Vision Speech: Educating Agents to be Market Pros

Feb 8, 2015 8:27:46 PM

At one of the most anticipated events at Family Reunion 2015, Gary Keller reviewed U.S. and Canadian housing trends and what we can anticipate in 2015. Overall, the real estate industry enjoyed continued robust recovery in 2014 and is on track for even more stabilization in 2015. “Real estate is a local market business,” Keller said. "Your goal is to be the economist of choice for your local real estate market. It's your professional duty to provide them perspective."

The numbers that drive the U.S. real estate market

Home Sales- There were 4.93 million homes sold in 2014—a slight drop from the previous year. This can be attributed to the slow start in the first quarter because of weather, as well as the drop in distressed sales and investor activity. Keller observed that real estate goes in cycles and while we are in a good period now, agents should prepare for a slowdown in sales at some point.

Home Price – The annual median home price for 2014 was $208,500 — an increase of 5.8%. Keller said that we appear to be nearing the end of the bounce-back effect on home prices and are moving back to a long-term growth path. On an annual basis, home prices appreciated 5.8% for 2014, returning close to the long-term average.

Inventory- Months supply of inventory loosened in 2014, helping ease price growth back to sustainable levels. In the last three years, we have been flirting with a balanced market and are getting closer to that reality. A balanced market is when there is six months of inventory.

Mortgage Rates- Annual mortgage rates averaged 4.17% in 2014, up 19 basis points from last year’s average. Monthly rates balked most economist predictions and trended downward for most of 2014, while they had been expected to rise. Eventually they will rise again, which is one of the reasons that now is a great time to buy or trade-up. Keller advised associates to use the slide below and show it to their clients. People buy homes because it is a lifestyle decision. As a result, they don’t pay attention to rates and affordability and look to their agents to provide this information to them.

mortgage rates

Affordability- "Everything we are talking about today leads to the issue of affordability," Keller said. Historically, the average family spends 21.6% of their income on housing. Last year Americans were at 15%, which is historically low. First-time home buyers spend 10 percent more as a percentage of their income on housing. This means they are spending 25 percent now. When affordability rises as it is expected to, first time home buyers will be moved into the 31-32 percent bracket. Therefore, if first-time home buyers can afford it, this is the time to buy their first home.

canadaKeller discussed the numbers that drive the Canadian market. In Canada, home sales are stable and up about 5 percent. The average price for a home in Canada is almost twice as much as it is in the U.S. and inventory continues to operate in a balanced market. Mortgage rates are handled differently in Canada and there are different qualification standards and requirements for more money down. Compared with the U.S., affordability is slightly better in Canada.

 

Following the discussion on market performance, Keller looked at the three main factors that impact the temperature of the economy: gross domestic product (GDP), unemployment and inflation.

Annual GDP grew 2.4% in 2014. Economists like to see GDP above 3%. Growth was hampered by weather and a generally slow first quarter; however, things picked up in the final three quarters and 2014 overall was a strong year.

Unemployment is down and it is hitting a very good numbers as we kick off 2015. Long-term projections are that unemployment will be between 5-5.5 percent. 2014 saw the best year for job growth since 1999.

Inflation will be important to watch. As Europe faces deflation, the federal government will need to make sure it does not spill into the U.S. economy.

canadaThe Canadian economy is performing well. GDP is expected to have grown by 2.4% in 2014. This is up slightly from last year with the Canadian housing market driving growth. Unemployment averaged 6.9% in 2014 in Canada. This is down slightly from last year. Inflation was moderately low in Canada in 2014. Concerns include the effects of dropping oil prices on inflation and how lowered interest rates affect prices on other goods.

 

Next, Keller explored important U.S. events that are driving the numbers in the U.S.

Sides per Agent - Sides per agent held steady in 2014 as the agent population remained close to 1 million and home sales decreased from 5.1 million to 4.9 million.

Credit Conditions - Only in the last 2 years have banks started to steadily loosen standards back toward normalcy. The 3rd (18%) and 4th (11%) quarters of 2014 saw the largest portion of banks loosening credit standards since the recession.

Distressed Sales - In 2014, the percentage of sales made up of distressed properties declined more slowly as we moved into a more normal market. They are becoming less prominent in the market.

Underwater Homes - More homes continued to reach positive equity in 2014. However, this effect was substantially less than last year as home price growth slowed and we moved away from a recovery and back toward a market driven by fundamentals.

Federal Reserve Policy - In 2014, the Federal Reserve ended its quantitative easing program in response to general improvement in both the economy and the labor market. This year the Fed will have its first opportunity to consider raising interest rates. In 2015, the Federal Reserve will closely watch for continued improvement in the economy and labor market as they weigh raising the Federal Funds rate. They will likely pay special attention to wage growth and will also be on alert for inflation moving too far below target levels of 2 percent. The first round of rate increases most likely won’t happen until the second half of 2015.

