I still believe that a bottom is coming for housing in 2013. Some areas of the country, like the Silicon Valley area of Northern California, have already left a bottom far behind. On March 14, 2012, CBS This Morning ran a segment called "Silicon Valley Surge: Facebook IPO Creates Home Sales Boom." One real estate agent interviewed in the piece claimed that the mini-boom in house sales really got jumping February 1st once Facebook (FB) announced its IPO. However, the following quote from a real estate agent really got my attention:
There is nothing artificial about it. Its people have the money.
March 15, 2012
La Jolla, CA.--Last month’s Bay Area home sales bounced up a bit more off bottom, fueled in large part by investors with cash who were buying discounted properties in the lower half of the price spectrum. The median price paid for a home dropped year-over-year for the 17th month in row, a real estate information service reported.
A total of 5,702 new and resale houses and condos sold in the nine-county Bay Area in February. That was up 4.1 percent from 5,479 in January, and up 14.2 percent from 4,991 in February 2011. The year-over-year sales increase was the eighth in a row, according to San Diego-based DataQuick.
A January-to-February sales increase is normal for the season. Last month’s sales count, which got a lift from an extra business day thanks to the leap year, was the highest for a February since 6,305 were sold in 2007. It was 9.0 percent below the February average of 6,268 sales going back to 1988. The sales pace for most months last year was 25 percent to 38 percent below average.
- Read All Questions Slowly And Carefully. Do Not Omit Information.
- Disclose All Criminal Convictions And Pending Criminal Charges.
- Disclose All Criminal Convictions Even If They Have Been Expunged.
- Every Document You Submit To The DRE Will Be Used Against You If The DRE Decides To Deny Your Application.
- Even If The DRE Files A Statement Of Issues Opposing Your Real Estate License Application, It Does Not Mean That You Will Not Ultimately Get A Real Estate License.
In another sign of an improving economy, residential remodeling is picking up in the Bay Area after several lean years, helped along by homeowners who are deciding to fix up places they can't sell because of the housing crunch.
"There is an awakening," said Rick Evans of Bauman Builders in San Jose. Last year "was like a switch that flipped."
Fueling the upward trend is growing confidence in job stability and a booming tech stock market that helps pay for new kitchens, bathrooms and landscaping. Few homeowners are borrowing for the work, builders say.
"It's all cash, nobody's borrowing anything. It's savings or stock money," Evans said. He said his clients "are employed someplace in the tech sector -- the eBays, the Googles, and I'm sure there's a whole boatload of Facebook people about to do the same thing."
WASHINGTON -- Sales of previously occupied homes rose in January to the highest pace in nearly two years, a hopeful sign ahead of the spring buying season. The National Association of Realtors said Wednesday that existing-home sales increased 4.3 percent last month to a seasonally adjusted annual rate of 4.57 million. That's the highest level since May 2010. Home sales have risen nearly 13 percent over the past six months. While they are still well below the 6 million that economists equate with a healthy market, the gains have coincided with other changes in the market that suggest slow but steady improvement.
Freddie Mac, much like Fannie Mae, is cautiously optimistic about the fate of the 2012 housing market with job prospects looking more favorable and interest rates remaining at all-time lows. The government-sponsored enterprise predicts gradual, but steady, improvement in both the economy and housing market, supported by affordable home prices, low-interest rates and brightening employment prospects. The GSE expects mortgage interest rates will stay low, making homeownership more affordable, while driving more refinancing activity. Fannie Mae released a similar report this week, saying housing could contribute to gross domestic product growth in 2012 for the first time in years. Both companies recognize the potential for a eurozone crisis or other economic headwind remain, making their forecasts tepidly optimistic, at best.
- Gov't seeks smaller role for Fannie, Freddie (sfgate.com)
California has 21% fewer people holding a real estate license than it did five years ago when the tally peaked at just under 550,000 licensees, state figures show.
That’s equivalent to one out of every five license holders at the peak giving up their California real estate licenses, or allowing them to expire.
