Realtors quit too early

After a few years in the hotel and grocery business I decided to seek the independence and financial freedom that selling real estate can bring. Selling real estate may appear to be a glamorous business with lots of money to be made but most who enter this industry get out quick.
More than half of California's real estate agents take their job and shelve it after discovering the Golden State's housing boom doesn't make selling homes a walk on the beach. In 2000, the California Association of Realtors selected 100 new Realtors and followed them through the first years of their career. By the fifth year, only 43 percent of the original agents stayed the course. The other 57 percent went searching for greener pastures.
The association found that many left the industry because of a lack of support from their brokers, (you didn’t think they would take responsibility for their failure did you) but others said they left because of the inability to make a decent living.
The association's membership is at a record level at more than 161,000 members and rising. A quarter of the current total membership, 42,000, came on board just in 2004 on the heels of one of the state's hottest housing markets.
Home prices in California increased nearly 110 percent during the five-year study period -- the biggest jump of any state, according to the Office of Federal Housing Enterprise Oversight.
A job selling homes in the Golden State appears to have the potential for a six figure income -- a necessary income level to afford housing in many of the state's markets. Unfortunately, with so many real estate agents with the same idea, competition has become fierce. Productivity among CAR members is the lowest its been since the boom of the mid-1990s, CAR says. Association members average only 8 "transaction sides" per year -- what amounts to only one side or half of eight commissions a year and, with the growth in discount brokerages, that half isn't always what it used to be. And then, of course, there are operating costs, overhead and now a sales decline.
I have always said that success and longevity are partners. If you keep doing something long enough, your skill level will either increase or you will get promoted to management. I have had the opportunity to experience both over the last 30 years.

Inflation and housing

You hear a lot of economic statistics that come in with the proviso that they are adjusted for inflation. What exactly does that mean, and if you take out inflation, are we really in a housing bubble? Definitions differ as to whether inflation is a cause or an effect, but two elements are always present -- consumer goods cost more and currency is devalued.
The result is a "persistent increase in the level of consumer prices or a persistent decline in the purchasing power of money, caused by an increase in available currency and credit beyond the proportion of available goods and services," as defined by Webster.
According to the calculations by Inflationdata.com, inflation has averaged about 3.49 percent annually since 1914. That means it is significantly higher some years, and lower other years. From 2000 to 2004, inflation has been a full percentage point lower than the norm, about 2.5 percent on average.
In 2005, inflation picked up but only slightly for the year -- 3.4 percent on consumer goods, compared to a rate of 3.3 percent in 2004, which puts 2005 closer to the 3.5 annual average.
When inflation goes up, so does the cost of money, as the Federal Reserve raises short-term interest rates to cool inflation down. Since banks loan money in order to make a profit, long-term rates typically rise, too.
In relating inflation to housing data, it's interesting to note that housing prices have risen steadily every year since the National Association of Realtors began keeping track back in the mid-30s. In 2005, housing rose eight percent. In California housing prices increased 15 percent and in the Capital Region experienced a 20 percent increase. So, even after adjusting for inflation housing is a good place for putting your money.

Placer County ranks high for jobs

Most strong housing markets are the result of a strong jobs market. The unemployed typically don’t buy homes. There are some exceptions to this rule as more boomers retire to senior and or resort communities. A good sign that a strong housing market will continue in Placer County is the report released last week showing nearly full employment in Placer County.
If you live in Placer County and don’t have a job, it’s probably because you’re not looking hard enough. The Employment Development Department ranked Placer as the third lowest county in the state for unemployment. In their most recent numbers there were 160,000 employed and only 6,500 unemployed for a 4.0 percent unemployment rates.
Job growth continues. Placer reported a 4.2 percent job growth in 2005. In 2004 the county was ranked as the best in California for adding people to a payroll. Placer currently ranks number 5 in the state for job creation behind Napa, Marin, Orange and San Luis Obispo counties.
Enjoy the sunshine.

Slower new home starts

New residential construction was down 17 percent in the Capital Region from 2004 to 2005 but builders still built 15,559 single family detached homes and 2,901 apartments and condominiums. Most of the construction occurred in Sacramento County where 7,811 single-family permits were issued but Sac County is declining in popularity. Across the state builders built 154,816 single-family detached homes and 52,338 apartments and condos.
Although statewide housing construction declined 2.7 percent in 2005 from 2004 it was the second consecutive year of 200,000 housing units according to the Building Industry Association.
Think 200,000 new housing units are too much? Nope, not according to housing economists who insist that we need 250,000 new housing units built each year to keep pace with the yearly 500,000 new state residents.
This year I don’t think we will have another 200,000 units built in the state. Builders will be less ambitious as investors and speculators back out of the market and new home prices have out-distanced first time buyers.
Land and the cost to development it in the Capital Region are affecting builder’s attitude and profits. The Board of Sups in Sacramento County recently passed a law that required builders to build 15 percent of all their new homes for free and donate them to low income home-owners. Builders responded accordingly and 2005 was the largest year over year decline for new construction in Sacramento County among the state’s top ten counties.
Sacramento County’s political leaders profess their desire for “smart growth” “In-fill development” and commuter friendly communities, however, by mandating that local builders donate 15 percent of all their new construction profits to house the homeless, builders are moving out of the area to Sutter, Yuba and Yolo Counties. This creates more commuters driving into the county not less and negates the Board of Sups public policy on “smart growth.” Economics, not political correctness, continues to determine the direction of growth.