About a year later he and the others were out of work, their promises unfulfilled.  I kept going and growing at my stodgy old economy company as I would for many years afterwards.

During this time, countless threats to the very existence of our industry have garnered media and public attention, many with the promise of being that one “new” model that will change the game completely and wipe everyone else off the planet.

And, of course, before my time there were similar pronouncements.  I don’t need to list them as it doesn’t matter; this story is hardly unique to our industry.

Since no one model has been that all-encompassing game-changer, it’s easy to get complacent and fail to take seriously the next challenge, especially when there seem to be so many coming so often.  The fact is each new player has changed (and continues to change) the “traditional” players to some degree – some more than others – and each new one will as well.  There is adaption and evolution or there is death.

But which deserve the most attention?  Is there a true game-changer out there?

In my most recent post, a spirited discussion on a model whose idea is hardly new was brought up by our readers: the employee-based brokerage.  Some believe that the time is perfect for this model to be the game-changer that will knock the complacent traditionalists on their keisters.

I think this deserves exploration in our consideration of the “Next Generation Brokerage.”  For reasons discussed in my comments, I am not convinced that this model will overtake all others but I’ve been wrong before so I’d like to hand it off to you to argue both sides.  To get you started, here are three sets of questions and one survey to consider:

• For brokers: do you believe employee-based models will change how you do business in the next five years?  Why or why not?
• For agents: what would it take to get you to work as a salaried employee rather than as a commissioned independent-contractor?
• For consumers: do you believe your buying or selling experience would be better, worse, or the same if you were served by employees rather than agents?  How so?

Every brokerage has four basic revenue drivers:

1. The number of homes sold (with each sale having two “sides”),
2. The average price of the sales,
3. The brokerage’s take after the agents’ commission splits (“percent retained”),
4. The amount (in percentage) received per transaction (“average broker commission rate” or ABCR).

While times were good earlier this decade, the average broker was making a solid living while, for the most part, three of their four drivers were headed in the wrong direction.  For the vast majority of brokerages, only average sales price, the driver they had least control over, was increasing.  Despite a market that was churning out more sides, the number of agents and brokerages in the marketplace increased dramatically so that the pie was split ever more; because of this, most brokerages were barely able to keep sides steady during the upswing.  At the same time, competitive and consumer pressures were driving percent retained and ABCR down.  But price kept saving the day so the good times rolled.

Sides were the first to fall in the correction, but price increases kept sales volume (the combined impact of multiplying sides with average sales price) propped up, so very few noticed.  When price turned, the average broker’s P&L very quickly fell apart.  This is because the other revenue drivers weren’t balancing the equation.  Percent retained and ABCR didn’t reverse course as the market turned; these drivers have been either flat or only modestly better since market peak.

Since the shift, the average broker has cut and cut but there simply hasn’t been enough to eliminate to offset the revenue crash and get to profitability.

Let’s look ahead now.

According to Fannie Mae, we should expect sales volume to bottom out this year, improve only marginally next year, and grow at an increasing rate from 2011 through 2013.  Overall, FNMA is projecting that sales volume in 2013 will be 33% better than 2008 levels.

Wait a second – that sounds wonderful!  We’ll be back to good times, right?

Not necessarily.  In fact, without fundamental changes, we believe there’s a good chance that, despite improved price and sides, the return to profitability for most brokers will be at best delayed for many years after the market improves and at worst always beyond reach.

In order to answer why we believe this, we have to go back to our revenue drivers and predict how they might fare (these are, of course, hypothetical projections and are not to be misconstrued as representing the views of our parent company, Realogy Corporation).  By assuming FNMA is right (NAR‘s predictions are a bit too optimistic for my tastes), we’ve addressed two of the four drivers.  But what about percent retained and ABCR?

