COVER FEATURE: The Power of One Million

Opportunity Abounds

BY LAWRENCE YUN

With the surge in NAR membership over the past several years, can the level of home sales going forward support an industry with 1 million professionals?

The answer is yes, thanks to demographic trends that position the country for continued robust markets.

Three years ago, the NATIONAL ASSOCIATION OFREALTORS® averaged 779,000 members, and existing-home sales totaled 5.3 million units. Since then, NAR’s membership has grown by 25 percent—adding 100,000 members in the last year alone—and existing-home sales have grown by 15 percent. The strong increase in the two numbers isn’t a coincidence.

The near perfect alignment of market conditions that has attracted homebuyers in record numbers has also driven the gains in the real estate profession. The growth in sales and membership stemmed from two key economic factors:

1. Rising home prices in combination with low consumer price inflation. Home prices increased a median of 7.5 percent in 2003, at a time when consumer inflation was only 2.3 percent. That price appreciation drives sellers into the market, which in turn draws entrants to the real estate business.

2. Weak job market conditions. With other industries shedding jobs—the economy lost 2.4 million payroll jobs from the onset of the recession in March 2001 to its end in December 2003—many people looked to real estate, with its continuing robust conditions, as a safe haven for work.

But the favorable economic climate real estate has enjoyed can’t last forever. Indeed, change has already arrived.

Job loss turned to growth in the latter part of 2003. If the economy continues to gain strength and interest rates edge up as predicted, residential real estate will lose some of its luster. Home price appreciation will ease, and stock investments may become more attractive. As a result, the number of people coming into real estate will start to stabilize.

On the other hand, even if existing-home sales drop somewhat from last year’s record 6.1 million units (and the latest numbers indicate sales are holding steady), that won’t immediately translate into fewer NAR members. Again there are two factors to consider:

1. Any declines generally occur with a lag. For many new entrants, after investing time, effort, and money into becoming licensed and jumpstarting their business, they’re likely to stick around to try to get a return on that investment.

2. There may be stickiness in membership. Many people keep their license and their membership active, even as they move into other lines of work. Indeed, 13 percent of REALTORS® didn’t post a single sale in 2002, according to the 2003 NAR Member Profile, yet they remained a member. Why? For some of these members, their goal is to maintain their preparedness to handle the occasional business that comes their way. Others find the benefits of membership too good to give up, even during years when they aren’t active in the market.

More fundamentally, there should be plenty of business for NAR’s members over the next 10 years. Demographics are why.

• Household growth will continue. New households, a primary driver of demand, have formed at a rate of 1.2 million per year since 1999. That level of growth isn’t expected to drop. Indeed, household growth may exceed 12 million from 2000 to 2010, fueled by baby busters, now well into adulthood, and the younger echo boomers, according to the Joint Center for Housing Studies at Harvard University.
  
• Immigrant households are flexing their muscle. The United States has attracted some 25.3 million immigrants since 1980. Those immigrants, by and large, are big on homeownership. Immigrant households in the early 2000s represented about 8 percent of all homeowners and 14 percent of first-time buyers, and owned about one-tenth of the country’s housing wealth, Joint Center statistics show.
  
• Boomers are in their peak wealth years. Many baby boomers (roughly, those born 1946–1964) are in their peak earning years of 45–54, keeping the trade-up market strong and boosting second-home sales and remodeling activity.
  
• Minorities are becoming a force. They’re expected to add 7.5 million households from 2000 to 2010, the Joint Center says. At the same time, their share of the homebuying market is growing, from about 25 percent in 2000 to a projected 33 percent in 2020. In 2003, minorities accounted for about 32 percent of first-time buyers.
  
  These economic and demographic trends suggest that home sales will remain strong in the decade ahead as client profiles become increasingly diverse. Aging baby boomers will fuel the trade-up and second-home markets, and baby busters, echo boomers, and minorities and immigrants will boost first-time buyer ranks and make inroads into trade-up homes—trends that add up to strong prospects for the country’s real estate professionals.

More than existing-home sales

The growth in NAR membership over the past several years is sustained by more than just the increase in existing-home sales.

REALTORS® are involved in an array of practices, from new-home sales to commercial real estate leasing, management, and sales, among others.

As with existing-home sales, the new-home market has been thriving, with a 1.1 million sales pace projected through mid-2004, up from a 985,000-unit pace at the beginning of 2003, according to forecasting by NAR Research.

In commercial, the four major sectors—office, retail, industrial, and multifamily housing—together accounted for some $25 billion in sales in the third quarter of 2003, according to the 2004 Grubb & Ellis Real Estate Forecast. That’s a level that could rise as the economic recovery advances.

These and other specialty areas are major pieces of the real estate industry, and for many NAR members, provide key opportunities for growing their business.