Matthew Ferrara, Philosopher
 

Sale of the Century

REALTORS must plant harvest seeds this Spring: Only they can decide whether the summer market will be the worst in decades, or become the sale of the century.

By summer time, the government’s home buyer tax subsidy will be history. Changes to FHA lending requirements will affect marginal purchasers. Consumer credit will remain tight – and tighten further – as credit card companies reduce existing open limits in the face of persistent unemployment. Add two million foreclosure housing units to the supply, and housing markets across the country are likely to stutter, and stall.

Still, there are some indicators that the summer of 2010 could turn out to be the sale of the century – if the real estate industry can shift gears fast enough.
Traditional cycles are going to slow; much of the summer purchasing has already been completed as the tax credits simply “moved forward” planned purchases to the first quarter.

The piling on of rising fuel prices, high food costs and youth unemployment exceeding 20% are likely to shut off the flow of first time buyers for quite some time. ’ers will simply decide to move back home with parents or stay in school over the summer months. Move up purchasers are keeping n eye on steadily rising mortgage rates, threatening to hit levels that, while historically low, touch the psychological level that makes seller-buyers consider staying put a while longer. The long-awaited double-dip will be a likely result as banks try to clear inventory, ramping up short-sales and flooding markets with cheap foreclosures.

Yet in pure economic terms, such conditions will mark the absolute best time to buy real estate.

The golden rule of commodity markets is buy low, hold, then sell high later. This summer’s housing market will represent the greatest time in a generation for the first part – buying low – to occur. The seeds of great wealth are on the verge of being planted.

Unfortunately, the average real estate company and agent are ill-prepared to work in this kind of commodity market environment. Only a rare few have been trained to find the kind of buyers such a market requires. Hardly any have within their sphere of influence the likely candidates with both money and risk-tolerance to make the summer of 2010 a launching pad for the wealth explosion of the next decade. Just who are these buyers?

Investors.

While the DOW recently breached 11,000, many market observers continue to point to the trillion-dollars-plus that institutional investors are holding in cash, unsure of the next big play. Even smaller investors – home builders, rehabilitators, rental management groups – have waited for the proverbial bottom to make a move. That time is now.

If they don’t act fast, most real estate agents are likely to be left out of the party. Most were never taught to tap into the investor segment of the real estate marketplace. For the majority of agents, sales training focused them on their “friends and family” sphere of influence or “local neighborhood” farming areas. Their experience has revolved around the “personal” buyer of one commodity unit (with marginal cash and credit to do so). whose ability to move in this summer’s market will be greatly curtailed, if not entirely calcified. So few real estate companies have the personal connections to high-net-worth buyer networks with the liquid funds necessary to absorb both excess and existing inventory when the sale of the century hits this summer.

Plenty of capital, tolerance for risk and stamina has been sitting on the sidelines waiting for this sale. These are the purchasers who think long term – renting, rehabilitating, even building what will turn out to be this century’s greatest asset investment – over the next decade or two. Cyclical rising energy costs or even moderate but sustained unemployment are merely one-eyebrow-raised-pauses for long-term investors. When all of these conditions collide with two million extra supply units, the rushing sound we’ll hear in the industry won’t be equity escaping but investment dollars pouring in.

There still is time for real estate agents and brokers to prepare for the sale. But it will take a radical shift – not just in marketing and making connections, but in their heads, too. Right now everyone is focused on “short sales” and mortgage modifications. Countless hours are being sapped in making offers on foreclosures one-at-a-time. And in a commission-based business, it all translates into more work for less income. That means the timing is right for both investors and REALTORS to get together, to shift gears towards more sales outcomes. Financing won’t be the issue with investor-buyers; cash talks.

If real estate agents can start searching, befriending and building relationships in the Spring, it might turn out to be the greatest sale of the century throughout the summer market to come.

  • Matthew, as always….you are dead on! Great article. Keep them coming.

  • Matthew, as always….you are dead on! Great article. Keep them coming.