Let history guide us.  While the market was good, percent retained declined steadily (according to a REAL Trends survey, from 2004 to 2008 percent retained decreased from 27.8% to 25.7%, or an average of 0.5% per year).  Even when the market turned, this didn’t improve as some might have expected; it merely held its ground.  ABCR, on the other hand, has actually improved marginally over the same time period (from 2.54% per side to 2.61%, according to REAL Trends), but much of this improvement has likely been skewed by the high level of recent foreclosure sales.  Most brokers would tell you that ABCR on non-distressed properties has not improved during the downturn.

So it seems logical to assume then that when sales volume improves (likely next year) and foreclosures return to normal levels (perhaps a couple years away), ABCR should do no better than remain flat while percent retained will break from its holding pattern and continue along its historical trend line.

Working that into our figures, if percent retained continues to drop at the 0.5% per year rate we’ve recently experienced, then the average percent retained in 2013 would be 23.2% (or 10% worse then 2008).

If these assumptions are right (and some would argue that they’re in fact optimistic) then the average broker will have lost a third of the gains the market will have provided.  Keep in mind that we’re assuming ABCR will hold steady, despite the likely unrelenting pressures from competitive models both known and unknown.

A one-third drop may be bearable, but that’s not all there is to it.  To take it to the final step and predict the bottom line impact, we need to take into account operating expenses (rent, payroll, marketing, supplies, etc.).  Assuming the model doesn’t change, expenses remain the same and we simply apply an inflationary index of 3% per year and compound that over the same time period.  That alone wipes out half the sales volume gains!

Since very few brokers are making money now, the combined impact of these two factors (erosion in percent retained and inflation) would very likely eliminate most of the predicted improvements in the market, thereby preventing a return to profitability.  And, to repeat, this assumes that ABCR holds steady.

Does this view seem plausible?  We think so.  In fact, it’s not too hard to envision less pleasant outcomes that would make this analysis seem hopeful.

We believe there’s support to argue that the model as it exists today simply must change, that the average broker can not just wait this market out.  The status quo is not an option.

Looking ahead, then, we must address each of the basic revenue drivers as well as new revenue streams and take a good hard look at the existing expense structure.  Nothing should go unchallenged when thinking up the new model.

As you read our posts on this topic, think about how the proposed idea improves either one of the revenue drivers or operating expenses (or, in some cases, both).  Specifically, consider how it fits into the financial keys to the Next Generation Brokerage, which I believe will be:

1. Maintaining ABCR by constantly updating and improving the value proposition to consumers,
2. Increasing average agent productivity,
3. Increasing percent retained through brokerage-generated business,
4. Generating a far higher output per square foot of office space.

Let the ideas flow.

View Nicolai Kolding’s Inman Presentation: New Real Estate Math: How to Slash, Burn, and Rebuild Your P&L

Believe me, after absorbing one ugly headline after another (both fair and unfair) for years now, the industry could certainly use a positive spin.  Like many others, I felt that the media practically reveled in reporting bad news while too often failing to expand on the whole story or even report on the positives.  This time around, though, I must be missing something because I just don’t get why this is the month when the figures are being trumpeted as the possible first signs of a turnaround.

So pardon me if I’m flying against the happy winds when I think February was barely different than prior months; as before, I see in the numbers reasons to be both cautious and cautiously optimistic.  But I sure ain’t ready to call this yet.

Let’s look at a few key facts:

• Fewer transactions, dropping price.  Nationally, there continues to be a decrease in both the number of transactions (or “sides”) and price.  Don’t get caught comparing one month versus the prior month as seasonality trends will cloud things; look at the same month in the prior year.  Yes, both sides and price in February were better than January.  That’s almost always the case in good times and bad.  Look at the relevant data: the 280,000 sides closed in February ’09 were 10% less than February ’08 (312,000) and the price was off considerably (-13.4% or -15.5%, depending on whether you’re looking at mean or median average).
• Rate of Price Decline Slowing? I’d argue that the jury is still out here.  February’s price was higher than January’s both nationally and in all four regions.  It was also down against February of ’08 both nationally and in all four regions.  Now I’m certainly happy that the rate of decline has slowed in all regions but it’s only a one-month change so I’m not ready to call that a trend.  It simply means that, so far, for one month we’ve been falling slower.
• Ten Months of Inventory.  This figure has held steady now for three straight months.  That’s good.  But at 9.7 months of inventory, there are still a whole lot of listings to burn through before things return to a more “normal” six months.  That means that in many markets there will continue to be price pressures.
• Most Brokers’ Revenues Are 39% Off Peak.  Multiply sides and mean price and you get sales volume, a pretty close gauge of a company’s revenues.  Most companies have annualized sales volume that is way, way off where they were about three years ago.  The best markets are now holding steady.  In all four regions but the West (which has held steady for eight straight months) we continue to see deterioration in the trailing twelve months’ sales volume.  The region that’s fallen the least off peak is the Northeast, which is “only” down 30%; the West is 44% off its peak.

