Monday, October 02, 2006

Real Estate Agents as Financial Advisors???

Let's ignore for the moment that prior to 2004, becoming a Real Estate agent was a career akin to coffin salesman or a used car dealer.

As housing prices have begun to stall out around the country local news teams have begun to do their own "investigative reporting" into this trend. For the most part this involves a reporter calling the real estate agent that sold them their overpriced condo last year to hear the calming tones "Real Estate is local. Our market is unique. Any downturn is destined to be short-lived. Real Estate remains a blah, blah, blah".

Would you go to Ford dealer to ask him about the new Toyota Prius? Of course not, because the Ford dealer has a vested interest in selling his products.

Well, asking a real estate agent about real estate is like asking a bartender if you should buy the $4 domestic or the $8 imported beer. Real estate agents feel the end of the party is near and they are doing their best to control the damage by circulating the message that "all is well, nothing to see here, move along".

One real estate agent on Channel 10 last night actually said "Well, this is normally a slow period anyway as kids start school...." You see, this is why you are a real estate agent. When the statistics came out showing a national decline in home prices y-o-y, it was for a comparable month in 2005 and thus any impact of seasonality would be wiped out because we are comparing apples-to-apples.

As it relates to the local markets, we still have over 2,000 listings in the NNY MLS. This is the most I can recall in the past 5 years. There is clearly a little boomlet in Watertown taking place, but this boom in retail establishments is likely to be short-lived and service jobs (while clearly a growing portion of our economy - UNFORTUNATELY) tend to be very unstable and low-paying. Beyond the increase in service jobs there is no meaningful change in the fiscal landscape in Northern New York and I'll put two forecasts into writing:

1) Many, many of the proposed housing developments planned for Jefferson county will be shelved in the next 2-3 years.

2) Within a year we will see year over year price declines in existing home sales in Jefferson County.

Finally, regarding housing despite what everyone tells you it is not an investment. At most, I want no more than 10% of any clients assets allocated to real estate. However, I'm told time and time again "my home is my nest egg". If your perceived value of your home minus your mortgage is more than 10% of your net worth, you either have too much riding on the value of your home or insufficient investements elsewhere.

I've been wrong before and I'll be wrong again, but you don't ask a mechanic for a prescription to treat your bad back and I would not listen to financial advice offered up by real estate "professionals".

3 comments:

Anonymous said...

I just happened to see your blog page thru Newzjunky and am sure I will not visit it again. WOW...you seem to be an expert on everything. Good for you. HUMPH..somehow I don't think that is true and yes, Real Estate always and everywhere has it's ups and downs, but we THE PEOPLE drive the market and the prices, not REALTORS!!!!! We have a Code of Ethics and Professional Standards...Do car dealers???? No offense to them, we almost all drive cars. Making a living and feeding my family. Realtor for 10 years and loving it.

Nalin said...

Thank you so much for chock a block of useful info! The house values are increasing quickly. I would love to invest money as much as possible.

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