The number of people holding a license has fallen from one month to the next for every month but one in the past four years, according to the state Department of Real Estate.
In addition, the state figures show:
- As of October – the latest month for which numbers were reported – California had 435,865 people with a real estate license.
- That compared to 549,244 in November 2007, when the number hit an all time high. That was equivalent to one person with a license to sell real estate for every 24 households in California.
- Since then, the number of license holders dropped by 113,379, or 21%. The latest tally still is equivalent to one license holder for every 31 California households.
There’s one good reason for the decline: There’s half as many people taking the real estate license exam now than were applying to join this trade four years ago. Just ponder …
- More than 66,000 people took the real estate test in the 2007-08 fiscal year, compared to 30,406 in 2010-11, the fiscal year completed in June. This year’s pace of exams is running slightly lower than previous years.
- Hence, there are almost 36,000 fewer people attempting to enter the ranks of real estate agents to replace those who are letting their licenses expire without renewing them.
- The number of real estate tests taken peaked at 185,381 in the 2005-06 fiscal year – equivalent to more than 15,000 exams taken every month or roughly 750 exams every business day.
How many sales agents will arrive as new licensees by the end of 2012?The answer to this question is in the monthly data for the recent influx of new sales agents, which is similar to the line of entry for new sales agents during the early 1990s. Since October 2007, the number of new sales agents has remained nearly constant, at around 1,100 monthly. Prior to October 2007, the numbers of sales agents receiving licenses were artificially boosted by:
- boom-time momentum which peaked in 2006; and
- altered licensing requirements effective October 1, 2007, when the state severely tightened requirements for sales agent licensing, instantly causing the number of licenses issued to drop 80% to a more sustainable level..
first tuesday predicts sales agent licensing will remain constant well into 2015, with approximately 3,300 new sales agents arriving quarterly. Sales agent licensing should jump slightly in 2013, as brokers increase staff in anticipation of a possible recovery in home sales. This bulge will be small and short-lived — increasing the number of sales agent licenses issued by about 300 quarterly.
Then, most likely in 2014, the number of newly-minted sales agents will return to its 2011 level, since the Federal Reserve (the Fed) will certainly raise interest rates in anticipation of new but too-rapid improvement in the economy. An average of 3,800 sales agents were licensed quarterly from 2008 to the end of 2010, and this number has declined in recent quarters as we move away from the quick enthusiasm brought on by the short-term housing subsidies of 2009.
Meanwhile, broker licensing numbers will continue to slip gradually until they bottom in 2016, as the entire licensee population quickly corrects for the current surplus in licensees (3,000 licenses continue to expire monthly at the time of this writing). Both broker and sales agent licensing numbers will finally stabilize in 2016, then begin to rise once again as the housing market starts to show signs of real recovery, first through an increase in sales volume, then an increase in prices one year further on.
Overall, the volume of new sales agents obtaining a license through mid-2013 is expected to be nearly the same quarterly rate as was experienced in 2010. 2012 and 2013 will see a slight rise in new agents, but for the immediate future expect newly-licensed agent numbers to average around 13,000 annually. In the meantime, broker numbers will continue their slow decline until around one year after new sales agent licensing begins to rise, anticipated to begin in 2016.
Sales agent Population Movement
Roughly 60% of new sales agents who were issued licenses from 2005 to 2007 have left or will leave the real estate profession by letting their licenses expire at the end of their first four-year license period. Further, one-third of all sales agents who renewed their licenses are not employed by a broker and thus not involved as sales agents in real estate transactions.
Accordingly, around one-third of the 99,700 individuals who received original sales agent licenses in the two years prior to October 2007 will be actively participating as sales agents in real estate transactions in 2012 and 2013, as the California real estate market begins to find its bottom and stabilize for an eventual upturn in sales volume. Of the 33,250 licensees remaining after entering in 2006 and 2007, around 6,500 have already become brokers. [For the total number of active real estate licensees statewide, see the first tuesday Market Chart, The rise and fall of real estate brokers and agents.]
