The housing market has been brought to a halt. Falling home prices, tighter lending criteria, and general economic recession trends have all attributed to the current state of the industry. Employment options are more limited than ever for workers formerly employed in mortgage brokerage or residential home sales. The latest booming opportunity for these employees is in foreclosures. You must be willing to assist people in buying foreclosed properties.
Falling home prices, tighter lending criteria, and general economic skittishness have brought the housing market to a near halt. If you still work in the residential mortgage or home sales industries, you should thank your lucky stars...or check your sanity.
Employment options for workers formerly employed in mortgage brokerage or residential home sales are limited. Real estate has been thought to be a bullet-proof profession with long periods of growth interrupted only by short breathers. Negative growth has never been much of a concern. And yet home values are dropping, activity is dwindling, and for those hoping to hang on in the brokerage business or come back to home sales, the near future holds little promise.
Economic trends lead nowhere in particular, and uncertainty reigns. The Treasury and Federal Reserve are performing a kind of triage in which the lives of major banks and brokerages are saved first.
As the Federal Reserve takes giant steps to build liquidity through lower interest rates in order to bolster the financial system, nothing positive has trickled down to the housing market. The much ballyhooed Federal Funds rate has little impact on mortgage rates.
Housing prices are expected to fall five percent this year and are forecasted to drop slightly more in 2009, so a comeback in home prices is not expected in the near term. Analysts do see increased activity in home sales in the second half of 2008 as growing inventory drives prices toward the market bottom, but even then there will be relatively few buyers for available housing stock.
Lending criteria has been tightened significantly, as evidenced in part by a small but steady rise in thirty year mortgage rates during February and early March of 2008.
In addition, some buyers are eliminated when they are required to add an additional five percent to their down payment; the result of decisions by Freddie Mac and Fannie Mae to designate many real estate markets across the country with a "declining" tag. This additional five percent is expected to cover the roughly five percent decline in housing value over the next year, with the goal of preventing borrowers from falling into the negative equity position that has plagued homeowners who have recently walked away from foreclosures.
Lower interest rates would seem to feed inflation, but falling home prices and conservative spending by jittery consumers appear to be balancing out the rising price of oil, which is tied more closely to the ever weakening dollar rather than actual supply or demand issues. Unless the dollar strengthens, the price of gasoline and many other energy related products - like food - will not respond to domestic economic stimulus. Higher and uncertain energy prices also put a damper on housing activity.
Overall, those hanging on to employment in the home mortgage business or in home sales have little hope for improvement in the near term. Those who have already left the business will certainly have a long wait for the return of boom times. With employment fleeing the residential sector, it's natural for real estate and financing professionals to look for greener pastures in commercial real estate.
The commercial real estate market is expected to suffer some of the pain felt in residential real estate, but the downturn will be much less severe. Tighter credit will reprice risk, and property values will be restated, but the viability of industrial, office, multifamily, and retail real estate are not in question. Returns for commercial real estate, on average, are projected to be better than returns for stocks and bonds in 2008. Most telling is that returns for retail properties are expected to top the list, while the multifamily or apartment sector of the market will lag behind: multifamily competes with all of the empty homes in the residential market to attract renters.
It seems the bugaboo in the short term market is residential in all of its manifestations.
So where does this leave the residential property or mortgage broker who turns to the commercial sector? Residential brokers seem to have the same general skill set as commercial brokers, but while they have sales skills and people skills, they lack the knowledge of the market that comes with years of experience. They don't have the network of contacts, and they don't have the knowledge of the inventory that commercial veterans possess.
Further, people in the commercial market are going to defend their territory. A residential mortgage broker could open up in a storefront with backing from a bank like Countrywide in the earlier years of this decade, and many of those who did have just as suddenly disappeared; the barriers to entry on the commercial side are significantly higher.
Jim Philbin, Senior Vice President of The Prime Group in Chicago has spent twenty-five years helping office tenants find the right space in Chicago. He says real growth for employment in commercial brokerage is in project management. "Commercial brokers are taking a full-service approach with customers, realigning and restructuring to be able to provide a full range of project management services." These include coordination of the efforts of the client, architects and designers, and suppliers and contractors of all kinds. Full-service project management allows the commercial broker greater control over the end result, and fits most clients' desire to control costs through outsourcing.
"Since most of my clients only go through an office move every five or ten years they tend to forget all the things that are needed to make the project happen," adds Philbin.