On the one hand, I’ll take any positive reaction from the media I can get.  On the other, I refuse to get caught up in the hoopla and ignore the real numbers.  And you know what?  The last thing we need right now is for a bunch of us, most notably the government, suddenly thinking all is dandy with housing.

Keep rowing hard and you’ll get through the storm, but don’t relax yet; I’m sure there are stiff winds ahead.

This week, perhaps a little magic happened in the Sylvan mountains of Northeastern Pennsylvania.

Two companies that had spent a lot of time, energy, and money competing against each other recognized the circumstances had changed and knew there had to be a better way.  The opportunity was created by market forces neither company had ever imagined or wished for. It may not have been the dream scenario some people envision these things happening in. That’s not how it ever happens in real life.

Rather than complain about an imperfect situation and wait for a dream scenario to drop into their laps, the owners of the two companies proactively sought each other out to resolve their mutual challenges. After many long days and nights, they decided that the innovative solution was to merge their two companies as one and spend their energy collaborating on better tools, better training, and better services.

We welcome with open arms Heather D’Adamo and her team at Coldwell Banker Phyllis Rubin Real Estate, who are joining forces as one with Better Homes and Gardens Real Estate Wilkins & Associates.  Along with Tom Wilkins and his team, we look forward to what can be shared and learned from this experience.  We’re thankful that those involved gave magic a chance by providing plenty of courage, innovation, and hard work.

Perhaps somewhere near you something similar could be happening.  Maybe too many of us are looking at this market the wrong way.  There is no doubt that it’s a storm out there but instead of cursing the waves, perhaps you can seize the opportunity to create magic instead.  Even if you’re not a brokerage owner, I encourage you to reach out to Heather and Tom directly to ask how they did it – what obstacles did they face, what were their fears, how did they eventually come to the conclusion they did?

This is a good story and it’s one we’d like to see repeated again.

I tend to focus on NAR‘s closed data while ignoring their forecasts (I’ll lean on Fannie Mae for that).  Because of the way they pull their data, I’m not a big fan of the S&P/Case-Schiller national figures but I do track the local stats just for trends.

There are two major themes we can pull from the releases: (a) as if it wasn’t tough enough, in all regions but the West, January was one of the toughest months on record in the last decade, and (b) the forecasts indicate that the average residential broker will likely be under continued pressure this year and next.  For many brokers, the revenue levels that were reached last year, as difficult as that was for most, may not be reached again until 2011.

NAR’s January Existing Home Sales

National

January’s transactions (or “sides”) of 257,000 were 8% less than January ’08.  Mean average sales price continues to fall at double-digit rates; it is now at $212,900, which is 13% less than a year ago and 23% off the June ’07 peak.  Inventory, which had come down for two straight months, climbed up to 9.6 months.

January’s monthly sales volume (total sides multiplied by mean average sales price) was the lowest national figure recorded since February 2001.  The trailing twelve months’ (“LTM”) sales volume is now 21% less than it was a year ago and 38% less than the peak reached in March ’06.

Northeast

Having previously suffered far less than the three other regions, the Northeast is now being challenged more than ever.  January’s sides were down 22% from a year ago while price dropped 12% (the rate of decline has accelerated over the past few months).  As measured in sales volume, January was the worst month for the average Northeast broker in exactly nine years.  LTM sales volume is now 29% off peak (March ’06).

