How profitable can being a real estate agent be?

[Vic]

We're just going to have to agree to disagree, LK. I view irrational pessimism as little different than irrational exhuberence.
Yes, the market went up too high too fast because people foolishly thought they couldn't lose with real estate, but OTOH housing is not going to become worthless either, nor is everyone in the RE industries going to be out on the street. The stock market saw a far worse downturn 5 years ago than the RE market will ever see, and it has bounced back and the top players never skipped a beat. The same thing will happen in RE. Yeah, the bottom 80% are gonna eat boiled cabbage, but the top 20% will still dine on caviar for the most part. That's how this works. I've already been through 2 downturns in the mortgage biz (1996 and 2000), and while I think this one will be somewhat worse, I also don't see the end of the world either. My phone keeps ringing.

 

[dullard]

Originally posted by: Vic
Yes, the market went up too high too fast because people foolishly thought they couldn't lose with real estate, but OTOH housing is not going to become worthless either, nor is everyone in the RE industries going to be out on the street.

I see this a lot on Anandtech. Person A states that the number of stray cats in Hawaii will decrease substantially. Person B states "not every cat will be gone from the streets". Quite frankly, Person B exaggerated Person A's post so far that it becomes irrational.
[*]Fewer cats does NOT equal no cats.
[*]Fewer homes sold does NOT equal "everyone in the RE industries going to be out on the street".
[*]Dropping home prices does NOT imply housing will "become worthless".

You took LegendKiller's post so far to the extreme, then bashed the extreme. That has no bearing at all on what LegendKiller stated.

Vic, you are correct that housing will bounce right back up. You are correct that there will still be houses sold, there will still be RE agents making money, etc. However, LegendKiller is ALSO correct - it is a tough time to get into the RE agent market because the average income per agent is falling (at least temporarilly). Sure, one skilled agent can do well when the coworkers do poorly. But, to assume you'll necessarilly be that skilled is foolhardy.

 

[LegendKiller]

Originally posted by: Vic
We're just going to have to agree to disagree, LK. I view irrational pessimism as little different than irrational exhuberence.
Yes, the market went up too high too fast because people foolishly thought they couldn't lose with real estate, but OTOH housing is not going to become worthless either, nor is everyone in the RE industries going to be out on the street. The stock market saw a far worse downturn 5 years ago than the RE market will ever see, and it has bounced back and the top players never skipped a beat. The same thing will happen in RE. Yeah, the bottom 80% are gonna eat boiled cabbage, but the top 20% will still dine on caviar for the most part. That's how this works. I've already been through 2 downturns in the mortgage biz (1996 and 2000), and while I think this one will be somewhat worse, I also don't see the end of the world either. My phone keeps ringing.

It's amazing how you attempt to polarize the issue by labeling me as somebody who thinks that the market is going to become worthless. If you had bothered to use your reading skills, you might have seen that I conlude that many will be sucking wind while the strong still keep going. Furthermore, I never said houses become worthless, I said at most they are ~100% overvalued and a 20-30% inflation adjusted decrease is likely, hardly "worthless".

Great for you, you saw two downturns in the mortgage business. Frankly, past cycles are not a great indication of future events. 96 and 00 are much different, as securitization and loose lending practices as opened up a lot more credit risk (albeit distributed).

Finally, the stock market took a similar hit to what I think will happen. Even now it is still nowhere near what it was 6 years ago, adjusted for inflation (funny, that's exactly what I think will happen to houses). It's funny how every month, my case gets stronger and yours gets weaker.

Don't try to stuff words in my mouth to try to minimize my points.

 

[Vic]

Well, excuse me, but (in the other threads we have had on this issue) I have felt like my points have been minimized. I agree (and have said as much for some time) that the market will see a downturn. I agree (and have said as much for some time) that values will fall in a number of markets. I simply disagree as to the severity. And quite frankly, I'm glad the boom is coming to an end, as I had no desire to see values go up to $1000 per sq. ft. It had to end sometime, and the sooner the better IMO.

