Or – will it ever be as good as it was?
The question led to more questions, and made me think – hard.
Those questions – or similar ones – are likely being asked by many in the real estate industry right now. There are more questions than answers.
The mortgage market is shifting – trimming the proverbial fat in the hopes and expectations that what will be left will be leaner, meaner and more efficient. This is but one of the many ways that Realtors’ production volumes will be impacted – downward.
I’ve noted the following letter before but feel it’s warranted to revisit – This is but one of the reasons for the shift enumerated in this letter (h/t Blown Mortgage), including but not limited to this:
The key reason the Subprime problem exists as it does today has to do with the wanton disassociation of risk inherent in the machine that churns out Subprime loans. Unlike the S&L crisis of the 1980s, the mortgage lenders of today aren’t taking their own balance sheet risk when underwriting loans. These brokers get paid for quantity REGARDLESS of quality. The balance sheet risk is transferred through three entities in less than 90 days from origination. The originator will originate ANYTHING he can sell to a whole loan buyer to pass the hot potato on. Whole loan buyers are simply the aggregators of loans at the Wall St. firms that aggregate, package, tranche, and sell as quickly as they possibly can to the clueless buyer. This transference of risk is the crux of the Subprime situation. Just think about itâ€¦if you were a 20-something making mortgage loans in California using someone else’s balance sheet and being paid per loan (with no lookback to performance of the loan), how many dubious loans would you underwrite?
The above is going to change. In this instance, “brokers” could be applied to real estate brokers/agents as well as mortgage brokers. Other people’s money will never not be as easily borrowed for the foreseeable future (as pointed out recently in the comments). What percentage of total buyers over the past five years have fallen into this category? About 20% of all refinancings made in 2005 in the Charlottesville area were considered subprime. Non-scientifically, what will happen to the local market if 20 percent of all buyers are removed from the market?
My prediction is that there will be at least a 15%-20% decline in the Realtor membership next year; (the agent bubble may be bursting) might there be a correlation between the reduction in Realtors and buyers that will lead to equilibrium? (The Minnesota Association of Realtors was slightly ahead of the curve)
We are returning to a traditional real estate market, and we may be in for some significant pain – more than many realize. If so, in which phase are we?
This post spoke to me this weekend -Â De-commodification.
You know the phenomenon when a company gets too big and too rich, and the next thing you know, the middle-manager politics take over? Starts sucking the life blood out of the company? The start of inevitable and permanent decline?
The best way to offset one’s own commodification is to build one’s own personal “global microbrand“, irrespective one own employer. “Brand You“, as the great Tom Peters called it way back in 1997. A good blog works about as well as anything.
What if we replaced “company” with “industry”?
The real estate industry – and real estate blogs -Â may very well be in working their ways through the de-commodification phase of their respective evolutions. Agents already are becoming brands unto themselves – brands that can move from Broker (note to Wharton: “Broker” is not necessarily equivalent to “agent”) – might the very structure of the business be changing? What if … all Realtors were required to be Brokers (this is the case in at least two states).
The world as we know it is changing. The fallout likely will be felt far and wide. When it clears, I expect to be here for a while. (Unless a far better offer comes in)