Midwest

The Midwest fall continues: sides are down 16% from January ’08 while price is down 7% over the same period.  According to the Case-Schiller data, Chicago’s prices are down 14% from a year ago but the rate of decline is increasing especially over the past three months (in other words, price declines are picking up pace).  The Midwest’s sales volume in January was lower than any month recorded in the last ten years.

South

This region’s woes did not improve in January, unfortunately.  Sides are down 17% from a year ago; price, 8%.  LTM sales volume is now $388 billion (down 23% in just one year and 39% off peak).  In some southern markets, however, there may be some support that a price bottom is near or has been reached.  The reduction in the average sales price to get to this point has clearly been severe.  For example, according to Case-Schiller, Miami’s prices are down 41% from peak but the rate of decline seems to have stayed the same recently.

West

The trends in the West continue as they have for the past half-year:  price sharply down, sides sharply up.  For this reason, LTM sales volume has held fairly steady for seven months running (and, in fact, January’s sales volume was higher than January ’08).  Although the trends are clearly not what the average homeowner wants, this is a necessary stage on the road to recovery and we should expect that the rate of price declines will soon decrease and eventually level as inventory is burned off.  San Diego, in particular, may be experiencing this.  All indications are that the West will be the first region to feel the real effects of a turnaround.

Fannie Mae’s February 2009 Housing Forecast

With this week’s release, FNMA once again brought down their forecasts for both 2009 and 2010.  Whereas a month ago they projected 2009 median average price to be 7.4% less than 2008, it has now been put at $181,500 (or 8.6% less than 2008).  Sides were also revised downwards by a notch (from 4.75 million to 4.73 million).  From the average broker’s perspective, the combination would result in an 11% sales volume drop.  The nadir for most brokers should be hit sometime this year but the climb back up will be slow; very few will see 2010 sales volume reach even 2008 levels.  This is because FNMA is projecting sides to level out sometime in the fourth quarter of this year while prices will continue to drop through 2010.

Photo courtesy of Sanj@y (Flickr)

As I think about Black History Month and the remarkable events of the last year, I find myself simultaneously thinking about two very different kinds of questions.  On the one hand, I read the statistics from the 2008 National Association of REALTORS® Members Profile and wonder why the population of real estate agents in America continues to be so much less ethnically diverse than the general population.  On the other, I wonder: do we even need these statistics anymore?

By combining current census data with the NAR figures, the racial distributions can be summarized as follows:

These are simply the statistics; this is not to insinuate a nefarious reasoning behind them.  In fact, an argument could be made that since not all real estate agents are REALTORS®, some data may be lost.  To account for that, I’ll add members from three other industry groups (The National Association of Hispanic Real Estate Professionals, with 15,000 members, The National Association of Real Estate Brokers, which is comprised of 35,000 African-American members, and the Asian Real Estate Association of America, with 12,000 members) and assume that none of them are also members of NAR (an assumption I know is false but one I’m willing to make for argument’s sake).  Doing this results in only a slight shift in the numbers (Hispanic/Latino agents would account for 7% of the agent base, the percentage of Black/African-American agents would increase to 6%, and the Asian/Pacific Islander count would go to 4%).  So this would still put two major ethnic groups at about half of what could be expected.

Although I’d like to live in a world that is free of statistics that divide us, it’s so hard for me to ignore the numbers given such a wide discrepancy.

Where do we go with this?  There are a whole lot of questions that could be discussed.  The ones that come to my mind:

• Given the figures, is the business of buying and selling residential real estate not as attractive a career choice for the one-third of our population that isn’t White?  If so, why?
• In an age when more and more people consider themselves color blind, do these kinds of statistics really matter?
• If it does matter, should we assume that a real estate brokerage that has an agent base reflective of its local ethnicity (all other factors being equal) would have a competitive advantage?

