Brokerage Models, Consumerism, Mortgage, REALonomics
Chill Pill – Blunting the Angst
May 10, 2007 by REALonomics · Leave a Comment
Economic paranoia continues to ramp up. This market apprehension, coupled with a bad case of industry nausea, continues to prolong the cash flow anxieties of broker/owners, developers and investors. Trying to get everyone to focus on solutions is difficult.
What we don’t need is another dose of the traditional chill pill that will only further fog up our mental capabilities and dupe us into believing that we have nothing with which to be concerned. “Things will work themselves out,” one Broker declared with prophetic glee. We don’t agree. This time around there will be few instant cures that will blunt our angst and nothing we can ingest that will file off the sharp corners of our traditional nervousness. We need sobriety and clarity with respect to how we ought to proceed during the next 24 months.
Yes, you heard it right…24 months. The thrill of the market run-up has been officially squashed by a new reality where sustained growth and profitability are going to remain illusive for perhaps another two years. At least this is the position of REALonomics. Here’s why.
First Impulse: Blame the Presidential Election
Why not? This is the earliest start for any presidential election in history. It’s going to be a long, hard, ugly campaign and the engines of the financial markets will spit and sputter until they know who will occupy the White House. The Fed will be watching, flexing muscle, proving their worth and most of all, intimidating the candidates. There will be angst until we have a new President…pass me a pill.
A host of issues now plague us and create tension that is not easily removed. A cast of nutty Presidential candidates doesn’t help much either, creating even more anxiety for the financial markets. But let’s move on to things we can actually control.
Second Thought: Pick away at the Inventory
While we are doped up on the Presidential chill pill, we have to get the industry back to the basic economic assumption that too much inventory is bad…yes, bad. Too many cans of soup on the shelves of the super market are bad, likewise too many homes are bad. To curb the angst we need to pick away at the near record inventories, one house at a time until we have the inventory level below 6 months in most markets. We need to force ourselves to actually speak the words “price adjustment demanded” to sellers BEFORE we execute the listing agreement.
Third Necessity: Drain the Sub Prime Swamp
Monetary malaria is going to make us sick for some time. The clean up is going to create a very ugly situation and people are going to be hurt by the process of de-toxification. Money will be harder to borrow, lenders will tighten the qualifications, rates may go higher, demand will lesson…ouch, please another chill pill.
Mortgage money is absolutely essential to a healthy industry. But it has to be good mortgage money that doesn’t come back to bite us in the back side in the future. Healthy lending with a make sense, conservative approach to qualification based upon something as novel as “do you have a down payment?” Upside down houses are no better than upside down financing of an automobile. It’s the same inane approach.
Fourth Reality: The New Models will Arrive, Just in Time
REALonomics has been predicting for almost a decade that new real estate brokerage models would evolve from the primal soup of a decaying traditional model. The time is ripe…the stage is set…players are taking positions and staking out their turf in uprecedented numbers. Fleets of battleships and carriers are poised for all out warfare.
New innovative brokerage models are being developed that will position the consumer at the apex of the real estate transaction model. Many of us who have owned and operated traditional real estate companies will finally be entering the confessional saying, “I confess, my loyalty to my agents must be replaced by a new found loyalty to the true client, the consumer.” Some wings of the industry simply will not be able to transition fast enough to reinvent their companies but that is the way of the business. Others will see the next 24 months as a time to step back, evaluate and implement new plans of action that create new business models capable of higher ROI.
Final Consideration: The DOJ will Force and Enforce
It is our position that the current DOJ actions against NAR are just the beginning. The DOJ is going to force certain protocols on the industry under the watchword “consumerism”, code talk for “reduced commission fees” and free access to publicly mandated MLS property information. Changes will be forced upon the industry by the DOJ. What the DOJ forces it usually enforces, as well.
REALonomics believes that the actions of the DOJ can create a wave of opportunity for industry leaders and companies to position themselves ahead of the curve with more consumer-centric real estate models and practices that pave the way for information access and transaction simplification.
Despite these musings, all is actually well…for the moment. The real estate industry is still in a position where it can exercise the bulk of the influence over needed change and ultimately control much of the outcomes. But, what we must respect, indeed fear, is the power of the traditional chill pill to put us into a stupor from which we cannot be awakened.
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