However, the new sales agents who entered after 2007 are of a different mindset and possess different talents than the “hit-and-run” types who entered between 2003 and 2007. This incoming batch is more dedicated and thus more likely to plan ahead for long-term market rises and falls. Their actions will cause fewer future entrants to drop out after their first four years, a human resources problem the real estate industry has never managed to control. Many will be from families that own investment property or have brokerage backgrounds, and they will enter for far better reasons, and with much better likelihood of success, than those who merely hope to get rich quick.
Sales agents who have upgraded to broker status, presently around 4,500 annually and slipping, have already found their sea legs in the real estate industry. Thus, most of them will remain actively employed by, or in association with, other brokers during the initial years of recovery from the Great Recession and financial crisis. [For a comparison of employment levels among California’s largest and most successful brokerages, see the first tuesday Market Chart, The top 29 brokers in CA by number employed.]
Recent trends indicate that two shifts are increasingly imminent in real estate licensing activity, and will probably begin to take place in 2017. Both are likely to parallel the trends surrounding 1997, a year with similar supply and demand numbers:
- first, the number of real estate licenses issued is then likely to increase by 20% to 25%. Licensing numbers will continue to increase at or near this rate for a few years before reaching a state of equilibrium, when a sufficient number of active sales agents to service the needs of the California population is finally reached;
- second, the percentage of sales agents who renew their licenses is likely to jump, thanks to a current shadow force of underemployed licensees. At the moment, approximately 40% of all real estate sales agents allow their licenses to expire instead of completing the continuing education requirements and making the payments needed to retain their licenses. As the economy shows real signs of recovery around 2017, this percentage will drop to approximately 25%: a level common during the more stable years in the late 1990s. The license renewal rate for brokers is expected to continue unchanged, at just below 80%.
Sales agent licensing numbers will have bottomed and may begin to rise again by 2017, as housing demand increases and prices begin to rise faster than the rate of consumer inflation. Beginning 2017, we can expect an increase in the total sales agent licensee population in California of between 4,000 and 5,000 additional sales agents annually. The rise in sales agent licensing will then be further fueled by the housing demands of the arriving Generation Y first-time homebuyers. [For more on the positive influence of the next major homebuyer generation, see the first tuesday Market Chart,First time homebuyers and new housing.]
The number of newly-issued licenses of all types will also drop before it rises again. New issuance of real estate broker licenses is expected to bottom at between 4,500 and 5,000 new licenses annually in the period of 2016 to 2017. Sales agent licensing, which has already dropped dramatically in response to demoralizing home sales numbers, will remain at its present low rate of 13,000-14,000 annually through 2016.
first tuesday predicts that licensing volume—that is, the total number of real estate licensees holding either a DRE-issued sales agent or broker license—will reach its nadir in 2016 or 2017 (following the beginnings of the home sales volume recovery going into 2016), and then begin to rise once more. At that time, the total number of real estate licensees in California will be approximately 360,000, but could justifiably drop to 330,000 (in June of 2011, the total count was 447,642). The most recent low point in total licenses in California was 1997 with just under 300,000 real estate licenses.
In the more immediate future, in the years leading up to 2016, inactive real estate licensees (licensed sales agents not currently employed by a broker, and licensed brokers who elect not to use their licenses) will gradually begin to return to active status as sales volume stabilizes and sales agents begin to improve their income flows.
Recovery begins in 2017
2017 will be the “go-ahead year” for the California economy. By 2017, the state will have reached a level of employment that exceeds the historic high of 15,348,200 jobs in December of 2007. As a result, the demand for housing among “employed homebuyers” (not including the massive housing inventory pulled off the market by speculators in 2007) will rise with the increasing numbers, but will not drive sales volume to the heights of mid-2005. However, demand will be too great to be met by currently existing housing, and builders will increase their construction activity to meet it.
