Last week, I started a discussion on the historical price trending in the real estate industry. I highlighted a recent interview that was done by Robert Shiller on Bloomberg television.
The interview centered on the notion that home ownership has historically been a mediocre or poor investment. In his opinion, treating it as an investment was a “fad” based on short-term economic conditions that probably will not happen again.
Wow…did I get an earful back from several of the WorkPuzzle readers! Apparently, many of you don’t care for Dr. Shiller (in general) and did not find his analysis very thoughtful.
Here is part of an email I received shortly after publishing:
“…to think that [drawing the conclusion that] this real estate cycle, however severe, will change these longer term trends is a rush to judgment. I’ve always found Shiller coy, playful, and not entirely serious in the way he comes across. Or so he seems on TV. His index was full of bubble markets and, I always felt, distorted (and made worse) the perception of real estate in the 34 states that were not bubble markets.”
Here is another one:
“…the problem [with Shiller’s analysis] is it ignores rents, or imputed rents. Over time, rents rise, but housing debt service is more or less fixed. Eventually, when the house is paid off, you live there 'rent free.' No matter what, you’re paying rent, either to your landlord, or to yourself. Yes, you have maintenance, taxes, and so forth, but so does a landlord. And you get the psychic reward of owning your own place, and can do what you want with it.
I can’t believe a smart guy like Shiller doesn’t get this. Compare the net worth of homeowners and non-homeowners…there’s no comparison, and the house is a big part of that. Sorry for the rant, but seeing a knowledgeable guy like Shiller run down housing just frosts me.”
There were several other good points as well. I’m glad I prefaced my original introduction with the statement “I’m not a real estate expert…” I think that I've proven that to be true, and it appears that some of the talking heads on television may not be experts either!
It’s certainly good to know that it's not all doom and gloom for the real estate industry. That’s encouraging.
So, what does all of this have to do with recruiting? Suprisingly, it is what I initially found interesting is the historical housing price graph above. There is great news in this data. And, there is especially great news for real estate companies focusing on “new to real estate” recruiting in the future.
Regardless of whether you ascribe to Shiller’s vision or the more hopeful scenarios outlined by many of our readers, I think there is a consensus that what happened between 2000 and 2010 will probably not repeat itself (at least not in the short-term).
It is much more likely that the graph will either flatten out to the right or begin a slow and steady rise that keeps pace with inflation. As one reader put it,
“…all the talk was about how real estate may never be any good again, because it will 'only' appreciate at about the rate of inflation. It’s SUPPOSED to only appreciate at the rate of inflation. It’s a consumable…someone has to be able to afford to live there to rent it. If it appreciates faster than people’s incomes, it becomes unaffordable, and we just saw what happens when that happens. “
That makes sense. And if it’s true, then this recruiting principle will help you be successful in the future:
Recruiting is most effective in stable markets.
This idea may seem counterintuitive, but it’s definetly something that goes through the minds of talented candidates as they consider changing careers. And this principle has already had a profound effect on real estate recruiting over the last 10 years.
Think about it--if you were attempting to recruit between 2000 and 2006, it was much easier to get warm bodies in the door, but it was difficult to hire the right people. What drew many of these new hires into the industry was a “get rich quick” mentality. These new hires not only left when the easy money dried up (more than 600,000 agents left the real estate industry between 2006 and 2009), but also they caused disruption and harm to many organizational cultures along the way.
Of course, hiring “new to real estate” agents during the backside of the real estate bubble (2007 to 2009) has been very challenging. While the press constantly paints a negative picture of markets undergoing correction, talented individuals naturally shy away from the turmoil.
So, where does that leave us now? For the past couple of years, there seems to be some stabilization happening. As we move to the right on the graph (the future), many experts are suggesting (Shiller included) that we may be in for a period of slow and steady growth.
Here is the recuting lesson to take from this discussion: Slow and steady growth is the ideal environment for hiring “new to real estate” agents.
How do we know this? We've seen it with our own eyes. As we consult with real estate companies we constantly see truly high-quality agents who have been with companies over 15 years. When did those new agents come into the industry? During the previous period of stability.
As you know, it’s difficult to predict the future. However, if there is a sustained period of slow real estate growth ahead and the real estate industry experiences the retirement of many of it’s mature agents (those 55 and older now), there could be a perfect storm brewing (in a good sense) in the world of “new to real estate” recruiting.
I think we’d all enjoying seeing that happen. Make sure you're prepared to take advantage of it.
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Editor's Note: This article was written by Ben Hess. Ben is the Founding Partner and Managing Director of Tidemark, Inc. and a regular contributor to WorkPuzzle.
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