Three Gold Stars and Two Rusty Nails
Posted in Alternative Business Models By Stefan Swanepoel, Friday, July 11, 2008.When the stock market took a nose dive, real estate brought growth.
When the economy did poorly, real estate introduced wealth.
When 911 all but destroyed our faith, real estate restored the American Dream.
In many occasions, and in many years, real estate has been the rock to depend, or in some cases even the rocket to ride to riches. But times have changed and the bright years of 2000-2005 have become a dull memory.
It’s not really that real estate itself crashed and burned, but that with new construction out of control, speculation spiraling and lending becoming irresponsible, the burden real estate had to carry became to heavy and the first nail in the coffin ground what was a good thing, to a halt.
Collapsing financial institutions led to immense write offs, allegations and actions of improper conduct led to finger pointing and investigations that in turn led to layoffs and disaster.
With unemployment steadily rising and home prices in a constant month by month decline, the real estate market is brittle and cautiously teetering on which way to go.
With the unprecedented rally of crude oil tethering at $150, and now two government-sponsored entities, Fannie Mae and Freddie Mac possibly requiring government bailout. The pair guarantee around $5 trillion worth of mortgages – that’s almost half of the $9.5 trillion debt of the United States. I think we have just witnessed the second nail being hammered into the heart of real estate. Not good at all.
Let’s pray and hope that we don’t have a third nail – a major terrorist attack on local soil in the foreseeable future. Barring the above, the road to real estate recovery is going to be a slow and bumpy one. Most likely it may only pick up momentum during or after 2010 – especially for areas such as Florida, California and Las Vegas.
So for those of us that earn our daily bread from real estate my message is a simple one: Batten down the hatches, expand your horizons, re-engineer your company, automate your business, market more online – yes, maximize every opportunity. Survive the years 2006-2010 and come out the other side with an automated, more efficient, new paradigm, consumer focused real estate model and you may very well find yourself in the front row to become the Amazon, EBay or Google of real estate.
So I have two things we can discuss:
1. When do you think the real estate market will recover, and/or
2. Who do you think could be the frontrunner(s) when that occurs.
Stefan Swanepoel
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Submitted by Daniel Rothamel, Inman Community Manager on July 11, 2008 - 11:44am.
Stefan,
In answer to #1, it depends on what you mean by "recover." I think that everyone's definition is different, and localized, as well. If I defined it as, "the point at which year-over-year sales remain flat or rise, instead of fall" then I would guess some time towards the second half of 2009. At least, in my area. Right now, year-over-year sales are down 25% pretty much on a monthly basis, but the sales numbers are pretty stable.
Now, as to when we might see sales rise on a consistent basis, that is much more tenuous. That probably won't happen for a longer time. I think we will probably see a period of stability for a year or two (maybe more) after the dip. That would seem to be the historic trend, at least.
In response to #2: The front-runners will be those who are able to "Batten down the hatches, expand your horizons, re-engineer your company, automate your business, market more online – yes, maximize every opportunity," as you described. Those who are able to do that now and survive (maybe even thrive) during the current downturn will be the ones in the best position to take advantage of the next market phase.
I think that we still have yet to see an exodus of agents who will just give up and go do something else because the business isn't as easy as it used to be. Hopefully, those who remain will be able to fortify their positions enough, and raise the bar for service high enough, that we can prevent the dilution of quality in the profession if and when things do turn around.
http://www.RealEstateZebra.com
Submitted by Allen Wright on July 11, 2008 - 11:47am.
Q1 - Real Estate has always and will always be a local market so the answer maybe more inclined to be a local answer; for those that were in ride-to-the-moon markets it will take another 2 years to see solid stable pricing for those in more modest areas that did not experience the runaway prices your recovery might already be happening. I hope we never see 2005 or 2006 insanity were demand was so artificial.
Q2 - Those groups that are lean and Internet oriented will succeed.
Submitted by Bruce Hahn on July 11, 2008 - 11:58am.
American Homeowners Grassroots Alliance
1. When do you think the real estate market will recover:
At best recovery will begin next year, and that assumes that the pending housing rescue packing becomes law in some form and that there are no major new economic threats to our economy, such as a substantial additional increase in gas prices, bankruptcy of Freddie/Fannie, terrorist attack, etc.
2. Who do you think could be the frontrunner(s) when that occurs:
A function of where economic recovery is occuring, which is also difficult to predict. The decline in the value of the dollar in international exchange could bode well for US manufacturers, whose products now cost substantially less in other countries due to the dollar's devaluation. Housing values in many parts of the industrial midwest have already been hammered pretty badly, so a surge in US exports could help drive employment in those areas, and as a result a recovery in housing values.
Submitted by Damien Hall on July 11, 2008 - 12:28pm.
Here in the Washington, DC area I think that the market will stabilize some time in 2010 (as far as home prices go). According to the US Market Risk Index report by PMI, DC’s risk of falling prices fell by almost 8 points. Which is good news, however our risk rate was still a bit high. The report was issued before the concerns of Fannie and Freddie and IndyMac arose. So this may mean that the credit crunch will tighten it’s grip and lending will be even more stringent. Which could, in turn, cause prices to erode further.
As for when the market does turn, I think the investor that has managed their portfolio well during this period will be in a good position. The investor that has enough capital now, while prices are low and declining, should buy and hold their properties. Generate cashflow during the down cycle and if they chose to, in two or three years sell for a pretty good profit during the up cycle.
www.TheDCInvestor.blogspot.com
Submitted by Julie Jones on July 16, 2008 - 9:57am.
Here in Fort Lauderdale, we increasingly are showing and selling our luxury waterfront properties to foreign investors or foreign buyers immigrating to this country of freedom and opportunity. The luxury real estate market is still relatively active here in sunny, South Florida, though the ratio of domestic to foreign purchasers is changing.
In addition, after January of 2009, the tax portability options to Florida residents will make purchasing property, especially the new construction, an attractive option. Properties that are well priced are selling, and the savvy investors are making the most of being able to pick from the cream of the crop in terms of inventory.
For question 2, those locations offering a low tax base or a vacation lifestyle will probably be the frontrunners of the real estate turn-around.
Also, I'd like to add: Even now, owning real estate is an excellent investment. The real estate market, like every other economic trend, has its growth and settlement. In addition to adapting new approaches for marketing, maintaining a level head and a positive attitude is, in my mind, the ultimate tool to turning the real estate market back to an upward trend. It is meaningless to entertain crisis possibilities for our country or the real estate market. Who can be served by such negativity? I immigrated to America because of the endless possibilities to be found here. I was not disappointed. My real estate marketing and sales continue to flourish.
Submitted by Ralph M on August 6, 2008 - 12:35pm.
Real Estate will always be the Rock you can depend on for long term.
www.aarsteam.com
Submitted by Michael Daly on August 12, 2008 - 3:30pm.
What a difference a month makes! Oil at $113 and falling, the dollar rising, which brings to light that many countries throughout the rest of the world are seeing their economies start to soften.
I think the question of when will the market improve is something I want to leave for others...then they can decide and then wait for that time to come...hoping...wishing....holding on with their tiny little fingers to the edge of the world that they know and can't let go of.
Stefan, the operative phrase that you used was "consumer focused real estate model". That's the challenge; to rebuild the relationship with the consumer that has been so badly damaged by abuse of 'fiduciary responsibilities' by people who took oaths while not having a clue what the term means.
Michael Daly