Construction and home sales will be most intense in California’s urban cores, where the population will increasingly concentrate itself. Indeed, unless cities relax their land use restrictions and permit construction to keep pace with the increasing demand, home prices will rise faster than the rate of consumer inflation, at speeds which cannot be sustained in the long term. Another period of boom and bust is not unlikely. [For more on the current movement of the state population, see the first tuesday Market Chart,Golden state population trends; for more information about the urbanization of California’s population, see the July 2011 first tuesday article, From city to suburbia then back.]
Until 2017, California’s existing housing supply with minimal construction starts will most likely be sufficient to meet the demands of both renters and buyers/owners without driving prices up. As first tuesday has discussed in the past, an ongoing increase in the popularity of rental housing will take the pressure from the demand for new single family residence (SFR) housing in the upcoming years. [For more on the increasing demand for rentals, see the May 2010 first tuesday article, Rentals: the future of California real estate?.]
In other words, new construction starts for both SFRs and condominiums (condos) will languish more than they did in the mid-1990s until the current supply of unoccupied residential units (both SFRs and apartments/condos) is taken up by former homeowners displaced by foreclosure. Until foreclosures wind down (likely around 2014 unless the government exerts greater pressure on the biggest banks), there is no chance of the current housing supply running out. And until buyer demand for new housing is reflected by annual increases in construction starts, real estate licensing and renewals will have no urgency.
Immediately following 2011, the license renewal rate for sales agents is likely to hold at or near 65% (the sales agent renewal rate in June of 2011 was 58%). It will not rise further until prices significantly exceed the rate of consumer inflation, most likely in the 2016-2017 period. At that time, the broker renewal rate will also rise to as high as 82%, but until then it will remain close to 77%, where it has hovered since 2008.
These mid-decade shifts will be dramatic, and easily observed by real estate professionals. After all, the increase in licensees will only reflect what will, by that point, already be obvious: increased home sales volume (forecasted to rise dramatically in approximately 2016) and the ensuing increase in home sales prices about one year after, when pricing will finally begin to rise more quickly than the rate of consumer inflation (properly referred to as asset inflation). Although the Federal Reserve (the Fed) will raise interest rates multiple times during this decade to absorb the flood of money released by its policy of quantitative easing and prevent the formation of a new bubble economy, the number of annual home sales will eventually begin to rise at a steady and sustainable rate, and sales agent licensing volume, like home pricing, will rise in response. [For more on current and future monetary policy, see the March 2011first tuesday article, Home financing, mortgage-backed bonds, and the Fed.]
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Aggressive adjustments in the broker and sales agent population
Compare the number of newly-licensed Department of Real Estate (DRE) real estate brokers to the number of newly-licensed DRE sales agents and you find that for every two new agents there is approximately one new broker. New brokers come from the ranks of current sales agents and from unlicensed professionals.
Importantly, around 25% of newly-licensed sales agents go on to become brokers, and they are most likely to do so within four years after first getting their sales agent license. Those who are not initially sales agents may also qualify to become brokers by virtue of education or profession.
The current ratio of two sales agents for each broker is due to a recent shift from the abnormally high number of sales agents flooding into the profession in the 2000s back to historic norms. Through most of the 2000s, until the legislated real estate licensee crash in October 2007, a ratio of five new sales agents to every one new broker was the standard.
This unsustainably uneven ratio was fueled by a high volume of home sales, fast-rising home prices and rampant speculation by flippers. Now, in the absence of the market distortions of the housing boom, the real estate profession reflects a more natural balance between brokers and their sales agents.
During the last decade, the timing of the rise and decline in the number of new brokers lagged behind the rise and decline in the number of new sales agents, as is illustrated by the above chart. Based on current licensing numbers, we can safely predict that the issuance of new broker licenses will fall slowly but steadily until around 2015. Meanwhile, new sales agent licenses will continue to be created at their current rate: around 13,000 annually. Broker licensing has historically been far more stable than sales agent licensing, but it can still be forecasted by an appraisal of the number of new sales agent licenses issued during the prior four years.