprehensive home buyer education strategy can assuage concerns and remove misperceptions that prevent people from pursuing the dream of owning a home. Real estate professionals and lenders can and should work as a team to help consumers develop a more comprehensive understanding of these complex transactions.
Aside from the fact that offering objective guidance and learning opportunities to consumers is the right thing to do, today's market conditions make home-buyer education of paramount importance. Unscrupulous behavior among bad apples can increase when a market contracts. Consumer education is the best protection, for both home buyers and the industry, against deplorable actions.

Educate and boost confidence. Mortgage rates remain quite reasonable, unemployment rates in most local markets are quite low and the supply of housing has increased. Based on anecdotal evidence, it seems that there are a great many potential buyers sitting on the fence. By providing objective information and guidance, these prospects can turn into satisfied customers and increased revenue for realty firms.

Consider Alliances for Potential Revenue Increases
In a cooling market, strategies for maximizing revenue potential go beyond tapping into building a book of business with first-time home buyers. It is also an ideal time to research and analyze alliances with lenders and other strategies that may incrementally augment revenue.

Since home buyers continue to rely on their real estate professional for suggestions when choosing a lender, in a buyer's market it makes good sense to have reliable, stable relationships with lenders. For some realty firms, an in-house lending operation makes good sense, too.

Building a wholly owned, in-house mortgage entity from scratch can be costly. In a slower market, cost control is the order of the day. More cost-effective methods to bring home-loan services in-house include forming alliances with lenders in the form of joint ventures or perhaps marketing services agreements. Both offer the possibility of increased revenue. Both give home buyers a one-stop option. Why send home buyers across town to a lender if you have an in-house choice that generates revenue and is also reliable, efficient and committed to home buyer satisfaction?

As a firm researches and analyzes whether an alliance is desirable, keep in mind that in a buyer's market, the lender to choose is one that has depth of product, including many financing options developed especially for first-time home buyers.

When Challenged, Focus on Fundamentals
The next 12 to 18 months may present very real challenges to the housing industry. Home price growth may be minimal at best in some markets and price declines are anticipated in other markets. Yet, the fundamentals that support housing remain strong. The national unemployment rate is under 5%, mortgage interest rates remain reasonable and the underlying demographic of first-time home buyers, defined as those ages 25 through 34, is on an increase as the Echo Boomer children reach adulthood.
As an industry, we need to be realistic with consumers and ourselves. The coming months will take hard work and stamina, as well as important thinking about how to thrive in a buyer's market in the long term. Pessimistic proclamations that the market is "in the tank" are not just inaccurate; they can become a self-fulfilling prophecy. Those who are committed to a career in real estate for the long term understand and implement strategies that address any market environment.

Ken Harthausen is managing director, Strategic Business Alliances for Countrywide Home Loans. For more information about Countrywide's Strategic Business Alliances, call 800-401-3402.