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For five years, we’ve heard agents and managers say they were “waiting for the market to come back.” Well, it has, but funny, it doesn’t look anything like they expected. Now what?

For five years, we (and others) have argued the housing market wasn’t just entering a downward curve of the business cycle, but experiencing a fundamental transformation. Sure, a recession brought on by overspending and over lending has hastened the change, but real estate was destined to look differently by now because of many other long term factors. Demographics were altering the kind of homes needed, and the timeframe for buying the first, second and third times. Inflation, notably in energy, foodstuffs, healthcare and college tuition has been reshaping the credit position of consumers for almost twenty years. Technology, and a run up in agent commissions, office space and marketing costs, nibbled the profit margin of brokerage to historic lows.

Add it all up and the housing industry was destined to look different by today even if credit bubble hadn’t burst.

Still, there persisted a nostalgia (or delusion) amongst many real estate practitioners that the market would someday “return” to normal. True, many of those agents and brokers have left the industry while waiting for the return. But plenty of wishful thinkers remained  convinced that someday, “the market would come back” and they would be back on easy street.

Well, they were right on the first part. The market has come back. But surprise, surprise, it’s not Easy Street but Rocky Road that must still be travelled.

Let’s run the numbers: According to recent data, the housing market has returned to many “pre- and near-bubble levels. Inventory has fallen to mid-2005 levels as of December 2011, continuing a trend of less homes for sale month-over-month. Certainly, there are many foreclosures waiting to push that number up in 2012, but even in the states that have the most pending-foreclosure inventory, the bring-to-market rate will be slow as courts, banks, politicians and industry lobbyists slow up the process. That should help manage further price decline rates. In New York, it is estimated that it will take the courts 8-10 years of bureaucratic process to clear the foreclosures. So the impact of foreclosures might be considered a new fundamental market feature, not a short-term business trend. Nationwide, the overall months supply of homes, at 7 months, basically continues to fall.

Likewise, home prices, while down from bubble days, are back on track. Case-Schiller puts average sales price right about mid-2003 levels, which were at 16-year highs. If you chop the bubble out of the graph, today’s home prices are right where they should be, given multi-decade tends, and a severe global recession.

Some people might argue that while price is “back” it is still headed lower; that’s possible, and likely, in the states with lots of foreclosures yet to come. But that’s a concentrated set of markets, and many areas are experiencing flat or slight upticks in prices as natural equilibriums in supply and demand, as well as slight improvements in employment numbers have occurred. Appreciation is occurring in many places, too, such as the new energy-boom states and farm land regions, as food inflation and new technology create hotspots of growth. Still, it’s important to remember that even if we dropped back to pre-2000 levels in housing, they would all be “up” in the long-term trend of things.

Of course, the challenge for the housing industry isn’t that the market metrics are back to their slow, steady incline. It is that the fundamentals of that incline have changed. While plenty of single family homes are being sold, the credit conditions of those sales are significantly different. More all-cash deals and strict credit conditions require real estate brokers to be far better at pre-qualifying their customers and hyper-targeting their marketing efforts. Increasing demand in rentals has created opportunity for some brokers, but too few have prepared their organizations to efficiently (and profitably) handle the rental boom that is brewing. They might catch up, but they are losing out on the cash flow today.

The good news is that a lot of brokers did prepare for the return. They spent the last five years radically rewriting their playbook. Many killed newspaper marketing for good; others reinvested that money into building fantastic video marketing channels. At least half of real estate agents, according to NAR numbers, have decided that social media is a great way to keep up with friends and family that can send them referrals. Brokers have taken control of their data (and its costs), refocused on target marketing, and eliminated redundant “lead generation” fees on their own listings. Some have even done the hardest work of all: closing expensive offices scattered across town, and invited expensive non-producing agents to go be non-productive somewhere else.

The question today is: now what? Where are we going now that the market has “come back” to pre-boom levels? There are many indicators already in the market. Brokerages are learning how to handle downward pressure on margins with new technology and techniques to move property faster (staging, auctions, video marketing). Agents are improving their skills with qualifying consumers and walking away from tire-kickers. Consumers themselves have come to terms with market and equity realities, and moved away from the investment-speak of housing towards a utility-value model, reflected in smaller homes with smaller mortgages.

The housing market is returning to a healthy state – albeit one that looks radically different than it did during the boom. In every market, there are plenty of consumers getting good deals, and brokers producing solid profits. Changes in the core sales, marketing and management practices of the business have absorbed many of the lessons of  the recession and are ready for the next business cycle. Now its time to look at new challenges, in profitability, performance and predictability, that consumers want from the brokerage industry.

The market is back. Now it’s time to decide what we’re going to do with it.

Now, things are really going to get fun!