The Housing Market & Mobility

Pam O'Connor, President and CEO of Leading Real Estate Companies of the World, said relocation professionals need to understand what is happening in housing, why it is happening, and how to communicate it. She proceeded to help her audience accomplish all three.

She first reviewed the factors that precipitated a "perfect storm" for a crisis in housing. Sub-prime mortgages, ATM-style equity loans, and a "flipper" or "day trader" mentality fueled a frenzy of sales and bloated values from 2000 to 2006. Now the market is mired under a financial collapse, made more difficult by an economy in recession. As a result of the crash, home values have declined by more than 25 percent, representing a loss of $7 trillion in wealth, or $55,000 per household.

"Assuming a 10 percent fall in prices, for a $300,000 house, a family or corporation loses $576.92 per week by not accepting realistic offers."

–Pam O'Connor

In 2009, Pam said, the market managed to perform at 2000 levels. This year, between 5.2 and 5.7 million existing homes will sell (median price $165K). Sales of new homes (median price of $220K) are the lowest since tracking began in 1963. About 2.8 million foreclosures are expected this year. (There were 1.9 million in 2008 and 2.1 million in 2009.) Nearly 15 percent of mortgages suffer from delinquent payments (90+ days) and 25 percent of homeowners are "under water."

The government had to intervene; housing, which represents 20 percent of the GDP, has a major impact on the nation's economy. The housing stimulus package is producing measurable results. Through November 2009, it helped 2 million first-time home buyers; it is expected to help an additional 2.4 million buyers by the end of June 2010. Existing home sales are getting a 15 percent boost and home prices a 3 to 5 percent bump.

However, data begs the question: Is the market saturated with first-time buyers? In 2000, 11 million renters earned enough to qualify for buying a median-priced home. Today that number is 16 million. However, most renters are not qualified to be homeowners.

Several looming factors will affect the housing market sooner or later. These include the expiration of the tax credit; rising interest rates; the potential downward pressure on values from a shadow inventory of REO (real estate owned) properties; a continued drop in values in some areas; and continued unemployment.

Pam reviewed the NAR housing forecasts for 2009 and 2010, and she quoted several experts on what to expect in the near term. All seem to agree that home values will continue to decline this year. She also presented USA Today's projections for state-by-state recoveries and the Case Shiller Future Prices that forecast a market bottom in May 2011.

Pam then summarized the market's standing to date in 2010. The good news is dampened. Mortgage delinquency outpaces last year by 21 percent and the housing credit will soon expire. The market does offer opportunities, such as increased affordability, reasonable interest rates, and long-term investment value for those who can participate. She brought interesting observations on the correlation between human emotions and investing, the performance of real estate versus equity investments over the last decade, and the housing affordability index. She then referred to demographics and noted the substantial numbers in each age group that show, despite an economic recession, there is not an "audience recession."

What is the impact of housing on the relocation industry today? Pam contends the market is contributing to a declining transfer volume, as seen in the growing reluctance to relocate because of housing issues. More employees are becoming renters, and companies must adapt policies to accommodate both homeowners and non-homeowners. Accordingly, the most prevalent policy changes are related to real estate. These include: requirements to list within the appraisal value; added or enhanced home-sale bonuses; extended temporary living benefits; requirements for employees to work with selected real estate agents; added loss-on-sale provisions and increased loss-on-sale amounts; and duplicate housing assistance.

In today's reality, people must recalibrate expectations. Educating buyers and sellers on price, supply, and demand is essential. The challenging market has made us better operators and will result in a healthier, more consumer-focused approach to business in the future. She emphasized the three C's of success (character, connection, and competence) and closed philosophically:

"Stop waiting for the storm to end, and learn to dance in the rain."