national association of realtors

Our Own “Cirque du Soleil”

As time marches forward amidst one of the longest recessions in modern time, we are being forced to participate in one of the greatest balancing acts in real estate history.

Indeed we are engaged in our own industry Cirque du Soleil, a kind of three-ringed act that pushes us to the limits of our economic envelope.

How long can we strike the pose? What series of events will begin the process of reversing the downturn and return some degree of stabilization to the economy. Our collective muscles quiver under the stress of our rigid contortions.

Not too long ago we mistakenly thought, although few will now admit to their acquiescence, that TARP, auto industry bailouts, AIG cash infusions, cash for clunkers, first time home buyer credits, bank loans and the like would magically restore the economy.

Even the National Association of Realtors (NAR), our beloved national union and lobby force, with enthusiastic recklessness, endorsed just about every form of redistribution of wealth forced down our throats by President Barack Obama’s misguided group of tax and spend advocates.

Yes, ours is an industry not too unlike a three ringed circus. There are jugglers, tight rope walkers, clowns, acrobats, lion trainers and bare-back horse riders, all entertaining us while we sit in the grand stands eating our Cracker Jack and cotton candy.
Read more

national association of realtors

Economic Escapism and the Peril of Tight Corners

Escape is actually a business principle or, at least a skill based upon a set of economic fundamentals. The ability of an organization to slip out of economic handcuffs in the nick-of-time is not too far removed from the notion of agility; the latter having to do with fluidity of operation.

Escapism (I don’t even know if that is a word but if it isn’t it should be) ought to be a subset of study for those seeking a degree in Economics. Escapism should be a part of the syllabus with collateral reading required. It should be taught as a business discipline and be a demonstrated skill prior to graduation.

The real estate industry knows a lot about the subject of escapism without knowing much about sound economic business models. After all, the economy has always pulled Broker/Owners out of the tight corners of economic calamity into which they have been painted. Ours is a long history riddled with escapes from one economic threat to another.

Today’s shackles may be worse than the past as we find ourselves fettered with the chains and locks of slivered and temporal profitability, almost non-existent R&D, a disjointed, minimally trained, bloated and uncontrollable labor force, no product, service or brand differentiation and finally, last but not least, a less than stellar reputation with consumers, our primary source of survival.

Read more

national association of realtors

NAR Reports it’s Stimulus Progress

The following memo was sent by Charles McMillan, NAR President to the NAR membership to communicate the specific details of NAR’s lobbying efforts related to the stimulus package. We share this with our readers without edit or comment as a part of our ongoing reporting of NAR’s actions and positions with respect to economy and the Obama administrations actions.

——

Dear Fellow REALTOR®,

Here’s our take on the Stimulus Bill and Treasury announcements made this week. We look at the Stimulus package AND the Treasury’s package holistically, in compliment with each other – mostly because that’s how the Obama team is looking at it. Your representatives, the NAR Board of Directors, asked us in November to do 4 things (with an unspoken but clearly understood mandate to PRESERVE what we already have). Here they are: 1) get loan limits raised for high cost areas, 2) make the $7,500 tax credit NOT a loan, 3) try to find ways to push interest rates down (which are higher than they should be due to systemic risk right now) by 200 basis points, and 4) help provide solutions to the foreclosure/short sale problem.

So here’s what we have achieved: (1) the loan limits will be raised to $727,000 in high cost areas, (2) the tax credit will be raised to $8,000 with NO payback [a true credit], (3) interest rates have come down 125-150 basis points, and (4) the bill has over $50 billion in it for foreclosure mitigation, with Geitners Treasury plan signaling that the second half of TARP and TALF will be used to mitigate foreclosures through a government guarantee, drive down interest rates by buying another $200-300 billion of mortgage paper from the GSES’s thereby freeing them up to do the same with new mortgages, and Fannie has just agreed to lift the cap of 4 investment properties eligible for loans and raise it to 10.

In addition, we preserved what we have – which some tend to forget is always on the table when these negotiations start up again – mortgage interest deductibility, real estate tax deductibility, and the $250,000/$500,000 cap gains exclusion (an overall package worth more than $100 billion and for some a very attractive funding source for their pet projects).