]]> http://bhgrealestateblog.com/2009/02/20/revisiting-the-question-of-diversity-in-real-estate/feed/ 5 http://bhgrealestateblog.com/2009/01/26/analyzing-nars-january-release/ http://bhgrealestateblog.com/2009/01/26/analyzing-nars-january-release/#comments Mon, 26 Jan 2009 17:01:28 +0000 Nicolai Kolding http://bhgrealestateblog.com/?p=1295 At 10am this morning, the National Association of REALTORS^® released its year-end summary of existing home sales (their commentary can be read here).  As with our prior monthly analyses, we simply want to focus here on the figures that are most important to those within the industry.  Therefore, for both the national and four regional areas, we will look at trends for the number of transactions (or “sides”), mean average sales price, and sales volume (total sides multiplied by mean average sales price).

Although the news following today’s release seems so far to be focusing in on the somewhat surprising December increase in sides, the fact is this is being driven almost exclusively by the West region, where we have seen positive signs for the last six months.  All three other regions continue to be in the unenviable situation of managing through both falling sides and price.

National

The number of sides closed in December was about equal to that of December ’07.  Although the mean average price fell once again (at $216,000 it is now 22% off the peak reached in June ’07), inventory was reduced significantly (from 11.2 months’ supply to 9.3 months).  December monthly sales volume was 14% less than December ’07.

Full-year 2008 sales volume was $1.191 trillion.  This was 21% less than 2007, 32% less than 2006, and 37% less than 2005.  This puts the average residential brokerage at the same trailing twelve-month (“LTM”) place as June of 2003.

Northeast

Compared to the prior year, December’s sides were down 10% and price 8%.  Keep a careful eye on price in the coming months; the Northeast has to date been the only region to avoid double-digit price drops, however, last month’s decrease was its largest yet.  Full-year sales volume was $251 billion, which was 18% below 2007′s levels (and 23% less than 2006).  The average residential brokerage in the Northeast is now generating the same LTM sales volume as in March ’04.

Midwest

Both sides and price in the Midwest continue to fall, although December may be showing early signs of a slowing of the rate of decline.  Year-end sales volume was $209 billion (22% off of 2007 and 32% below 2006).  The average residential brokerage in the midwest has to go back to August of 2002 for an equivalent LTM sales volume.

South

Sides were 7% lower than December ’07 while price was down 8%.  For eighteen straight months (and 28 of the last 29), the South has experienced declining sides and price versus the prior year (the longest such streak of any region).  There may be signs, however, the transaction sides are finally ready to pick up.  Year-end sales volume finished at $395 billion, or 22% less than 2007 and 36% off of 2006.  May 2003 was the last time LTM sales volume was this low.

West

The number of closed sides was vastly improved over December 2007; for the third month out of the last four, the West has had over a 30% sides’ improvement over the prior-year period.  This continues to be an important trend as inventory is being reduced.  As expected, this is coming at the expense of a sharply falling average price, however.  At $252,800, the mean average is 27% off of December ’07 and 33% less than what the average homeowner could have expected for about a two-year period ending in July ’07.

Year-end sales volume finished at $330 billion (16% less than 2007, 34% off of 2006, and a whopping 44% off of 2005).  The West’s LTM sales volume is at about where things were at the end of 2002.

Summary

It is very difficult to draw any definitive conclusions from this.  Simply put, if these results are slightly better than expected, November was clearly less than expected.  How much of what happened in December was, for one reason or another, a result of November activity being pushed out slightly?  With the exception of the West, there are no definitive trends forming.  The January and February figures may change that, so we will carefully study those releases when they come out.

