Bernanke…He’s Only Human
Federal Reserve Chairman Ben Bernanke’s recent moves cannot thwart the forward movement of the foreclosure train. The wreck is inevitable, the extent of the damage is yet undetermined. No amount of bargaining, even by someone the likes of Ben Bernanke, will change the predestination of this market cycle. Even he is caught in the storm without a simple way out…after all, he’s only human. Bernacke is one man, the “Main Man” I grant you, but one man in a global economy he cannot control.
It’s true, Ben Bernanke is no Alan Greenspan, but then Greenspan actually endorsed subprime lending as “beneficial to consumers” calling the concept “constructive innovation.”
The Fed, in all of its myriad forms, from the White House to Congress to the Reserve itself, can not, will not and should not step into this market mess. Before it gets better, it’s going to have to get worse and barring Divine intervention (I would welcome such), all of us are going to suffer; even the policy makers are caught.
THE ROAD TO MARKET RECOVERY
REALonomics occasionally ventures calculated guesses disguised as editorial comment. Barring additional surprises and detours, here’s our analysis guestimate of what it will take to get this real estate market down the road toward recovery.
- Metro market price reductions will need to reach 20-25%
- The real estate agent count will drop below the 1 million mark
- Lenders must make mortgage payment adjustments to certain homeowners
- A number of Sellers (30%+) must remove their properties from the market
- New home construction will dwindle by 60% or more by late 2008
- Lending rules will be tightened to a level never before seen
- Rental markets will boom for the next 24-36 months
- In 2009 a new crop of investors will emerge and markets will flourish
What can real estate professionals do? Brokers should work to convince sellers who are not optimally motivated to sell, to remove their properties from the market. This is smart fiduciary and good economic counseling. There seems to be some sort of selling hysteria creeping into the markets. If the today’s market penalizes a seller by 20% and if two years gives that same amount back to the seller, we would be doing many sellers a favor by encouraging them to park their real estate investment.
SHALL WE PRAY?
Of course we should, about a lot of things, most having nothing to do with the real estate market. But since we are having such an industry “crisis of conscience” we might want to seize the moment and engage in professional introspection as we travel the road to recovery.
We wrote the contracts, we opened the escrows, we closed the transactions and we certainly accepted the big-bucks. We are all caught, just like Ben. There will be fundamental changes in the real estate and mortgage industries over the next 24 months and beyond. We need fewer of us. We need become better at what we do in a market that is better defined…that’s where we are going.
For those of you praying for a federal bail out…forget it…say “amen” now! Bailout talk will only be a fickle part of the language used by the current crop of Presidential candidates and then it will only be used to garner the votes of a hopeful handful of the electorate.
Like Ben, let us pray…after all, we’re only human!
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I think you have a good feel for what is to come for the market track.
I also think that you will see a similar reduction in the service markets. Labor related in the real estate business (service companys, builder labor, and supply) and the trickle down due to the 10% that these make up in the U.S. labor market.
REALonomics did not address the need for proactive action with respect to the recovery, i.e., what the real estate industry should be doing to heal itself.
We are one of the few advocates of a deliberate reduction in our sales force, specifically, a proactive set of standards set by the industry that will reduce the Realtor® count by a minimum of 25% while raising the professional standard for all licensees.
As an industry we have a traditional bias toward inaction and often assume a posture that causes us to “hunker in the bunker” waiting for a new market.
No other business industry takes this position. Look at the proactive measures being taken within the mortgage industry. REALonomics is predicting approximately 50,000 job loses in that sector by the end of 2008 and a revival in how they do business. Good coming from bad!
The RE side of the equation should reduce its work force by eliminating sub-par independent contractors as a matter of hard-core industry policy. This is called “controlling the labor pool” and it works for bottom line ROI and for maintenance of professional standards.
What a great opportunity for us to reinvent ourselves! The question is, can we or, even, do we want to?