We did make a run at the $15,000 credit — and we would have loved to have gotten that or the Homebuilders $22,000 credit idea as well as their 5 year loss carry back deal, but they were considered too rich for this program. What it did do though is totally take the debate off of whether a tax credit should be reinstated at all (it expired last year) and whether it was a true credit or a repayable loan, and kept the conversation on how much it should be. It also kept the debate off of ‘what we are willing to give up to get a $15,000 tax credit’ and kept the debate again, on how much it should be. It’s pretty hard to complain when they give you what you ask for and you lose something you never had.

While we study the Treasury specifics on their major role in providing the rest of the housing solution — there is much more to come and we are working diligently with the Administration to help ‘unclog the pipeline’ and get capital flowing into housing again.

Sincerely,





Charles McMillan, CIPS, GRI
2009 NAR President

national association of realtors

Warning: RE Industry will be Harmed if Bailout is Backed by Us

URGENT INDUSTRY MESSAGE

REALonomics continues to take a position that the natural market cycles should dictate the recovery and that government sponsored bail out attempts will create additional long term issues and actually stall a real recovery.

Although many in the industry favor federal intervention we are hard pressed to find anyone setting forth specific rationale for doing so. We hear a lot of emotion but not much sound economic reasoning based upon our industry’s historical commitment to traditional capitalism as the driving force behind real estate home ownership.

Wachovia was snatched up by CitiGroup just days ago. According to the FDIC’s website, there have been 40 bank failures since 2000 and NONE of them…yes, that’s right…none of them was bailed out by taxpayers. At iVoteAmerica.com there are predictions of more bank mergers over the next several business days.

Failing banks will continue to be absorbed just as ALL of them have been absorbed to date. After all, the best investment good banks can make today is to purchase assets of failing banks for pennies on the dollar and delivering huge internal rates of return to themselves. Therefore, patience is called for and we ought not to allow ourselves to be influenced by knee-jerk politicians from either party. Forget the election for a moment! Forget your favorite party preference for a moment!

Yesterday, September 29, 2008, the stock market lost more than $1 trillion in value. REALonomics predicts that investors will surface, shifting their investment strategies to more conservative, traditional positions.

NAR is Wrong on Rescue Package

Furthermore, REALonomics believes that the endorsement of the bailout by the National Association of Realtors (NAR) is a dead wrong endorsement and a clear indicator of NAR’s desperation with the housing market and its departure from the traditional approach to real property investment where true equity was a necessity to home ownership.

Our core value has always been home ownership as the primary investment for individuals and families. Behind this core value we have heretofore (prior to subprime lending) advised our clients to utilize conservative strategies when purchasing a home, including establishing and NEVER compromising their equity position. Have we decided as an industry that this is bad advice and adopted a dangerous borrow-to-the-hilt value system?

Some of you will remember the days when we encouraged homeowners to build “true” lasting equity that they could rely on when it came time to retire. The home was a person’s primary savings and investment account. I have a question for the RE industry; “Have we decided to depart from this core value position?”

Danger, Danger and More Danger to Owners

What about real estate company owners, our favorite topic? If the bailout occurs with a massive amount of taxpayer dollars used to rescue the so called “toxic mortgages” most real estate company owners will be effectively out of business within a short time as home values will likely plummet to pre 2001 levels. The toxic loans will be discounted to unprecedented levels, impacting literally every property value in metro markets.

If a rescue occurs, all property values in the United States will immediately decline. In fact, the financial institutions are already cutting HELOCs and credit card amounts in a desperate attempt to ratchet the market downward.

If the rescue occurs as currently outline by the Senate and voted down by the House, the ability for the average American buyer to access available real estate investment capital will diminish the market by perhaps another 50%. Although REALonomics is not attempting to inject hysteria into an already highly charged situation, we believe it is important that Realtors® have a clear understanding of the potential long term risks of a bailout by taxpayers.

Just Plain Old Bad Business and Bad Policy

The rescue of bad loans is simply bad real estate business and bad real estate business is bad for the real estate industry and bad for real estate company owners.

Let the market fix itself. The market will repair itself and the results will be less painful than allowing the bailout to prevail. The fact is…actually, the truth is, we are going to be harmed. The only question is how much pain are we going to allow to be inflicted upon the industry?

If we do not allow the market to heal itself and we adopt a taxpayer bailout mentality we will be adopting a fundamental shift in the historical values espoused by the real estate industry and to a large degree we will have socialized real estate, diminishing the value of all Realtors® and the industry itself. Such a shift in policy will create a huge potential for government oversight of the real estate industry and create transaction liabilities for broker/owners, franchisors and let’s not forget appraisers and mortgage lenders.

We encourage you to think deeply upon these things.