New Home Construction - Single-family home construction increased 5 percent in 2014. While this makes 2014 the best year for construction since 2007, it still keeps us well below the historic average.

Oil prices - Oil prices have declined close to 60 percent since June 2014. Cheaper energy prices provided a boon to U.S. consumers and a tailwind to the U.S. economy in 2015.

Student Loan Debt - "This is the story of the decade!" Keller exclaimed. Between 2003 and 2014, the total amount of student loan debt more than quadrupled, going from $241 billion to $1.1 trillion—a 356% increase. Additionally, 71 percent of recent graduates had student loans, with balances averaging $29,400. At 6.5%, that is a payment of $333 per month.

 

canadaThe main Canadian events that are driving the numbers in Canada include:

Sides per Agent - Sides per agent increased slightly from 2013 to 2014 in Canada as agent count kept up with the slight increase in home sales.

Monetary Policy - The Bank of Canada held the target overnight rate steady throughout 2014. However, in January of this year, they lowered rates in anticipation of the negative economic effects of falling oil prices. This will likely place downward pressure on mortgage rates. In addition, the BOC may have to lower rates again early this year depending on how oil prices impact the economy. Other monetary policy considerations include speculation that the Bank of Canada will likely be looking to weigh inflation risks created by a weakening Canadian dollar against the potential economic downturn created by low oil prices. This is in part an effort to cushion the housing market against the impact of reduced employment and incomes that may result from the oil price shock.

There are currently several issues in the world that could impact the U.S. market. They include continued slow growth and low inflation in Europe, rising geopolitical tension in eastern Europe and Asia and global ramifications of low oil prices.

Keller spoke to the audience about the solid market for luxury homes. There are people with money to spend and when they spend it on real estate, they usually don't do so for the investment aspect, they do it for the luxury of the property.

The commercial property market is being driven by job growth — 2.9 million jobs were added this year. When there is job growth, offices need more space. Another factor impacting commercial real estate are vacancy rates and loan delinquency rates. Overall, vacancy rates declined for all property types, with apartments continuing to be the strongest market. The most recent loan delinquency rate is 1.78%, the lowest it has been since 2007. Other notable information presented by Keller included that the price index is up 12.5% in 2014.

The final segment of the Vision Speech included a look at some of the trends going on in the industry that agents should be aware of.

New Loan Disclosure Forms - Understand the new loan disclosure forms. Instead of overlapping double forms, they are trying to pull that into a single form. Hopefully it is simpler to understand. This could impact closings as they will have three days instead of one.

Mortgage Regulations on Qualified Mortgages - Banks no longer have to retain any risk for a qualified mortgage. This means that the banks that follow those guidelines no longer have the risks they once had, which will likely result in increase lending.

FHFA Loosens Lending Requirements - FHFA is lowering the minimum down payment requirement from 5% to 3% for certain buyers.

Search Portals- These continue to linger on the listing landscape. The bottom line is that agents don't need more traffic, they need more buyers.

New Industry Initiatives - Two separate movements attempting to accomplish what should have happened 10 years ago are coming to life in 2015. These include Project Upstream, with which KW is actively working with industry leaders toward a common goal to create an industry-centric portal that represents “My Listings, My Leads.” This will create a single point of entry for listings so agents can control what happens with their leads. The other initiative is a national broker portal initiative that is attempting to build the first national MLS consumer-facing search portal. Their goal is to create a portal funded by MLS dues and data, governed by brokers and MLSs, to present listings to consumers with a display that adheres to fair display guidelines devised by a group of MLSs and brokers. It's scheduled to launch in 2016.

SEO - Increasing SEO ranking will continue to be a hot topic in 2015. Agents want to know how they can increase their rankings in website searches.

Four Tech Trends to Watch in 2015:

Mobile - Native app usage on smartphones is continuing to grow at the expense of the mobile web. Users are spending 86% of the three hours they spend on mobile devices interacting with apps. Share your KW Mobile App!

Virtual Tours - 3D and virtual tour streaming technology are on pace to experience a big year in terms of growth and technological advancements.

Smart Home – The connected home trend will impact the real estate industry by providing a more granular level of data on homes and requiring agents to be educated on smart home products.

Predictive Analytics – Algorithms used to predict consumer behavior are becoming increasingly accurate.

Keller concluded the speech with an examination of the invaluable industry information provided by the National Association of REALTORS®. Keller publically thanked NAR for providing the industry with the information it needs. To see the full discussion about the NAR reports and more details on the discussion points in this article, please view the complete Vision Speech presentation slides here.

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