Can the 2008 Housing Act Stabilize and Turn the Real Estate Cycle Around?

Who would have only 5 years ago expected that we would be staring down such complex and turbulent times in real estate?

Last week, President George Bush signed The American Housing Rescue and Foreclosure Prevention Act of 2008 (the Housing Act) into law. It is the most sweeping housing legislation since the Great Depression. The new Act authorizes the Department of the Treasury to stem the tide of home foreclosures and provide a lifeline to mortgage lenders. With inventory in many large cities sitting at almost a one year level, and foreclosures expected to surpass 6 million by 2012, they have a huge task ahead.

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During the First Economic Wave, the broker-centric era, and for most of the Second Economic Wave, the agent-centric era, business models were predicated on old, predictable model math, where 2+2 produced four. In the current climate, where the consumer has control over the “economic joystick,” we are forced to pose the question; what if 2+2 no longer equates to four?

Let’s first discuss the “profitability joystick” I have mentioned, then the terms and conditions that now exist for a New Model Math.

Only if we first acknowledge that we are indeed operating in a consumer-centric era, can we then appreciate the imagery conjured by the phrase “economic joystick.” Throughout the evolutionary development of the real estate industry, the “economic joystick” has been been passed from brokers, to agents and now is being handed-off to the all-powerful consumer, each player introducing new operating principles that impact the profitability equation for real estate companies. The joystick produces the New Model Math for each subsequent developmental cycle.

The consumer-centric era began with the first posting of real estate property advertisements on the Internet (circa 1993-94) for viewing by consumers. With this seemingly innocuous act, the “economic joystick” was handed to the consumer and the triad of players (broker, agent and consumer) were repositioned on the real estate playing field.

What is the economic joystick? Simply put, it is the control over the conditions under which property information is made available to the consumer, thus altering the economic model which has traditionally assured owners of some control over the industry. The woderful challenge amidst this sea of chaotic change is the opportunity to pursue Model Perfect.

It is this current climate of consumerism where the economic joystick, in the hands of the consumer, begins to redefine the past business math used by the real estate industry and the profitability equation begins to shift to the New Model Math.

Consumer behavior and its accompanying demand for immediate, real time access to property information, simplified transaction management coupled with technology and the Internet will most assuredly insert new factors into our profit equation, producing a New Model Math.

In a climate where the only predictability is the lack of predictability, broker/owners will face an increasingly powerful consumer who wields the economic joystick in a manner that forces the industry to redefine its most basic business presuppositions. This is what I have termed “The Democratization of Real Estate.”

My cloudy crystal ball tells me we are headed into a “Brave New Wierd” where new models will emerge faster than we can say “bricks-and-mortar.” We are entering a climate where the New Model Math will challenge the industry like never before. Where will it lead? No one can be absolutely certain but it would not surprie me if we wake up tomorrow to headlines that read:

2 + 2 = 5.439