 

[dullard]

Originally posted by: Vic
Well, excuse me, but (in the other threads we have had on this issue) I have felt like my points have been minimized. I agree (and have said as much for some time) that the market will see a downturn. I agree (and have said as much for some time) that values will fall in a number of markets. I simply disagree as to the severity. And quite frankly, I'm glad the boom is coming to an end, as I had no desire to see values go up to $1000 per sq. ft. It had to end sometime, and the sooner the better IMO.

I can be happy with those comments. And I do think LegendKiller has probably exaggerated the drop at times (maybe even I have done so, although it was unintentional). I just had to limit the exaggerations from going any further.

 

[TravisT]

The market always drops some everytime this time of the year. During the holidays and winter time it is just simply slow. It will pick back up again around tax time and do well through the summer.

 

[slackerinabox]

Originally posted by: oldsmoboat
Didn't you want to be a cop last week?
That reminds me of Jethro Bodine. He wasn't sure if he wanted to be a fry cook or a brain surgeon.

police test is in feb.. My mind is honestly a mess right now and i'm trying tofigure out a way to quickly finish up school and earn a living.

 

[dullard]

Originally posted by: TravisT
The market always drops some everytime this time of the year. During the holidays and winter time it is just simply slow. It will pick back up again around tax time and do well through the summer.

You are correct that the number of houses sold as well as the median price of those houses drops in the winter. But, look at these graphs. The drop in 2005 prices started in Nov 2005. The drop in 2006 prices started in Aug 2006. That is several months earlier, and it is right in the summer season where prices are usually high. As for number of homes sold, look at the top graphs. There was a blip up in Feb/Mar 2006, but overall, the number sold is nearly linearly dropping. That dropping included the entire summer of 2006 season.

Your post implied that the drops were mearly seasonal. I think there is something more fundmental than just a seasonal drop.

 

[xospec1alk]

the market is flooooded with agents rite now in nyc...have you see all the brokers that are out there? unless you're really good at what you're doing, you won't make much

 

[Vic]

Originally posted by: dullard

Originally posted by: Vic
Well, excuse me, but (in the other threads we have had on this issue) I have felt like my points have been minimized. I agree (and have said as much for some time) that the market will see a downturn. I agree (and have said as much for some time) that values will fall in a number of markets. I simply disagree as to the severity. And quite frankly, I'm glad the boom is coming to an end, as I had no desire to see values go up to $1000 per sq. ft. It had to end sometime, and the sooner the better IMO.

I can be happy with those comments. And I do think LegendKiller has probably exaggerated the drop at times (maybe even I have done so, although it was unintentional). I just had to limit the exaggerations from going any further.

Well... what has concerned me about LK's comments is that he has presented graphs indicating (although perhaps he hasn't said as much, but he has IMO implied it) that values should fall all the way back to late 1980's levels, completely erasing the gains of the past 15 or so years. I just don't see that happening, unless mortgage rates go back to double-digits, and I don't see that happening at all in the next several years.
Market fluctuations will hit hard in some overvalued markets, but $300k homes are just not going back to $100k or less. Or even $200k. And in the long run (more than 5 years), values will go back up again, we'll probably see another boom within a decade.
In the meantime, the biggest issue hitting lenders right now is fraud, and that's going to lead to some industry-wide changes.

 

[alkemyst]

Originally posted by: TravisT
The market always drops some everytime this time of the year. During the holidays and winter time it is just simply slow. It will pick back up again around tax time and do well through the summer.

What has been happening in the market is not the typical seasonal fall-off. In areas where winter season is hot for sales, there is also fall-off right now.

To Vic: There is not just a lack of growth....nor stagnation. There is an actually declining in sales with homes simply being left on the table. RE's phones are probably ringing off the hook as people are trying everything they can to unload. I see more homes for sale in my neighborhood everyday now and they are not selling. There are some that have been on the market only on two years.

