Increases In Home Sales & Prices of Homes Explains An Influx of Realtors In Certain Regions

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An article by Erik Pisor, published in today’s Inman News, discusses some recent statistics that seem to outline current real estate market conditions.

The article can be found at: http://www.inman.com/news/2009/06/29/realtor-membership-rises-in-some-areas?page=0%2C1

After reading the statistics and trends that Pisor outlined, I actually came to a different conclusion that he did.

While NAR reports a 10% decrease in membership, some local and regional associations are showing an influx of Realtors, which might be a result of a rebound in the real estate market, or at least the expectation of a rebound sometime soon.

The San Diego and  Sacramento markets show both an increase in homes sales as well as an increase in the number of Realtors joining their regional associations.

In California as a whole, sales are up 35.2% from May 2008, AND more people are taking the Realtor exams than last year. Maryland is showing a similar trend as well.

What does this mean for Phoenix, Tennessee, New York, Arizona, Texas, Washington D.C., & North Dakota – all of which show a similar influx of Realtors?

While Antuoun & Kleinhenz both claim that people commonly turn to Real Estate when they lose a job, it seems that the influx of Realtors into various regional associations is more likely due to the increase in the number of home sales.

This goes back to a simple economic model of a perfectly competitive market that has free entry and exit. When any given market that has free entry and exit becomes profitable, firms enter the market to get their share of the economic pie. When the market is not profitable, firms exit the market because they are losing money. After so many firms exit the market, the competition decreases for those who have stayed in the market, and those who have stayed become profitable again. Of course, that means that firms will start entering the market again because it is profitable for them. We see this ebb and flow in many different markets: the fast food market, the automotive industry, the computer software surge in Silicon Valley, and the door-to-door pest control and security salesmen.

Realtors are becoming profitable again in certain markets, and this is why there is a regional influx of members of local realtor associations. This is supported by the fact the Boston, MA has seen a continual drop in the number of Realtors, along with a continual drop in transactions.

Additionally, while Thompson, a Realtor in Boston, MA claims to have entered Real Estate when the market is down (see article), she is doing so with the expectation that it will rebound soon and that she can become profitable. Even if even if Realtors in other markets are still struggling to be profitable, it seems that those Realtors entering the market again at least have the expectation that doing so in their particular market will soon make them profitable.

While the median price of homes is still down 30.4% from May 2008, house prices have steadily been recovering for the past several months, and economists at NAR expect them to continue to rise. If the price of homes is starting to rebound,  and if the number of transactions is also on the rise (as shown in the cited article), it should not surprise us if more Realtors are entering the real estate market again.

It all goes back to a simple economic model of a perfectly competitive market with free entry and exit.

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