What's UP with this DOWN market?

Real Estate Broker/Owner with Susan Rossi, RE/MAX 2000

Through all this mess, have you wondered how the experts could have gotten it so wrong? Remember when 2006 was a "correction year"? Then came 2007 and whoops! It wasn't corrected. Here is some food for thought that you can use, share with your clients or your peers. I hope it helps.

This is an age-related phenomenon. It was predictable, avoidable and is fixable.

As a 23 year veteran of the real estate industry, my career has survived more than one slump. However, for the duration of the current crisis, I have written to and requested more times than I can count to more experts than I can name with a simple request: Please analyze this crisis from a demographic perspective using NAR statistics, Census data and the historic birth rate as a baseline.

I did just that. I merged NAR stats with Census data and found that during the Baby Boom era, the average age of first-time buyers was 25 years old. NAR stats indicate that in 1971 there were more sales than ever recorded by NAR - this was the year the first Boomers born in 1946 hit the market as first-time-buyers.

From there, as the number of births rose or fell, the housing market rose or fell in the corresponding year 25 years later. This pattern lasted until double-digit interest rates hit the economy in the 1980's.

Fast forward to 2006. During the "bubble", no one was watching as the average age skyrocketed to 33 years old. In the meantime, the record-setting first-time buyers of 1971 were about to become record-setting sellers as the first Boomers turned 60 in 2006 - planning for retirement, selling their home to downsize or relocate.

With an oversupply of inventory in 2006, we needed to increase the number of first-time buyers coming in at the bottom, as every first-time buyer causes three or four homes to sell, with the construction of a new home at the top of the food chain as people are "bumped up".

However, the first-time buyers we needed desperately in 2006 were not there because 33 years prior in 1973, the birth rate plummeted. The birth rate in the 1970's mirrored pre-World War II rates, and this tiny group of first time buyers simply could not provide the demand at the bottom to absorb the enormous Baby Boom inventory.

Baby Boomers are all the sellers. The oldest would like to sell to retire. The middle would like to sell to build new construction. The youngest would like to sell to trade up. They are all SELLERS first, then some will become repeat buyers or build.

But they are all dependent on a first-time buyer to stimulate the trade-up cycle and beginning in 2006 and for four more years, there simply would not be enough first time buyers and those wishing to sell would be stuck in their current home with a sign in the yard waiting for a buyer to come along.

With all the excess inventory stockpiling in 2006 & 2007, somewhere in those homes were in fact persons in financial distress. There are always people in financial distress and headed for foreclosure. However, this time the unprecedented level of inventory locked those who really needed to sell right out of the market. They could not outlast the time frame allotted by the lenders and did not have the luxury of offering incentives or lowering their prices.

As a result, foreclosures skyrocketed. The news then turned to mortgage products, sub-prime loans and the mortgage meltdown - instead of getting to the root of the problem.

The root of the problem was a lack of first-time buyers who were not born in 1973. Everyone kept wanting to put them on the fence, and remedial action included lowering interest rates and sending everybody a $300 check. Lower interest rates will not create a child who simply was not born 33 years ago.

Three years later and we are now closing out our third solid consecutive year of this mess. The answer continues to be a lack of first-time buyers although with declining prices the average age has fallen to 31 according to the NAR 2007 Profile of Home Buyers & Sellers.

The good news is that there is an enormous segment of the population just an eyelash out of reach - those UNDER age 30. The births begin to rise again in 1978 and rise steadily in numbers which rival the Baby Boom.

Since we only need 1 first time buyer for every 3 Baby Boom sellers, the data would suggest that the segment under 30 will provide the sufficient demand necessary to sustain the market once they begin to come in. The key to getting them to come into the market a bit earlier than they would have on their own was realized with the first-time buyer tax credit passed as part of the Housing & Economic Recovery Act on August 1.

However, no sooner was the law passed and began getting some attention that those in the news responsible for educating the public instead scared the kids away from it "warning" that it was a loan. But the potential is still there.

Even without the tax credit, I believe if there were a sensible demographic analysis conducted and portrayed to the American public that they will respond.

If those who are able to do so understood the power of purchasing a small home and allowing that person to trade up and then that next person to build a new home - the public at large would make the connection that a renter who buys a small, used home may actually be saving his own construction job on a custom home.

