Real Estate Veterans See Market Bottom – The Morning News
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Last updated Saturday, July 26, 2008 4:10 PM CDT in Business
By Kim Souza
The Morning News
SPRINGDALE – Area home sales fell nearly 30 percent in the first half of the year, but three local real estate veterans believe the market basement is visible.
“The local market is bouncing along the bottom in terms of both sales and prices” said George Faucette, president of Coldwell Banker Faucette Real Estate.
Pat Harris, president of Harris McHaney Realtors, sees the floor in front of him. He said financial markets are correcting and real estate will follow by year end.
Harold Crye, an owner of Crye-Leike Realtors, said the market correction is firmly under way.
“Northwest Arkansas will likely struggle to put the genie back into the bottle for the balance of 2008,” he said.
The three have more than 100 combined years of experience, and all agreed the fundamentals of abundant inventory, pricing and low interest rates make now a good time to buy a home.
They understand that consumer confidence has plummeted to a 25-year low, which could further reduce investor demand. However, the experts said people still need to buy and sell houses even during a recession.
The trio’s predictions were not all candy-coated. They discussed interest rates, credit tightening, changing industry trends and expectations for the balance of 2008.
The industry is experiencing a contraction in the number of agents and sales, which makes covering overhead expenses for these owners tough at times as agents’ demand for services and support rises.
The 16 percent decline in sales volume between 2006 and 2007 cut agent and broker commissions by $13.81 million across Northwest Arkansas. In the first half of 2008, agents and broker commissions were down $11.89 million compared to the year-ago period.
Crye and Faucette said some agents have taken part-time jobs to cope with declining income.
“I expect to see a further reduction in the number of agents who renew their licenses for the coming year,” Faucette said.
Harris agreed the agent pool is shrinking after nearly doubling in size from 2002 levels.
Faucette reports 150 active agents, compared to 171 at the end of 2007. Harris said he has roughly 200 agents compared to 227 last year.
Crye, who is still building his local agent base, reports 140 agents to date, up from 130 in December.
All three said expenses are at an all time high, while revenue is down to levels earned in 2002 and 2003 when the market was heating up.
Crye is spending at least $15 million on buildings in the Northwest Arkansas market. He said the company is committed to its expansion here, but is “right-sizing” in other markets such as Memphis, where he closed two offices earlier this year because of the pull-back in subprime loans.
He said the company’s expansion in Atlanta has also been slowed.
“We knew Northwest Arkansas was an overheated market when we came onboard, but we believe in the underlying fundamental strength related to the region’s population and job growth,” Crye said. “I don’t expect to make a penny for the first three years, while we are growing this business from the ground up.”
Tighter credit standards are making home loans more difficult for some borrowers to acquire, but that’s not necessarily a bad thing, according to Harris, Faucette and Crye.
“We are seeing more normal underwriting procedures that truly qualify a buyer for a loan that he can repay,” Crye said.
Harris and Faucette agreed the loose underwriting tactics employed in recent years put too many people into homes they couldn’t afford. They said while Northwest Arkansas was not an area that proved to have a large number of risky loans, both Benton and Washington counties have seen a steady uptick in foreclosures.
Benton County ranked first in the state in foreclosures in June, reporting 206, a 47 percent jump from June 2007. The number reflects one foreclosure in every 393 homes in Benton County, substantially higher than the U.S. average rate of one foreclosure in 501 homes, according to Realtytrac.com.
Washington County reported 129 foreclosures in June, up from 116 a year ago.
Realtytrac said June was the second straight month with more than a quarter million properties nationwide receiving foreclosure filings.
“We have not seen the end of the foreclosure crisis, although government intervention should lessen the overall impact by mid next year,” Crye said.
Real estate experts said abundant inventory favors the buyer as sellers are motivated to negotiate prices.
One signal to Harris that the market floor has been reached is that existing median home prices have fallen only 2.2 percent in the first half of the year, despite a 30 percent decline in sales and some of the worst financial news in recent history. New home prices dipped roughly 1 percent from the year-ago period.
Median home prices in the region averaged $154,350 in June, down 1.3 percent from $156,496 a year earlier.
This is significantly better than the national numbers. The National Association of Realtors reported Thursday the median price for a home sold in June dropped to $215,100, down by 6.1 percent from a year ago.
“Prices are moderating from unsustainable levels in recent years, which is better for the overall health of this market,” Harris said.
One benefit for buyers is that interest rates are still hovering around 6 percent. But experts worry that domestic inflation pressures and rising rates in Europe will send interest rates higher toward the end of the year or early 2009, diminishing buying power.
Economic pressures on the real estate industry is forcing market consolidation, the experts said.
“When we came into this market in December 2006, we were surprised that more consolidation had not already happened,” Crye said.
Faucette said during the boom of 2003 to 2006, small agencies were popping up at record speed as more agents came into the profession.
During the record years of 2004 and 2005, there was enough business for everyone.
Faucette said many agents who became brokers operating small offices were top performers, but managing busy offices left little time for selling. When the market hit a wall in late 2006, the time was right for consolidation.
Faucette has purchased two small agencies since 2007, and has plans to acquire more.
Just shortly after Crye came to town, he purchased Siena Group Realtors in Bentonville. He expects to see more consolidation of smaller agencies.
Crye and Faucette said agents are looking for more support services, benefits and higher pay as today’s buyers are becoming more educated and demanding.
Other recent consolidations include Springdale-based Griffin Company Realtors’ acquisition of Benchmark Realty. Clark Long & Associates of Fayetteville recently joined New Jersey-based Weichart Realtors.
Carter Clark said the alliance to a national firm provided broader systems and training resources that would help the 20-agent office grow. He said the company has already expanded with a Bentonville office and has roughly 50 agents with plans to add more.
All three experts see the Northwest Arkansas real estate market in a holding pattern until after the presidential election in November.
It doesn’t make any difference who is elected, traditionally real estate markets pause ahead of changes in administration, Crye said.
All three said consumers are worried about disposable income amid inflationary prices of both fuel and food, which will likely keep those who don’t have to buy or sell on the sidelines, despite low interest rates and favorable pricing.
Crye expects the second half of 2008 to be marginally better with some slowing into 2009.
Harris was a little more optimistic saying a real estate market is a reflection of the community. He is encouraged by the recent strength displayed in the report that Wal-Mart Stores Inc. posted a 5.2 percent increase in sales, while Tyson Foods Inc. and J.B. Hunt Transport Services Inc. reported respectable corporate earnings during a tepid Wall Street bear market.
“We are not recession-proof, but there is still some pent-up demand that will eventually decide to get off the fence,” Harris said.
Harold Crye, co-owner of Crye-Leike Realtors Inc.
Residence: Brentwood, Tenn.
Education: Bachelors of Business Administration, Arkansas State University
Real Estate Career: 31 years
Recommended Reading: Jack Welch & The G.E. Way, by Robert Slater
The Art of the Deal, by Donald Trump.
Pat Harris, president of Harris McHaney Realtors
Education: Bachelors degree in marketing, University of Arkansas
Real Estate Career: 36 years
Recommended Reading: The Seven Habits of Highly Effective People, by Stephen Covey
George Faucette, president of Coldwell Banker Faucette Real Estate
Education: Bachelor of Business Administration, University of Arkansas
Real Estate Career: 39 years
Recommended Reading: The Seven Habits of Highly Effective People, by Stephen Covey