The following was updated on January 28th when Fannie Mae released its Economics & Mortgage Market Analysis:

Once again there were slight downward revisions throughout.  FNMA’s 2008 median average price (for existing homes) has been set 0.5% lower than last month, so their price projections for this year and next were similary reset and brought down 0.5%.  I wouldn’t have concerned myself over this had their sales forecast remained the same.  That was not the case, however.  They brought 2009 sides down another 4% to 4,748,000.  Even 2010 was brought down 2%.  Bottom-line: for the average broker, the total sales volume in 2009 is predicted by FNMA to be 9.9% less than 2008 (last month, 2009 was projected at 7.6% worse than 2008 so this is a pretty big change).  The 5.5% volume improvement FNMA is calling for 2010 (over 2009) will therefore mean most brokers won’t even get back to ’08 levels until at least 2011.  In other words, the vast majority of residential brokers should plan for at least two more years of stress.

If you look at FNMA’s quarter-by-quarter analysis, nationally sides will improve sometime at the end of this year.  Median prices, however, are forecast to continue to decline on a year-over-year basis throughout this year and next.

If you’re a broker and you believe your market has tracked pretty close to the national trends you may want to consider looking at your 2002 P&L for revenue projections, because a 10% reduction from last year’s sales volume puts us at about that level.

These are just some of the many critical questions people within and outside the industry are asking right now.  For those who make a living in residential real estate, the answers to these questions could shape critical decisions.

Do you agree with what’s being predicted by NAR?  Fannie Mae?  Anyone?

We’re not even going to try to make predictions, but we’re very curious what you think.

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Thanks for participating!  If you have any other questions you would like us to ask, feel free to submit them via the comments.

Last week, I was on a panel at the Inman Connect conference that was part of a broker/owner forum focused on “Building the Lean, Mean and Profitable Real Estate Brokerage of the Future.”  I was joined by John Vatistas of Russ Lyon Sotheby’s International Realty and John Reinhardt of Fillmore Real Estate. With a goal of identifying savings in the typical brokerage P&L, we were asked by our moderator, Brian Boero of 1000Watt Consulting, to focus on three key areas: physical space, commission splits, and marketing.

To highlight in somewhat broad strokes what I discussed:

1. These three areas are related: When planning a change to one, consider how it could impact the other two.  Whenever possible, tie changes together as part of a cohesive, strategic repositioning of your brokerage.  For example, if you are considering reducing your office size (or radically rethinking what your space could look like), reallocate those savings to your web presence — in effect, moving money from your physical office to your virtual office.  Furthermore, to oversimplify a bit, commission splits could be tied to office size by moving them in opposite directions: more space, lower splits.  Less space, higher splits.
2. Consider indexing your commission plan.  All of your other expenses are impacted by inflation.  This is the single biggest expense item on the P&L yet most broker/owners allow this cost to creep higher and higher as a percentage of their revenues simply because they don’t index.
3. Measure, measure, measure.  It’s one of our many mantras here at Better Homes and Gardens Real Estate.  Too many companies are still flying in the dark when there’s data available that might guide them towards increased profitability.  Here are three of my favorite brokerage data points:

• Productivity Per Square Foot.  We could borrow a lot of analytics from the retail world.  How much are you really generating for each square foot of office space?  Compare your profits per square foot over time, across offices, etc.  Get whatever data you can to compare it to your competition.  I hate to be so glum, but think of it as a sanity check to see if you would be better off subleasing some space.
• Modified Percent Retained.  Take your “percent retained” (or gross margin), which is your company dollar (or gross profits) divided by revenues (GCI), and further reduce the company dollar by your total marketing spend.  I like looking at this across offices.  For example, an office with $1,000,000 GCI, $640,000 in commission expense, and $120,000 in marketing would have 36% retained and 24% modified retained.  If you compared it to an identically-sized office with $700,000 commission expense but only $20,000 in marketing, you would be right to say splits in the second are much higher than the first, but when the trade-off is much lower advertising and a better modified percent retained they may, in fact, be better off.
• Marketing Return.  There is no reason for any broker not to know what their return is for each form of marketing, yet so very few track this.  Identify the source of each of your closings.  Total the gross profits from those closings, and divide that figure by the total amount you spent on that particular form of advertising.  For example, assume you spent $40,000 in your local newspaper and your ads there led to 20 closings that generated $45,000 in gross profits.  Now assume you also spent $12,000 marketing in a particular website and that led to 25 closings that generated $60,000 in gross profits.  Clearly, the latter method is more efficient (by over 4x).  It may not mean you completely abandon the first method, but you may be underutilizing the second.  The analysis isn’t always so clean, but there is plenty to be learned (by you, your agents, and your customers) about where your marketing dollars are best spent.