I believe we could potentially be on the brink of a fabulous recovery. When looking at an Excel chart of birth rates taken from Census data, it is clear to see that the entry of this next generation will be like throwing gasoline on the burning embers of what was the Baby Boom housing bubble. The potential is there to have both generations in the market at the same time - making the previous boom look boring.

But the correct remedial action must be taken, such as remedial action that is age-specific and educating the public on the data and the power they have to correct it. I would have preferred the tax credit to be targeted to first-time buyers under age 30, but they gave it to all first-time buyers.

The potential power of the tax credit can be seen in the rise in home sales in September - a month dominated by news of banks collapsing. The tax credit was passed on August 1, the first-time buyers spent August shopping and closed on their homes in September. It was humorous to watch those on CNN scratch their heads in confusion when the numbers were released. But it was so predictable.

Through the trade-up cycle, the new construction market even saw a bump in sales in September, as people who achieved a sale then made it to the top of the food chain and could build a new home.

If nothing else, watch to see what happens after the first of the year. The tax credit was written to be retroactive to April 9, which means every first-time buyer who purchased between April 9 and December 31 will get the credit when filing taxes this next time. Since this age group can't wait to file their taxes, they all use tax services and electronic deposit - they will all find out during the first week of February that they are getting whopper tax refunds of $7,500 - $10,000 each. And they will be waving those whopper checks in front of their friends who will also want to get in on it, but it ends June 30.

I project an unexpected and inexplicable burst of retail sales and real estate activity from Valentine's Day to Memorial Day. But I would rather see the recovery begin immediately, and would love to see the experts explain this to people and speed things up. Too many people are suffering, when there is a solution right before us.

My final point is that I have been using this analysis, this approach and have developed supporting materials to use with my clients for the past three years. Every single person responds "that makes sense". I believe it will instill much confidence if people realize this was an age-related phenomenon. Most importantly, this will empower the people to solve the problem.

Feel free to contact me if you would like any of the charts or support material.

Comments (18)

Kirk Westervelt
Van West Realty - Greenville, SC Realtor -Short Sale Expert! - Greenville, SC
Kirk Westervelt, Broker In Charge, Van West Realty - CDPE - Short Sale Agent - Home for Sale - Greenville, Simpsonvil...

Hello and welcome to Active Rain! I encourage you to learn from others, share your knowledge and experiences with all of us, enjoy yourself, and try to log in and join us in the Active Rain community as frequently as possible. I look forward to your future blogs and comments! Take care, --Kirk.

Nov 01, 2008 05:26 PM
Lorena Westervelt
Van West Realty - Greenville, SC

Hello, welcome to Active Rain! This seems like a wonderful environment to network as well as learn from others. I hope you enjoy yourself and participate often in the Active Rain environment!

Nov 01, 2008 05:41 PM
Sergio Rebollo Jr.
Real Estate TeamMates - Miami, FL

Susan....Welcome to ActiveRain.  This is a great community to network with others as well a great place to learn from other's experiences and knowledge.  I've enjoyed it; I hope you enjoy it as well.  Congrats on your first post.

Nov 02, 2008 11:45 AM
The Trumm Team Omaha Homes for Sale, Real Estate
Keller Williams Greater Omaha - Omaha, NE

Welcome to ActiveRain!

If you would like a few tips on getting the most out of ActiveRain, please visit my blog Welcome to Active Rain.  It has a few simple steps of what to do now that you have joined.

If you ever have any questions, just let me know.

Troy Trumm

Nov 02, 2008 12:26 PM
Jean Terry
Keller Williams Realty Spartanburg, S.C. - Spartanburg, SC

Hi and welcome to Active Rain, a great site to network, share, learn, and have fun. Good Luck.

Nov 02, 2008 12:51 PM
Keith Elliott Jr
KEIRE Realty Group - Manassas, VA
Principal Broker/Owner

Hello Susan,

Welcome to Active Rain and congrats on your first post! The opportunities to learn and network are incredible here. Best of luck to you!


Nov 02, 2008 02:11 PM
Marcy Fedalei
Keller Williams Realty - Spartanburg, SC

Great start on ActiveRain! Welcome and thank you for sharing your thoughts and ideas.

Nov 02, 2008 09:37 PM
Yvette Gardner
Keller Williams Realty, Spartanburg, SC - Spartanburg, SC

Welcome to the Active Rain community. This is a great site with lots of information.  Have fun with it and hope to see more of your blogs soon!  We have a team of four outstanding full time agents to assist your buyers and sellers in Spartanburg/Greenville, SC.  Again, welcome to AR!!