Listings are not equal to sales, there will be more and more listings coming each and every day now.

Problem with most of these threads is that the people and professionals are thinking too locally. We deal in national business on mortgages and new home sales. Most people looking at new homes are trying to unload their old ones. Our buyers more and more are having to break contract due to being unable to unload their previous home or even rent it.

 

[wyvrn]

Originally posted by: dullard

Originally posted by: wyvrn

Originally posted by: LegendKiller
No, most markets in America are insanely over valued. The bubble is bursting, in case you haven't noticed.

Disagree. Maybe where a majority of people live in concentrated areas. Kind of like how a president can be elected by winning 17 states out of 50. But, there are more actual regions where RE is not inflated, and plenty of people live in them. Dallas is a GREAT example of a very reasonably priced RE market that should continue to grow at a reasonable pace. CA and the East Coast are not, however.

edit: A lot of the graphs you and Dullard have referred to look at national levels. They do not take into account regional differences. So overall, will the US see a decline in the housing market? Yes. Will all regions? No!

Clearly, some markets will be bullish even in the most bear years. At least one house will go up in value over the next few years. You'd have to be a complete moron to think that ALL will go down. But, lets look closer. LegendKiller did NOT say all will go down; instead, he said MOST housing markets would go down. And then you post that you disagree.

Am I to take it that you think MOST housing markets have been/will be going up?

Feds Beige Book states that most districts have poorer housing markets. Hmm, that seems to support LegendKiller's argument. But you want us to look at even more close data. The original poster is from NYC. Lets look at NYC.

The feds say this about New York: "Housing markets have been mixed since the last report: New York City's co-op and condo market has remained fairly strong, and the rental market has tightened further; however, housing markets in New Jersey and upstate New York show continued weakness."

Even closer: Manhattan was the first area in this latest phase to show dropping prices. Realtor.org lists NYC as ranging from -0.1% (loss) to 7.1% (growth) in the 2nd quarter of 2006. This is old data, I admit, and prices have dropped since then nationwide. So even before the bubble started to deflate nationwide, parts of NYC are at stagnant growth. Did that stagnant growth transform to negative growth over the last few months?

Sigh. Yes, it's a no-brainer that NYC would be an inflated market. Gee really? Do you think you missed my point by about a mile?

 

[dullard]

Originally posted by: wyvrn
Do you think you missed my point by about a mile?

I must have. Could you please make your point clearly so that I can understand it. All I understand so far is that LegendKiller said it was dropping in most markets and that you disagree. Continue from there please.

 

[LegendKiller]

Originally posted by: Vic

Well... what has concerned me about LK's comments is that he has presented graphs indicating (although perhaps he hasn't said as much, but he has IMO implied it) that values should fall all the way back to late 1980's levels, completely erasing the gains of the past 15 or so years. I just don't see that happening, unless mortgage rates go back to double-digits, and I don't see that happening at all in the next several years.
Market fluctuations will hit hard in some overvalued markets, but $300k homes are just not going back to $100k or less. Or even $200k. And in the long run (more than 5 years), values will go back up again, we'll probably see another boom within a decade.
In the meantime, the biggest issue hitting lenders right now is fraud, and that's going to lead to some industry-wide changes.

Ok, I will explain this, yet again, since reading comprehension in the other threads (and this one) is below 3rd grade, and real finance knowledge below that of basic mulitplcation.

Housing prices are comprised of two functions, real appreciation and inflation. Since housing is a near risk-free asset (it'll always be worth something, even if it's just to keep the rain off you), it doesn't appreciate much as a result of the risk function.

You don't get compensated for not taking risk. Thus, real appreciation of houses is *VERY* minimal over inflation over the past 110 years, about .5%.

Now, housing, according to all research, appreciated in that fashion for ~105 years. However, in the last 10 or so years, it appreciated ~70%, even adjusting for inflation. What this means is that in 1/10th the time, housing appreciated 3.5x as much.