Let’s keep scrubbing these P&L’s until they’re clean!

NAR

Clearly, today’s release will likely dampen many holiday spirits.  Let’s take emotion completely out of this and focus on the facts.  You may wish to read our earlier post on market cycles to get our views on what figures we spend the most time studying.

National

The number of sales (also known as “sides”) fell considerably in November after two months in which sides were relatively flat to the prior year.  The average price continues to fall (the sixteenth month in a row nationally) with the rate of decline increasing.

The trailing twelve-month national sales volume (determined by multiplying total sides over the last twelve months by the mean average sales price) was $1.205 trillion.  This is 37% less than the peak of $1.904 trillion reached in March ’06.

Northeast

As has been the case in the recent past, the Northeast is generally in line with the national trend but less severely so, especially as it relates to sales price.  The trailing twelve-month (“LTM”) sales volume was $254 billion, down 2% from last month and 27% off its peak ($349 billion, March ’06).

Midwest

Transaction sides in the Midwest were down 23% from November ’07; mean sales price was down 12%.  This combined to drop the month’s sales volume by 32% from the prior November, the single toughest month for this region during this down market.  LTM sales volume was $212 billion (35% off its high-point, reached in March ’06).

South

Sides were down 24% compared to November ’07; price, 11%.  This combined to put November’s sales volume at its lowest point since February 2000.  LTM sales volume ($400 billion) was 37% off its May ’06 peak.

West

Although transaction sides improved again for the fifth straight month, the rate of improvement has slowed.  Average price (both mean and median) continues to fall.  The combined impact of increased sides with decreased price has meant that LTM sales volume ($331 billion) has held fairly steady for the last five months.  This, however, is still 44% off the peak reached in November 2005.

Fannie Mae: Economics & Mortgage Market Analysis

Relatively little has changed since FNMA’s November release.  Depending on your outlook, that’s either no news or good news .  They are still calling for 2008′s  median average price to come in a hair under $200,000 (that projection has moved very little over the last six months) with total EHS of 4,949,000 (slightly higher than last month’s projection; this figure has been slowly revised upwards nearly every month of this year).  The combined impact is of a slightly more positive outlook (in terms of total sales volume) for year-end 2008.

Their 2009 outlook is not as positive as it was last month though, again, this change in outlook is minor.  It is due mostly to a downward revision of price (now projected at $184,800, from a projection of $187,000 last month).  Roughly speaking, they are effectively calling for 2009 sales volume to be 7.6% less than 2008 (keep in mind that 2009′s sales volume figures have been brought down every month for the last six months; it seems hard to believe now but up until June they were even projecting that 2009′s sales volume would be higher than 2008).

Finally, their 2010 projections continue to indicate that although it will be an improvement over 2009, total sales volume is not expected to reach 2008 levels.  In other words, for most brokers: plan as if the total market opportunities over the next two years will be no better than this year.  Improving your top line, and your bottom line, will have to come from initiatives that will capture a greater share of what’s out there.

Summary

There is no hiding that today’s release was less than hoped for and the headlines will understandably be negative.  It’s important to keep in mind as you look at this data what impact the mix of business is having, however.  A twelve or thirteen percent drop in median (or mean) sales price does not mean that all homes’ values dropped 12% or 13%.  If, in a certain market at a certain time, a higher number of lower-priced homes is selling than usual, the market’s average will decrease even if the value of the higher-priced homes is unchanged.  Although we shouldn’t kid ourselves into thinking all is well, sometimes we need to remind ourselves (and others) of this simple fact as we look at the numbers.

For those who like a really deep dive into the statistical waters, check out this Zillow post on how the mix of business impacts median sales price.