The Real Estate Agent Bubble

Submitted by Rich Toscano on December 28, 2005 - 5:43pm

Much ink has lately been spilled on San Diego's burgeoning glut of housing inventory. Today, the Voice of San Diego spills some ink on our glut of real estate agents. We learn that the number of California real estate agents has grown by 55% since 1999. More frightening, 15% of Q2 2005 GDP growth nationwide was due to real estate commissions—and as usual, you can bet that the percentage is a lot higher in real-estate happy Southern CA.

Some analysts remain unconcerned about the number of agents, claiming that many agents make most of their income from a "day job" unrelated to selling homes. This may be true. What can't be denied, though, is that a slowing housing market will remove a lot of money from the economy, both directly (via commissions) and indirectly (via equity cashouts). The real estate boom has had an incredibly stimulative effect on the local economy—what will happen when that stimulus is removed?

In any case, I think it's inaccurate to claim that there hasn't been a serious increase in the number of people who depend on real estate activity for their livelihoods. Forgive me as I whip out a favorite chart:

As you can see, the number of people involved in the real estate and construction industries (presumably as their day jobs) has grown by leaps and bounds over the past five years. Emplyoment in other sectors has weighed in at a frail 1% per year. Can you honestly look at that chart and tell me that the San Diego economy is not enormously dependent upon housing activity?

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Submitted by rrmarks on December 28, 2005 - 9:38pm.

Another insightful bit of glaringly obvious imbalance. The age-old game of musical chairs leaps to mind. How many real estate agents will we have when the music stops?

Submitted by ARMwrestling on December 28, 2005 - 11:49pm.

Another good observation by the prof....for those counting at home, that's three bullseyes in three days.

Take a few days off over the New Year and enjoy the season professor, lest you wear yourself out. 2006 is going to be an interesting year for San Diego real estate and we'll need the Almanac's printing press at full strength. There's still time to lay in a full consignment of ink and cheap pulp, plus gear oil for those rotary cylinders. Buy in bulk and save.

Submitted by theplayers on December 29, 2005 - 12:21am.

I wonder how much of the 1% per year new non-real estate and construction jobs were created as an indirect beneficiary of the real estate dominated economy. People with real estate and construction jobs spend money, creating more demand at restaurants and other service sector jobs. In addition, how many jobs have been created as a result of increased spending by those who have tapped into the equity growth of their homes? I'm having a hard time seeing anything other than a recession coming our way.

Submitted by Bugs on December 29, 2005 - 12:50pm.

I can echo the increase in real estate-related employment. The number of licensed and certified residential appraisers in California has increased by 56% since 2002. This doesn't even include the number of trainee appraisers, which has increased over 300% during the same time period.

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