If one were to draw a linear trendline in the housing index, you would see a that the last 10 years have far oustripped the mean.

Keep in mind this is adjusted for inflation.

What does that mean? It means that my parent's house, bought in 1980 for $62,000 is now worth 400,000. However, since they bought the house when inflation was ~8% (or higher), then a massive chunk of that appreciation is due to inflation.


Since houses have outstripped the mean, by a lot, it will revert to that mean in two ways. I am going to bold this so nobody mistakes my intent (since some love to do it).

Mean regression will occur in two ways

1. Housing prices will go down. I predict a national average decline of 10-15%

2. In "real" terms, housing prices will adjust down simply because they do not appreciate. If housing appreciation does not keep up with inflation, the real value of that house *DECLINES* according to my posted graph

Thus, if housing prices stay the same for 5 years and inflation averages 3.5%, that means that housing will further decline on that graph *****IN REAL TERMS****** by 18.76%

3. Thus, the combined decline (including 1-2 years of overall decline without inflation and another 7% with inflation) will be approximately 40%.


Let me repeat that, in real terms, I predict that housing will depreciate by 40%

A 300k house won't depreciate to 180k, it will depreciate to 255 and stay there for 5+ years, deflating its value in relative terms


Now, is that plain enough?

 

[Vic]

The only thing not plain to me is why you have disagreed with me when I have said very much the same thing in other threads.

Perhaps it's a matter of perspective. IMO, an asset only has actual set monetary value at the time it is bought/sold. In between that time, any speculation as to actual value is just that, speculation. So if a person bought their house 10 years ago and sells it 5 years from now, is the speculative depreciate between now and sometime next year even in any way meaningful?
Are some people going to get hurt? Yes. But millions more won't feel a thing and will, in the long run, see a net return.

 

[FelixDeCat]

America <> California

 

[iliopsoas]

Originally posted by: IcebergSlim

Originally posted by: dullard
Now isn't the time to get into real estate. There has been a boom in agents and at the same time fewer and fewer houses are being sold. There will be a lot of real estate agent pain in the next few years.

Your don't really know what your talking about. People will always be buying and selling homes. THere may be certain markets that are in a downswing but it isn't ever across the board like you make it sound.

Are you on crack? Real estate has been in a big bubble...and it's about to bust wide open. There are a ton of knuckleheads who financed mortgages with ARMs and "creative" financing hoping to flip for a quick profit. They're all about to get their as ses handed to them. Pretty soon, these loans are going to reset the interest rates. The higher rates will force them into foreclosure.

 

[iliopsoas]

Originally posted by: Vic

Originally posted by: alkemyst

Originally posted by: Vic

Originally posted by: alkemyst
When you have all of the Top 10 homebuilders in America (one of whom I work for) reporting 20-30% lower sales across the board, there is a problem. Saying just a minority of the country is not seeing this problem doesn't mean it doesn't exist.

All that means is that homebuilders, after a strong boom, have finally caught up with the demand for NEW homes. Existing homes make up the overwhelming majority of the market (>95%).

I don't know what you are not understanding...one issue doesn't rectify another.

The market for both new and used is dropping.

Your points above on housing is always needed is also of no bearing here. Housing is needed, but there are less willing to buy now. Many have historically taken on second homes, investment properties, etc...now you have people only wanting to pick up one home and a higher percentage actually going to rentals due to those owning these properties having to reduce rents in order to avoid losing the property.

The market is falling, values are plumpeting and less are buying. Yet that said there will always be homes sold...that doesn't change the former terms.

For the first time in years people are experiencing no equity growth or in some cases actually losing equity to falling value.

My point is that a lack of growth does not equate into the sky falling. If values fall to the point where people can buy for at or even less than the cost of renting, then the market WILL go back up. And transactions will ALWAYS take place, and that is where RE professionals make their money.

