Housing: What the Realtors Are Saying

What a difference a year makes. For the last few autumns, when America's real estate agents met at their annual convention, much of their shoptalk focused on navigating the red-hot housing market. Realtors from the tightest regions traded tips on how to choose among the multiple offers—many over the list price—that would routinely pour in within days of listing a home for sale. Buyers' agents would commiserate over the handholding required when a client put in offers on a half-dozen homes—and in each case, lost out to higher bidders. From this year's vantage point, these look like marvelous problems.

As the National Association of Realtors opened this fall's gathering in New Orleans last weekend, the mood was decidedly different. The much-celebrated real estate boom has officially ended; nationally, economists now say, the housing market peaked in August 2005. For 2006, the industry expects existing-home sales to fall by 9 percent, and new-home sales to decline 17 percent. In some markets, prices have begun to fall, too.

Realtors are a professionally upbeat group, and their trade association is sometimes criticized for parsing data to present a too-positive spin. Sure enough, even amid lots of down arrows, chief economist David Lereah found reasons for optimism. Despite all the talk about a nationwide boom, Lereah says only 26 percent of U.S. home markets got really overheated, with speculators driving prices up by more than 20 percent annually. In nearly three-quarters of America—including much of the Midwest, Texas, Atlanta, and New York—price appreciation didn't get so out of control, and as a result, the slowdown has been either mild or quick, with the worst of the contraction probably already past. Nationally, Lereah says, average home prices will show slight increases for both 2006 and 2007.

The caveat to this rosy view is the uncertainty about the other quarter of the country's markets—places that include Las Vegas, southern Florida, Phoenix, and California. These markets attracted speculators in 2004 and 2005, and as investors and second-home buyers have stopped signing contracts, demand has dried up. "The biggest question I'm faced with is how far do prices have to drop and how long will it take for the correction to finally turn around in [those] markets. I don't have an answer," Lereah says, conceding that those markets could stay soft into 2008. But he counters that falling prices, while unpleasant for homeowners, are really a good thing, because lower prices will spur more buyers to make offers, and the resulting sales will help not only commission-hungry agents, but also the furniture makers, appliance companies and other ancillaries that make housing such a vital prop to the economy. And while he calls predictions that home prices might fall 30 or 40 percent "nonsensical," he can't offer a number of his own.

That uncertainty stems from the fact that the current housing slowdown isn't like the more typical real estate busts of the early 1980s or early 1990s. Those downturns followed a traditional pattern: mortgage rates rose, job growth faded and the economy weakened, pinching people's ability to buy homes. Today, in contrast, mortgages are still near 45-year lows and unemployment is down, yet many buyers are reluctant to make offers. Lereah attributes this to high prices reducing the number of people who can afford homes, falling demand by investors and the public's psychological shift from celebrating the boom to worrying about a bubble. Those forces make this slowdown an anomaly, which makes it hard to predict where things will head next. Says Lereah: "You'd have to go back to the Great Depression to find a housing period that is this unique."

Few of the 30,000 agents and brokers in attendance—making this the biggest post-hurricane Katrina convention to visit New Orleans so far—were there for the economic forecasts. Some spent their days frenetically exchanging business cards, eating gumbo, and boarding buses to tour nearby bayous, which have seen more than their share of housing market ups and downs since Katrina left residents scrambling to find undamaged homes. But many crowded into the convention center to attend seminars on how to adapt to the slowdown. In nearly every session, speakers spent a few minutes blaming the media for hurting the market. All those headlines about a bursting real estate bubble have a lot of potential buyers really freaked out, industry officials say, which is one reason they've begun running full-page newspaper ads reminding would-be sellers that despite slowing sales, conditions aren't really so bad.

Mostly, though, the assembled agents traded tips for the best ways to adapt to the new market realities. With the number of FOR SALE signs up sharply from a year ago, consultants told agents to try to prepare homeowners for new realities: that their house may sit unsold for months, that nobody may show up at open houses, and that painful price reductions may be necessary. In another seminar, brokers learned how to make cold-calls positioning themselves as "re-listing specialists," who swoop in to sell homes when other agents fail to do so.

As sales slow, one obvious effect is that fewer people may try to make a living selling houses: the trade association predicts 8 percent of its members may leave the business next year. But agents told of other, less obvious side effects of the slowdown, such as the shortage of lockboxes they use to gain access to homes for showings. With so many homes languishing on the market—in September there were 3.7 million homes for sale, up from 2.8 million a year earlier—lockbox manufacturers can't keep up with demand.

Hesitant buyers weren't the only threat looming over traditional brokers. Down on the exhibition floor, beside "For Sale" sign-makers, software providers and other real estate vendors, stood a booth touting a company you may have heard of: Google. Officially, its marketing team was there to promote its Google Earth offering as a useful tool for those selling houses. But among leading brokers, there's much anxiety over the fact that the real estate industry has been less innovative at exploiting the power of the Internet than interlopers like Google and the more-specialized Zillow.com and PropertyShark.com. These sites often offer consumers better information on what neighborhoods look like and the prices at which nearby homes have sold. At times the mood resembled that usually reserved for newspaper and magazine industry conferences where everyone worries how much of their business may be eaten away by Web-driven shifts in consumer behavior.

Still, despite all these potential sources of concern, a lot of brokers seemed to be smiling. They attended speeches by former presidents and Katrina-fundraising partners Bill Clinton and George H.W. Bush, listened to Harry Connick Jr., and marched in a raucous Realtor parade down Bourbon Street. In the wake of the boom, their march may have resembled a New Orleans jazz funeral, but the folks who market the American dream are a long way from dead.