realonomics

The real estate industry has always tried to be a closed environment. The real estate industry has traditionally been a control environment. With few exceptions, our models have typically created an “us” and a “them” or, those who are insiders looking out and those who are outsiders looking in.

We are now facing the prospect that we are them and they are us! The once safe environment of our cozy aquarium is being invaded by “them” in droves. They are asking for all the rights to the environment heretofore granted to the “fish”…us. Or, they are proposing that we leave the tank and join them in a new form of existence.

In traditional business models, secrets are often deemed necessary and access to “insider” (the fish) knowledge is viewed as a threat. Free, open and unrestrained information is usually viewed as a corporate debacle and dangerous to the survival of insiders.

Our Real Estate Environments

The unraveling of any business environment starts at the fringes of the model and moves inward toward the epicenter. That is what is occurring in the real estate industry. The hairline cracks in our closed tank system are becoming open gorges where all that we have held sacred (secret) is spilling into the streets where the distinctions between “us” and “them” are being blurred by the Democratization of Real Estate.

Stefan Swanepoel recently posted the thought provoking question “Is the Future of Real Estate in Google’s Algorithm?” The mere addressing of this interrogative forces the industry to reexamine its operating models in the midst of a consumer-centric era.

REALonomics remains uncertain with respect to the ability of the real estate industry to retool itself for life in a new environment.

Learning to Live Life outside the Tank

My daughter once had a goldfish she affectionately named Nori. Nori lived in a small aquarium on the nightstand next to her bed. Twice each day Nori was fed from an entity outside the aquarium. Nori peered at us, we at Nori. Nori, without fully appreciating her situation, was living a life of total dependency on my daughter.

The analogy hardly needs explanation. We are Nori. Nori is us. My daughter is the consumer. She is one of “them” to Nori.

When it came time to clean Nori’s aquarium, we would all gather around and gently scoop her out with a small net, place her in a temporary environment, clean the aquarium and then return her to the environment to which she had become accustomed. Nori could not live outside the tank…her existence depended upon a certain environment.

Can the real estate industry learn to live outside the tank of traditionalism in a world where the operating rules are decidedly different? Can we live without the aquarium? Can we evolve from dependency on controlled isolation to the open world of life without gills?

Can we learn to live and operate the real estate industry and our local business models outside the tank where we have created and experienced a deceptive pseudo security?

Can we shed self-imposed gills and fins and dependency and control in favor of the freedom of an open sourced environment where tanks are the stuff of folklore and where our lungs can breathe the air of innovation and partnership with “them?”

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Treasury Secretary Henry Paulson has outlined the Bush blueprint that proposes revamping the regulation of the nations financial oversight. Is this plan beneficial to the real estate, mortgage and title industries? Furthermore, how will this impact Wall Street, if at all?

Is this, as Paulson claims, good for “working Americans?” See our previous REALonomics post.

Watch the Paulson video here.

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This report states that our national equity value has flipped to the negative. For the first time in history we owe more on a national basis than our homes are collectively worth.

Copyright © 2008, MSNBC Nightly News.

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REALonomics received positive and negative feedback, online and offline, regarding our PhotoBlog entitled “REALonomics: Recession!” posted yesterday, January 22, 2008. By this PhotoBlog we have proven that a picture is worth MORE than a thousand words!

About six weeks ago, REALonomics came to the conclusion that that we were at the door of recession, the strength of which we were not prepared to estimate. A post was prepared in advance but not published. After watching Washington’s call for stimulation, Chairman Bernanke’s testimony, the global market downturn two days ago and the Federal Reserves mid-night pajama telephone conference to lower the prime by .75, the highest reduction in a quarter century, we felt that our position was confirmed…the door to recession was now open…rather than text posting…be photo-blogged.

For too long, the real estate brokerage, mortgage and title industries have adopted a “let’s not say anything negative” approach to the largest financial crisis since the Great Depression. REALonomics thinks this passive position has been a huge mistake on the part of the industry and indeed, may have kept us from aggressively pursuing solutions within our industry.

