Soft landing in the housing market?

The biggest global housing boom in three decades may end not with a bang, but with an extended whimper that will keep the economy growing.

Markets for dwellings in the United States, France, Spain, New Zealand and parts of China are slowing down as home-price inflation slows in response to higher interest rates. So far, the rise in borrowing costs has been modest, giving builders and buyers time to adjust.

"We're seeing a cooling-off of the housing market," said Raghuram Rajan, chief economist at the International Monetary Fund in Washington. "We haven't seen a bust."

Housing prices in industrial countries have doubled in real terms in a decade, the Organization for Economic Cooperation and Development estimates. If prices ease rather than collapse, the world economic expansion may be able to continue without sustaining too much damage.

"The global economy should remain buoyant," said Nariman Behravesh, chief economist of Global Insight. He sees world growth slowing to 3.3 percent next year from 3.8 percent in 2006.
The moderation in housing should help bring world trade back into better balance. The boom has been concentrated in countries with big trade deficits: In the United States, consumers have used the equity in their homes to finance a spending spree that included imported consumer goods. As the boom ebbs and consumers pull back, trade deficits will shrink again.

In the first quarter, the average global house price was 6.1 percent higher than a year earlier, according to an international real-estate adviser, Knight Frank. That is down from a 9.3 percent year-to-year increase in the first quarter of 2005 and a peak of 10.9 percent in the third quarter of 2004.
The odds of a debilitating price bust will rise if the Federal Reserve chairman, Ben Bernanke, the European Central Bank president, Jean-Claude Trichet, and other central bankers lift rates sharply to fight inflation.
Paul van den Noord, a senior economist with the OECD, concluded in a paper last month that a 1 to 2 percentage- point increase in rates would increase to 50 percent or more the chance of a home-price collapse in the United States, France, Denmark, Ireland, New Zealand and Spain.
That is what happened in 1980, when Paul Volcker, then the Fed chairman, raised the benchmark rate to 20 percent, sending the U.S. housing market and the economy into a tailspin. The Fed, which lifted its rate to 5.25 percent last week, also indicated that it might take a break after two years of increases.

U.S. home prices were 12.5 percent higher in the first quarter of 2006 than they were a year earlier, according to data compiled by the government's Office of Federal Housing Enterprise Oversight. That was down from 13.3 percent in last year's fourth quarter, and is the slowest rate of appreciation in more than a year.

"We're right on course for a soft landing in the housing sector," said David Lereah, chief economist at the National Association of Realtors in Washington.

Historically, just 17 percent of local housing booms in the United States go bust, according to the Federal Deposit Insurance, a government agency that regulates banks. And that typically occurs only when local regions are under severe economic stress, like Texas in the mid-1980s after oil prices plunged.

"Busts have been pretty rare," said Richard Brown, chief economist at the FDIC in Washington.

"The most common way for a boom to end is through an extended period of stagnation."
Some of the hottest housing markets in Europe are also slowing down. Annual house-price appreciation in Spain declined to 12 percent in the first quarter from 15.7 percent in the first three months of 2005. In France, prices for existing homes rose at 14.2 percent in the fourth quarter from a year earlier, down from 15.7 percent in the first quarter of last year.

Even in markets like Ireland where prices are still galloping, a slowdown is likely as tighter credit begins to bite.

A region-wide crash does not look likely. Julian Callow, chief European economist for Barclays Capital, expects euro-zone house prices to rise about 7.5 percent this year after increasing 8.5 percent in each of the last two years. He said that a long-awaited revival of Germany's economy and housing market should help offset weakness elsewhere.

Harvinder Kalirai, head of research in Sydney at State Street, said Asian housing markets would be helped as living standards rise to industrial-nation levels. "Countries are getting richer, and housing prices will rise with incomes," he said. "It's a multiyear, if not multidecade, view."

Where does the commission go?