Nov 02, 2008 11:25 PM
Susan McQuaide
Keller Williams - Simpsonville, SC

Welcome to Active Rain! I hope you find this site as informational and entertaining as I have!

Nov 02, 2008 11:28 PM
Sasha Miletic - Windsor Real Estate
RE/MAX Preferred Realty Ltd. - Windsor, ON

Hi Susan, Welcome to AR, Be a Blogholic and start writing your own blog soon on AR. All the best for your RE business. This is the right place for customers, friends, realtionships etc.

Best - Sash 

PS: FREE blog traffic strategy video...Hope this will help you... click here

Nov 02, 2008 11:39 PM
Dan Magstadt
Paramount Residential Mortgage Group, Inc - Lake City, FL

Congrats on your first post - Welcome to ActiveRain!!


Nov 03, 2008 12:37 AM
Bill Kennedy
Keller Williams Realty - Greenville, SC
Homes For Sale Greenville SC

Welcome to Active Rain! This is a great website for building your business, as well as learning from others.  Pat yourself on the back, because you made a GREAT choice in joining the blogosphere!

Write often, and write whatever comes to mind.  Blogs about personal topics and non-real estate items are often the best.  It helps your readers to bond with you, and ends up bringing you a lot of business!

Good luck with your future blogging.  If you'd like more info on points in Active Rain, I wrote a blog about it (click here). Feel free to ask me any questions if you need a hand!

Nov 03, 2008 01:29 PM
Steve Vennemann-Hennepin-Dakota-Anoka contract for deed property-Ramsey-MN
BoardWalk Premier Realty INC - White Bear Lake, MN


On behalf Http://www.mnlakeplace.com  we are happy you became a member of action rain and we wanted to welcome you to http://www.actionrain.com . It is a very good site to learn and network and meet a lot of real estate agents/brokers and mortgage consultants.


Nov 07, 2008 03:12 AM
Vicente A. Martinez
Prudential Douglas Elliman Licensed Real Estate Salesperson - Woodhaven, NY
Realtor, Brooklyn - Long Island - Queens Homes

Hi and welcome to active|rain. There are thousands of tips, tools, and tricks of the trade here. Be sure to check them out. Best of luck and see you around.

Nov 09, 2008 01:03 PM
Rick Sergison
EXP Realty of Canada Inc., Brokerage - Pickering, ON
Durham Region Real Estate Blog

I just stopped by to welcome you to Active Rain. I hope that you find it a great benefit to your business and that you see the value that I have also found here. I am from Charlottesville Virginia and using Active Rain has really increased my business!

My main blog on Active Rain is here: Charlottesville Real Estate Blog, not the link at the bottom of this post. 

I hope you will look into the many groups as there are some great group both local and broad based,.... 


Nov 15, 2008 11:59 PM
Todd Clark
eXp Realty LLC - Tigard, OR
Principle Broker Oregon
WOW! What an amazing first article this was and I have to say very insightful. It really has changes who I think I should be looking for as buyers. Have you submitted this article to NAR? Please right some more articles, certainly would love to read more from you.
Nov 29, 2008 01:34 AM
Jese Gonzalez
The Real Estate Power Houses - El Paso, TX
The Real Estate Matchmaker

I would like to personally welcome you to the ActiveRain community!  This community has a wonderful atmosphere and you will find lots of helpful friendly people and useful information. I often find something new and interesting when I read the new blogs.   

Active Rain is an excellent networking forum with a variety of interesting characters.  Expect to learn a lot and be entertained if you have an open mind.  The opportunities to learn, earn and network are absolutely incredible here on Activerain.   

 Welcome to the RAIN I look forward to reading your blogs.

Dec 01, 2008 03:43 AM
Everard Korthals
---Preferred Lifestyle Advisors--- - Lancaster, PA
Mountain Realty

Welcome to Active Rain. This is a great place to learn and share with others. IF ever you were to have any questions then feel free to contact us and we'll try to help. Please take a look at our blog for links to valuable information in our sidebar that you can use to navigate this extensive network. Subscribing to our blog is also a great way to read our blog straight from your home pages. We also suggest taking a look at the Active Rain Wikipedia group for resources that may be valuable to you. We hope you have a great day in the Rain! All The Best-

Sincerely, Active Castellum

Dec 02, 2008 01:59 AM