This may be the year to take a flyer in the market–the housing market, that is.
Buy a house, or sell a house. Forget the disappointing stock market that sank into red ink in 2000.
Housing posted a healthy investment gain last year, estimated at from 4 to 7 percent, easily topping U.S. stocks, which headed south amid worries about corporate earnings.
One expert who is bullish on a repeat performance is David Lereah, chief economist of the National Association of Realtors (NAR): “I believe housing will be a very solid investment (in 2001) and maybe the best investment because inventory of homes is relatively low and we’ll see some good healthy price gains.”
This year–even though a cooling economy could make some buyers cautious–could produce strong home sales because of lower interest rates. Thirty-year fixed-rate home mortgages have dipped into the low 7 percent range after averaging just over 8 percent in 2000.
Will 2001 produce your personal space odyssey? The year you buy your personal space–a home?
Before plunging into the real estate game, be aware of changes that are transforming the buying and selling of homes. New technology is revolutionizing the business.
Potential benefits for consumers include lower sales commissions or fixed-rate fees, faster closings, less paperwork and more opportunities to “visit” homes near and far on the Internet.
For years, real estate agents controlled the real estate market because they controlled the exclusive access to listings of homes for sale.
Now all that power has disappeared because of the Internet. Today’s buyers can go online, to see all the listings.
Having lost their long-held edge, real estate agents are struggling to survive in this new era of easily available information.
Why pay a 6 percent commission to an agent when you can do it yourself and save thousands of dollars? And assuming that real estate agents survive, what will be their new role?
Those questions were met head-on at NAR’s annual convention in San Francisco.
Desperately trying to remain the major force in real estate transactions, the Realtors have devised a new tactic: They are offering one-stop shopping and managing all the intricacies of home buying and selling–from home inspections to homeowners insurance, from mortgages to repainting, from appraisals to arranging for a mover.
“Realtors are transitioning into the tech age and will remain at the center of the transaction,” predicted Lereah.
As evidence, he cited figures that show that for-sale-by-owner homes are holding at 16 percent of all sales, despite the do-it-yourself opportunities provided by the Internet.
However, Lereah noted that current pressures could push agents’ commissions lower.
“People feel they should pay less if they do part of the work in finding a home,” said Michael Lee at one of the convention’s seminars.
“Because of the dramatic impact of the Internet, people think they don’t need a Realtor to buy and sell a home,” said Lee of Seminars Unlimited.
“They think Realtors just drive around, show homes and collect a big check. We have to show them value. Realtors really do 120 things. It’s much more complicated to buy and sell real estate today.”
Dennis Cronk, NAR president in 2000, confirmed the NAR strategy: “Our goal is to keep the real estate professional front and center of the transaction, to accelerate the home buying process, eliminate duplicate efforts, increase consumer satisfaction and build strong customer relationships that reinforce the value of Realtor services.”
To that end, NAR rolled out a new electronic transaction platform at the convention. Called eRealtor.com, the online system is designed to facilitate and streamline the steps in managing the purchase or sale of a home. Linked to Realtor.com, NAR’s official Web site with more than 3 million users a month, it will put the process online rather than on paper.
Consumers will be able to follow their transaction online on their own private Web sites.
“This will provide peace of mind for consumers at the closing, frequently a time of tension and apprehension,” said Steve Osonian, president of Realtor.com.
He added: “In the future, once all documents are electronic, we won’t need paper at the closing.”
The new electronic platform will be introduced across the country this year.
“Above all, the New Economy mandates that real estate organizations continually redefine, restructure and reinvent themselves,” said E. Craig Suhrbier, the 2001 president of the Institute of Real Estate Management.
Computerization is just a start. Suhrbier believes even more high-tech equipment will be used: “Soon, other methods will be invented, such as hybrid devices, smart TVs and smart eyeglasses.”
In the Chicago area, the major real estate firms are moving ahead with their own technological advances.
“We’re on the edge of a revolution. The use of the Internet is just beginning. There will be significant changes in the industry,” predicted Steven Baird, president of Baird & Warner.
His firm has launched a new Web site that is more interactive and allows potential buyers to see a home online and immediately make an appointment with an agent to view it.
“We expect to have all listings in the Chicago market on our site by the end of the first quarter,” said Baird. “Previously, you would have to check 10 or more sites to see all the listings.”
In addition, Baird & Warner will introduce Home-Link in the Chicago area in March.
The free service is designed to assist buyers and sellers with needed services, such as arranging for utility hookups or disconnects, making home repairs, obtaining home inspections, lawn care or quotes for home insurance, or scheduling moving vans and cable television installation.
Also scheduled for improvement are video tours.
“Nothing replaces actually visiting a house, but video tours help buyers to narrow their choices. These online images allow buyers to to prequalify themselves,” Baird said.
He noted, though, that Internet mortgages have not yet caught on.
“People are not comfortable giving out confidential financial information over the Internet,” he said.
In the long run, Baird believes automation will drive costs down.
“I see the development of different prices for different services,” he said. “Home buying and selling will be on a fee basis, rather than commissions.”
Baird also thinks there will be a consolidation in the industry: “It’s harder and harder for small brokers.”
Christopher Eigel, the president of another Chicago firm, Koenig & Strey GMAC Real Estate, believes sea changes are ahead.
“The Internet will play a bigger role as an information source and may even become the standard resource. The challenge will be to demonstrate that we are the gatekeepers in the transaction and provide value,” he said.
“Despite technology, people still want the personal touch. It’s mind-boggling how much information is involved in buying and selling a home. Real estate agents have the time and the ability to sort through all of it. People will pay to have it done for them. For some, time is more important than money.”
Even so, he thinks commissions will continue to decline: “There will be more choices for consumers and fee structures of services. In the future, there may be fewer agents doing more business at lower fees.”
Eigel said real estate transactions are only partly computerized today. However, with the increased use of technology, including fully electronic contracts and electronic signatures, it may be possible to close on a house in two weeks or less.
“But are most people ready to move out in two weeks? Can they pack in that time? There’s the human element to consider,” he said.
While changes loom on the horizon, the near term could present investment opportunities in real estate.
The NAR’s Lereah believes the fundamentals of the U.S. economy are favorable for the residential market in 2001.
“The economy is slowing like a train–there’s a lot of momentum and it would take an unusual combination of events to derail it,” he said.
Last week’s unexpected half-point short-term interest rate reduction by the Federal Reserve is expected to boost the economy. However, it is not clear that mortgage rates will fall much further, for now.
NAR expects existing home sales to slip less than 1 percent this year to a total of just over 5 million. New-construction homes may decline more, 5.5 percent, to a total of 833,000.
The median price of an existing home will rise to $145,300 this year, while new homes will be up 5 percent to $173,700, according to NAR, which has more than 760,000 members.