I’m amazed at the craze the last couple years regarding Realtor commissions. As you are aware, the real estate market has been quite impressive over the last few years. Record sales prices, record number of transactions and amazing new construction growth has brought everyone who is anyone into the real estate business. With so many Realtors and so little inventory, competition amongst Realtors has grown fierce. Suddenly, the traditional 6% commissions fell to 5%. Then, the 5% commissions dropped to 4% and in some cases even lower than that. Now, I am an advocate of competition. I feel it keeps a healthy market healthy. However, what many Realtors fail to explain to their selling prospects when negotiating a listing agreement and commissions is how the money is actually used and where it goes.

Where Does the Commission Go?

Despite what the general public believes, the whole commission does not go into the pockets of the Realtor. In fact, Realtors only get a small portion of the total commission. Below is a traditional breakdown of what happens to a commission when it is paid upon closing.

Let’s say you sold a $300,000 house this year and paid 5% commission. At $15,000 total commission, traditionally it is split between both the buyer’s broker and the seller’s broker. Therefore, both brokers would gross $7,500. Then, your listing agent and the buyer’s agent would each get a portion of the $7,500 each of their brokers received. The portion amount will differ for each agent depending on their split agreement with each of their brokers. Let’s just figure an average 60%. 60% of $7,500 is $4,500. Now factor in all the advertising costs including flyers, mail-outs, ads in the various papers and industry magazines, open house costs, installation of signs, virtual tour costs, etc. Suddenly of the $4,500, the agent is netting less than $3,000. Under extremely favorable conditions, the time it takes to list a home, market it to be sold and take it to the closing table is 50 days. If you do the math, and based on $3,000 take home for the Realtor, they earned $60 per day while actively selling your home.

If your Realtor is highly professional and very knowledgeable about the market and marketing homes, they are worth EVERY penny they earn. As an employee, your Realtor is responsible for the marketing and negotiations of a VERY expensive product, your home. In most cases a house will be the largest priced product you every buy or sell.

Do you really benefit from negotiating a lower commission?

I would also like to discuss Realtors that are so easily willing to reduce their commissions to get your listing. First of all, you have every right to negotiate a lower commission for Realtor services. But what are you really negotiating? As mentioned above, the Realtor commission is split up in so many ways to where nearly 4 people get a cut and another large portion goes into marketing costs. So, if you are the seller and traditionally a seller pays the commission, you are actually negotiating AWAY your marketing dollars and Realtor’s paycheck. In other words, you are negotiating away the earnings of the expert that is supposed to work hard at reaching your ultimate goal…selling your property at the highest possible price with the fewest hassles. When this occurs your Realtor has no real incentive to work hard for you and the sale of your house. In other words, a Realtor might decide not to market your property as much as they normally would if paid a higher commission.

IF A REALTOR IS SO EASILY WILLING TO GIVE UP THE MONEY THEY WORK HARD FOR OR ACCEPT A LOWER COMMISSION JUST TO GET A LISTING, HOW EASILY WILL THEY GIVE UP YOUR MONEY THAT YOU DESERVE AND WORK HARD FOR IN THE SALE OF YOUR HOUSE?

The title of this article is Realtor Commissions: Do They Really Get Paid Too Much. The value of a Realtor is really based on the level of service you expect and the results you expect your Realtor professional to deliver. If you have been disappointed in the level of service and/or results your Realtor has delivered, I would suggest you interview many Realtors before making a decision as to who will ultimately be responsible for the marketing and sale of one of your highest valued assets. If you want more information about choosing the right Realtor and what questions to ask in your interviews, you can request a FREE REPORT on my website.

Sincerely,

Sean

Passion. Focus. Dedication. What Sean brings to his clients is a commitment and dedication to provide quality service. He does what it takes to make things happen and you always know he’s working with your best interests in mind. He offers reliable communication and follow through that will guide you in the right direction when it comes to your most important decisions. You’ll receive the one-on-one attention you deserve, with a warm and caring style that is all his own. Most importantly, Sean knows what counts: Passion. Focus. Dedication. To Sean, these are the key elements for success and the foundation for the way he approaches all your real estate needs. You owe it to yourself to give him a call today. You’ll be glad you did. If you have any questions about this article or any real estate related questions, please call or email me. My contact information can be found on my website at http://www.SeanLSpencer.com