Our “recession” call is not predicated on the old GDP decline rule (2 down quarters = recession). We believe we have entered a powerful global economy where the connectivity of markets, east and west, have re-written the old assumptions and rules, creating international definitions, rather than just national definitions of recession.

What would you call the following?

• A global financial institution crisis
• Real estate inventories at nearly 20 year highs
• Unprecedented escalation in foreclosures
• Huge market declines in Japan, Singapore, Hong Kong & other markets
• Calls for economic “stimulation” with uncharacteristic bi-partisan support
• A .75 cut in the prime by the Federal Reserve in an emergency conference
• Up-ticks in unemployment rates
• Declining consumer confidence and high personal indebtedness
• The weakest dollar value in recent memory…1/14th the value of 50 years ago
• Sell-off of significant percentages of national banks to foreign interests?
• Loss of most of the stock market gains for 2006-2007?

REALonomics believes the door of recession is now open and that we are passing into a zone of real economic challenge. It’s necessary to the clean-up and we cannot expect ‘happy days’ to be here again until we face the music…we won’t heal the industry’s problems until we acknowledge illness and create cures.

Your thoughts are?

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There’s a bear in the woods of the economy and in the real estate sector in particular…he’s tired, angry, confused and very hungry. His insatiable appetite can no longer be assuaged by an industry lacking the fortitude to initiate collective, pragmatic and meaningful change to its business model and its relationship with the consumer.

Who is the bear?

As REALonomics forges this post, we estimate that nearly 40% of all real estate brokerage firm owners are the edge of financial collapse. Agents are leaving the industry for jobs at the malls. One said to me, “hey, I gotta eat.” The bear grunts its disapproval and hot steam shoots from its nostrils.

Who is the bear?

While the mortgage industry scrambles around attempting to locate financial relief, 1.8-2 million homeowners will experience up-ticks in their adjustable rate loans in 2008. The money changers are reaching out to foreign investors for capital due to a weakening dollar, indications of recession, bailouts of some of our most cherished lending institutions. Countrywide was just absorbed by Bank of America in what has to be one of the sweetest deals in decades. The bear rumbles through the woods, pacing and snorting.

Who is the bear?

Title and escrow companies have already started trimming, not the Yule tide tree but rather, their staffs…more layoffs are just around the corner…office consolidations are underway…middle managers are updating their resumes…sub-leases opportunities are growing. The ability to sustain the overhead and retain experienced personnel is waning. The roar of the bear is deafening and its hunger is obvious.

Who is the bear?

The landscape of contemporary and financial relevance is starting to shift under the feet of real estate franchisors whose transaction revenue streams have plummeted to amazingly low levels. It’s likely that franchising may become a negative growth industry in 2008…this will be a first since 1976. Wanna buy a real estate company? Eight of ten may be on the market by mid 2008. Market value, zero. The bear stalks the woods, its movements tracked by the sound of snapping branches.

Who is the bear?

The National Association of Home Builders (NAHB) reports are full of sub-prime finger-pointing and predictions that new home recovery will rebound in 2009. Some Midwest markets report that contractors are simply shutting down, packing up and walking away from unfinished projects and unfinished home construction jobs, leaving owners in a lurch with no trades available to complete their project. The forest belongs to the bear and no segment of the terrain is beyond its reach.

Who is the bear?

Finally, the National Association of Realtors (NAR), with declining membership and revenue, while locked in an ongoing and costly herky-jerky legal dance with the Department of Justice (DOJ), recently announced its plans for change, relevance and transparency as only it can define it…drill-down pseudo Web 2.0 mapping for major markets via www.Realtor.com coupled at the neighborhood level with FSBO MLS listing opportunities through www.HousePad.com. Indeed, strange bedfellows. The bear’s ears are penned to its head, flattened in an instinctive response to a threat…he rises on his hind legs, assuming a posture of potentially fatal engagement.

Does a bear sit in the woods? If so, who is the bear?

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