The 2006 Power Broker Report Who could have predicted a year like 2005? With home appreciation reaching unheard of heights and interest rates holding their own, the real estate industry made history—again—by setting a fifth consecutive annual record.
According to NAR, the median price of a home last year was up 12.7% and existing home sales were up 4.2% from 2004—and this year’s Power Broker stats show it. While most experienced declines in November and December, participants in RISMedia’s 18th annual Power Broker Report & Survey report a combined increase of more than $30 billion in sales volume for 2005.
The question is, are we ready for 2006? With existing home sales expected to decline 5.7% this year, some are worried. But not the Power Brokers. They know that the key drivers—minorities, Boomers, Echoes, technology, et al—will continue to fuel the market. Power Brokers, in fact, look forward to the normalized market ahead—they know that it will help set them apart from less-than-worthy competitors even more. Here, find out which Power Brokers made our Top 500 ranking and how they plan to prosper in a shifting market.
2005 The Best Year Ever?
After a record-setting year in 2004, no one could have predicted that 2005 would result in an even better, more successful year for the real estate industry. In fact, home appreciation prices reached new levels for existing homes, jumping 12.7% to $208,700—and that was just the average.
This year’s Power Brokers report record numbers as well, with total sales volume growing from $925,892,657,900 in 2004 to $955,900,852,203 in 2005. Despite these impressive numbers, however, Power Brokers say they are prepared for—even looking forward to—the healthy, more normalized market projected for 2006.
A Record Year
In 2005, three important factors were all in sync—job growth, low interest rates, and population growth, according to John L. Scott Chairman and CEO J. Lennox Scott.
“In a normal economy, you would not see all of these items exist simultaneously,” he says. “However, last year, these factors were all in sync, allowing for a very profitable year.”
What’s more, the growing immigrant population became an increasingly important part of the buying community—especially in areas such as California where the majority of some markets is made up of entirely non-English-speaking residents.
The Internet’s Rise Continues
More than ever, consumers are reaching out to the Internet to search for homes—oftentimes, long before they contact a Realtor. Statistics show that by the close of 2005, 77% of buyers had searched online before purchasing a home. Compare this to just 10 years prior when only 2% of buyers used the Internet as a resource in buying a home; that number is also up 3% from 2004.
This trend, say Power Brokers, will only continue, perhaps eventually resulting in the demise of newspaper advertising all together.
“The growing importance of the Internet has virtually rendered classified newspaper advertising irrelevant as a selling tool,” says Terry Morris, president of GMAC Company-Owned Real Estate. “Newspapers are primarily effective as vehicles to drive traffic to the broker’s Web site.”
Agents with advanced communication and technological skills will have a decided advantage, he says. Additionally, lead generation tools and lead generation companies, are making the Internet an even more powerful tool for home searching.
“These new ‘middlemen’ in the lead generation business are not really that new, they are simply entering the business from another angle in a more visible way,” according to Stefan Swanepoel’s latest account of the industry, the Swanepoel Trends Report. “Lead generation is also growing rapidly as it has become the single fastest way for a new licensed real estate agent to get a foothold in the market.”
Where Will We Go in 2006?
While home sales are predicted to be down slightly from 2005’s record numbers, brokers say the numbers will vary, depending on price range and locale.
“There is steady nationwide demand for entry-level housing,” says Morris, “a fact that bodes well for the long-term prospects of our industry by feeding the move-up pipeline.”
What’s more, Power Brokers say that price appreciation should be at more normal levels across most of the country. Inventory is up, say brokers, meaning that prices will stay at more normal levels. Lower price appreciation should allow more first-time home buyers the opportunity to get into the market, while preserving the investment advantages of homeownership for sellers.
That said, the 30-year fixed-rate mortgage is likely to trend up gradually to 6.7% during the second half of the year, according to the National Association of Realtors. This should keep homes moderately affordable and keep the market going.
Broker profitability is a continued concern this year. Power Brokers predict that the average consumer commission rate will continue to decline as it has over the past five years—from 6% to 4.9%.
Succeeding in the year ahead will require a realistic outlook and cautious eye, says Ed Krafchow, CEO of Prudential CA/NV/TX Realty. In a hot market, he says, brokers can become “extravagant,” adding that a “more normalized market requires more discipline.”
“Many people don’t even recognize that the market is changing,” says Krafchow. “They keep hoping that the market will go back to where it was and 12 to 18 months go by before they realize this is not the same market and they continue to open brokerages. It reminds me of the stock market—the last investor in is the greatest fool.”
Key to succeeding no matter what the year holds, says No.-1 ranking NRT President and CEO, Bruce Zipf, is management, recruiting, retaining and developing the “best possible agent.” “We’ve made an error in our industry in thinking the more sales associates, the better the organization. It’s quite the contrary—it’s the delivery of quality service that can accent our value proposition.”
To access the report, click here.
–Stephanie Andre, Maria Patterson |