At the highest level for new developments of commercial space, project managers are often civil engineering grads, but for typical moves into existing buildings, project managers need skills that are familiar to residential real estate professionals; according to Philbin, those include strong people skills and organization.
Further, the specific areas of expertise are familiar to residential veterans: nurturing and guiding the client; establishing activity time lines; creating options; driving decisions; managing a variety of third parties from designers to construction contractors; understanding local codes and regulations; maintaining municipality relations; purchasing and cost control; and reporting.
When an industry goes through tough times, retraining and education are urged. Residential veterans will find a variety of educational paths available to them. Some large commercial real estate firms actively recruit and train people for project management. Industry groups offer classes and certification. Local colleges provide course work in project management. Online learning is the single largest growth area in education. You can get project management credentials sitting at your computer. Commercial brokers will be more impressed with your background if you have taken the initiative to adapt, retrain, and learn.
When looking for potential employers, don't limit the scope of your search. Commercial real estate brokers come in all shapes and sizes. Do internet searches for large and small firms in your geographical area. Use and build your network by talking to others in the industry and letting them know you are available. Prowl commercial developments of all kinds - apartments, retail, office, or industrial - and make a note of who manages them, then research those firms.
This type of effort is a major life change as well as a major career change, but waiting for the rebound in residential real estate isn't a practical response to industry problems. Retraining and refocusing makes sense.
Two additional opportunities in the market offer both short and long-term employment growth for real estate professionals.
The first opportunity is in foreclosures. If you are willing to assist people in buying foreclosed properties, and if you have the stomach for this kind of work, it is booming. Foreclosure statistics are notoriously easy to misinterpret, but it's clear that the number of foreclosures continues to grow rapidly.
February 2008 foreclosure activity was up 57% from February 2007. While February's numbers were a slight drop from January, February is a shorter month and January always receives activity that was deferred from the holiday season. RealtyTrac, a reporting web site and clearing house for foreclosure information indicates that filings for all types of foreclosure activities were made on 223,651 properties in the U.S. during February. This represents one in every 557 homes nationwide, and many of these homes are clustered in pockets of economic devastation. Sales of foreclosed homes are becoming a significant number of the total homes sold.
Foreclosure is a difficult process that requires a tremendous amount of administration within a short period of time. It also requires knowledge of local foreclosure laws and processes, which vary by state and even by county. Because people who buy foreclosed properties do not get to go inside the property before bidding on it, any knowledge a real estate professional might be able to get about the property would be valuable. A real estate agent or a mortgage broker would be highly qualified in all of these areas.
Foreclosures are of two types, Judicial and non-Judicial. A non-Judicial foreclosure foregoes the legal process because all parties are willing to work together to sell the property to a new owner. This saves the lender money and effort. The negotiating skills, legal knowledge, and experience with local lenders can be invaluable in this process.
Foreclosures are undertaken by individuals who have the cash on hand that is necessary for purchasing such a property. They purchase the home at a below-market price, and then dress the place up for resale at a profit. These people have worked in the system and understand what needs to be done but due to the current flood of foreclosed properties, may need an assistant or partner.
Foreclosures are also undertaken by real estate lawyers. They may be easier to find than individuals who do this kind of investing, and would certainly see the benefit of working with someone who knows the ins and outs of real estate transactions. Working with someone who purchases foreclosures as investments is one alternative career.
Another real estate entrepreneur who benefits from current hard times is the broker who sells properties or REITs to foreign investors. These properties may be residences or commercial buildings. A REIT – or real estate investment trust – is a package of a variety of real estate investments in which an investor buys a small part.
This market is particularly attractive right now because of the weak dollar. As the value of the dollar falls against the value of foreign currencies, foreign nationals have greater purchasing power and are able to purchase U.S. real estate at a substantial discount.
In 2001 the U.S. dollar was worth 1.93 Australian dollars. In 2007 the average Australian value against the dollar was 1.19. This forty percent gain in purchasing power is one of the reasons Australians are one of the largest overseas investors in U.S. commercial real estate.
Since 2001 the dollar value of the euro has plunged from 1.12 Euros to 0.63 Euros. Obviously, declining residential real estate prices combined with the weak dollar make this a time when many European individuals are investing in housing and Europeans are also active in the commercial market.
Foreign investment in U.S. real estate – both residential and commercial - is a growth segment of the employment market for real estate professionals. You may already know someone who works in this field but never considered approaching them. Now is the time.
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