Matthew Ferrara, Philosopher

REALTORS May Only Have 35 Days Left

Real estate agents may have 35 days to get their sellers to price their homes right. After that, buyers are going to become even more scarce.

Don’t get too excited about today’s jobs report. It’s the October report – the one where the government revises the previous months’ data – that REALTORS need to prepare their sellers for. Especially if past revision reports are any indicator.

[Update 9/2: Since the jobs report was released this morning, and the numbers show a net gain of zero new jobs, we’ve revised the next paragraph from a small decline in jobs to “holding steady” at over 9% unemployment. – MF]

It’s simple. Monthly jobs reports are notoriously unreliable: estimates, riddled with data holes like under-reporting by small businesses, subtractions like “striking workers” and government math (need we say more?). Should you feel comforted that the September report [held steady at about 9% unemployment], savor it now. Because they remain unconfirmed rumors until finalized, by revision, a few months from now, when we’ll see that it’s likely more jobs were actually lost.

Besides: After years of recession and stubborn unemployment, the only numbers that matter to most buyers are how many people at their dinner table still have a job.

Why does this matter to real estate professionals, and their sellers? Because October’s report will contain the revisions for the summer reports. And while it seems that consumers are becoming increasingly inured to all economic reports – about manufacturing, about interest rates, about housing, they have a very clear understanding of the jobless situation. It almost doesn’t matter what Case-Schiller says, what Mark Zandi guesstimates, that John Paulson encourages, or the National Association of REALTORS reports.

When the October revisions come out, potential home buyers are going to say: That’s what I thought!

For perspective, consider the June 2011 revisions. Bloomberg reported,

Further bad news from the latest jobs report: the government revised its payroll data for the previous two months to show that 44,000 fewer jobs were created in April and May than had been previously thought.

The unemployment rate increased for the third straight month, reaching its highest level since December 2010. There are more than 14 million Americans who are looking for work but can’t find a job…. Both the jobless rate and the number of jobs created in June failed to match analysts’ predictions. [emphasis added]

That’s why we think real estate brokers have about 35 days to help their sellers get their prices, conditions, and most of all, motivations, right. If the October report significantly revises the third quarter jobless data, home buyers might just decide to hold off for the rest of the year. Traditionally, home purchase activity slows over the November and December holiday season anyway. But if already jittery consumers have their suspicions about the “recovery” confirmed by the October revisions, it could call a start to the triple-dip in the housing sector.

Some real estate professionals might say that any revisions won’t matter, because real estate is “local” and some markets have remained steady throughout the recession. In fact, we believe that, too, mostly, with one important exception: Five years into a housing bust, and three into a stubborn recession, consumer confidence is national. Whether it’s up or down, it is “local” everywhere. You can find the numbers yourself: consumers’ confidence in legislators, the government’s handling of the economy, the direction of the country. It would be unwise to confuse local housing market data with the national consumer sentiment, which reaches every television, radio and internet connection collectively.

Since real estate sales always require a buyer, confidence seems more important than other data points. Certainly, low interest rates have had no effect. It remains a jobs situation. Sellers can feel anything they want about their home, their price, the future. But if buyers don’t have confidence in their job security, wage growth, savings and future – or if their past concerns become validated by revised reports – it really won’t matter. Buyers have choices: As we’ve seen, many can wait, often longer than sellers can. The October jobs report might encourage them to wait longer.

So start the clock. Show your sellers this article, if you like. Get them to think like buyers before they think like sellers. And make the right moves now. There’s still a whole month to make things happen.

  • Anonymous

    But aren’t the biggest chunk of job losses rooted in government employees, local, state and Fed?  Shouldn’t that ultimately be a good thing in the long run?

  • Paul:

    In some cases, the job losses are part of a necessary restructuring of our economy that’s very fundamental: for example, downsizing government, or laying off telecom workers whose skills don’t meet the needs of the structure of the future industry configuration. Both of those are good in the long run. But the battle for the housing industry has to be waged in the short run – at the kitchen tables of sellers who aren’t seeing the situation clearly, to attract today’s buyers who are. To the extent that we might even say “buyers sitting on the sidelines” is also healthy in the long run for real estate, I might even agree. To the extent that real estate agents have a current duty to their clients to help them understand the facts – and the potential that stagnant job growth means they have to make their house more attractive – if they actually want to sell sooner than the “long run.”
    Thanks for your comments, as always! I enjoy the opportunity to explore these ideas with you. – MF

  • Great points, Matthew. Those government employees may have been the next potential home buyers before “restructuring” happened. Add the more expensive FHA loan changes coming soon, and there are some real potential barriers for buyers.

  • Sam: Thanks for your comment. It astonishes me that so many barriers are being thrown up in front of sectors like housing and energy. I’m definitely not a fan of more government subsidies in housing, but at the very least, they could keep things stable and predictable until they can be weaned off entirely…. we will just have to be even more careful on behalf of our clients.