Relationship Management – Formula for Real Estate Industry Success

Every homeowner, renter, business owner and employee should be paying close attention to the real estate market because as the real estate and housing industry improve, so goes the health of the U.S. economy.  If the economy gets better, we all do better. Keep in mind that of the over 8 million jobs lost in the recession, 2.5 million of those jobs were in the construction industry. So far, according to the U.S. Department of Commerce, we have recovered a little over 2 million jobs, but very few of those have been related to construction and real estate. When these jobs return, we will be back to normal in the U.S.

So far, the recovery has been sluggish. GDP (Gross Domestic Product) growth was a negative 2.9% in the first quarter, some say because of bad weather. Projections indicate GDP growth during the second quarter was at 4%. This is a healthy number, but so far this year, we’re only growing at 1.1%. Unemployment continues to hover above 6%, with the employment participation rate at its lowest point in over a decade. This is not the kind of recovery everyone hoped for.

What’s it going to take to get back on track? The answer is simple. The real estate and housing industries must improve. When will that happen? When we have a “perfect storm” of 3 factors. Consider the following formula:

Low Interest Rates + Reasonable Credit Terms + Household formation = A normalized real estate market, and both economic and jobs growth.

There may be good news regarding the 3 factors.

1. Mortgage Interest Rates – have dropped about .5% this year. Although it’s likely The Fed Policy will lead to higher mortgage interest rates next year, it’s not likely they will rise quickly. This one works in our favor.
2. Credit Terms – After practically giving money to anybody that applied during the boom years, the pendulum has swung 180 degrees in the opposite direction since the recession. Banks have become way too strict in qualifying buyers, and lending requirements have become even stricter this year. According to the Mortgage Banking Association, there are fewer delinquencies from new mortgage loans written recently than ever before. Hopefully, after bailing out the entire industry, the government will step in and demand banks become more reasonable.
3. Household formation – U.S. Census figures show we typically have 1.3 million new households added each year. This is what creates additional demand for housing. In recent years, that number has averaged nearly 800,000 less than the norm. At some point, kids have to stop living with their parents. The present pent-up housing formation demand should start to loosen up in the near future.

Every resident of this country should pay close attention to what is happening with real estate.  After all, their future opportunities will depend on it!