Over the last few years, the # of real estate agents grew at an outrageous pace as many people hoped to cash in on the rapid housing turnover (in many cases, flipping) and rapid appreciation. Guess what? With transactions slowing down, these agents will have to compete harder to get those sales. And many will be forced to leave the industry.

 

[DarkKnight69]

Huh, my mother brought in just under a quarter million dollars last year and she has already beat her income from last year as of Oct 15.

In other words...good money...

 

[Vic]

Originally posted by: iliopsoas
Over the last few years, the # of real estate agents grew at an outrageous pace as many people hoped to cash in on the rapid housing turnover (in many cases, flipping) and rapid appreciation. Guess what? With transactions slowing down, these agents will have to compete harder to get those sales. And many will be forced to leave the industry.

Good riddance.

 

[alkemyst]

Originally posted by: LegendKiller

Originally posted by: Vic

Well... what has concerned me about LK's comments is that he has presented graphs indicating (although perhaps he hasn't said as much, but he has IMO implied it) that values should fall all the way back to late 1980's levels, completely erasing the gains of the past 15 or so years. I just don't see that happening, unless mortgage rates go back to double-digits, and I don't see that happening at all in the next several years.
Market fluctuations will hit hard in some overvalued markets, but $300k homes are just not going back to $100k or less. Or even $200k. And in the long run (more than 5 years), values will go back up again, we'll probably see another boom within a decade.
In the meantime, the biggest issue hitting lenders right now is fraud, and that's going to lead to some industry-wide changes.

Ok, I will explain this, yet again, since reading comprehension in the other threads (and this one) is below 3rd grade, and real finance knowledge below that of basic mulitplcation.

Housing prices are comprised of two functions, real appreciation and inflation. Since housing is a near risk-free asset (it'll always be worth something, even if it's just to keep the rain off you), it doesn't appreciate much as a result of the risk function.

You don't get compensated for not taking risk. Thus, real appreciation of houses is *VERY* minimal over inflation over the past 110 years, about .5%.

Now, housing, according to all research, appreciated in that fashion for ~105 years. However, in the last 10 or so years, it appreciated ~70%, even adjusting for inflation. What this means is that in 1/10th the time, housing appreciated 3.5x as much.

If one were to draw a linear trendline in the housing index, you would see a that the last 10 years have far oustripped the mean.

Keep in mind this is adjusted for inflation.

What does that mean? It means that my parent's house, bought in 1980 for $62,000 is now worth 400,000. However, since they bought the house when inflation was ~8% (or higher), then a massive chunk of that appreciation is due to inflation.


Since houses have outstripped the mean, by a lot, it will revert to that mean in two ways. I am going to bold this so nobody mistakes my intent (since some love to do it).

Mean regression will occur in two ways

1. Housing prices will go down. I predict a national average decline of 10-15%

2. In "real" terms, housing prices will adjust down simply because they do not appreciate. If housing appreciation does not keep up with inflation, the real value of that house *DECLINES* according to my posted graph

Thus, if housing prices stay the same for 5 years and inflation averages 3.5%, that means that housing will further decline on that graph *****IN REAL TERMS****** by 18.76%

3. Thus, the combined decline (including 1-2 years of overall decline without inflation and another 7% with inflation) will be approximately 40%.


Let me repeat that, in real terms, I predict that housing will depreciate by 40%

A 300k house won't depreciate to 180k, it will depreciate to 255 and stay there for 5+ years, deflating its value in relative terms


Now, is that plain enough?

i beg to differ we have one in my neighborhood that would have sold for $350k last year, the year before and the year before that.

They asked $349k...in 6 months they are down to $199k and no one is buying.

If it was worth an uninflated 300k then your point may have value, but your are clearly an agent and only see your profits.

 

[Slew Foot]

Originally posted by: LegendKiller


1. Housing prices will go down. I predict a national average decline of 10-15%

Already there, September's national average was 10% lower than last years. Toss out the "incentives" and its even worse. Boom locales are going to all look like this soon.

Sit back, relax, and enjoy the carnage