Apocalypse trilogy, part 3: Nemesis wears a loud plaid sport coat.
"We have met the enemy, and he is us."
No doubt about it: the real estate industry can be its own worst enemy.
Not that the industry lacks external enemies, real or imagined, but very few are dangerous. The amateur critics are found mostly online but also among select editorial staff but, fortunately, the real estate industry doesn't need to be held in high esteem by the people least likely to buy real estate. We also have the professional amateurish critics, mostly the academic real estate economists but, again, fortunately for the industry, the only people who take them seriously are the amateur critics.
By far the most dangerous and effectual industry enemy of late has been the "gubmint", specifically the Bush Administration's war, no, not on terror, but on the real estate industry, launched at the behest of its best buddy Big Banking, massively peeved because the National Association of Realtors® kept it from getting into real estate brokerage.
In the first installment of this trilogy, "Were the bears and bubbleheads right?", we rated the omniscience of bloggers and academics. In the second, "Leading the industry out of the wilderness", we evaluated the role, if any, that real estate's saviors, the consultants, can play in revitalizing the industry, assuming that the real estate industry needs revitalizing and that real estate's saviors know how to save it.
This time we'll look at the industry's own, sometimes panicky and often incoherent, reaction to bust.
Bust doesn't bring out the best in humanity. Boom doesn't either, for that matter, but at least in boom-time the weather is always sparkling and sunny. Kind of like Arizona, but without the heat. And not at all like bust-time, which is always threatening and cloudy.
Least of all does bust bring out the best in agents. Partly it's because few people respond well when their livelihood is threatened. Partly it's because everyone needs to feel needed, a challenge when your phone isn't ringing. Partly it's that, as a rule, agents are an emotional bunch. It's in the job description.
Now bust has descended upon real estate like a plague of locusts and, as I mentioned in part two, the air is thick with suggestions as to what will get the industry through its distress and what it'll look like when, and if, it pops out the other end. Inman News' "Roadmap to Recovery" series has been especially helpful in this regard, and while many of its guest writers/saviors have come from outside the industry, more than a few toil within the bowels of the industry itself.
For instance, here's an opinion piece penned by an agent we'll call Broker Bill, who begins by informing us that the industry has really bought it this time, years and years of it. Maybe we should call him Sunshine Bill. Bill says that what we're in now is no mere "correction"; no, we're "undergoing a sea change". In the future renting, not buying, will be the big thing. "Homeownership will be largely confined to upper-income people and to those in professions offering geographic stability and de facto tenure." Broker Bill been cruisin' the bubble blogs. Tell me what professions offer de facto tenure, Bill, and I'll go back to school. Bricks-and-mortar brokerages will wither away, Bill continues (this changes everything!) and commission-based compensation "will slowly disappear". Sure. And our clients will pay us by the hour and count the savings.
But this "sea change", while wrenching, has upside. Agents "will specialize in niche areas—estates and trusts, homeowner associations etc.—much as other professionals do". Fine, except that some agents already specialize in niches, and the reason more don't is because it's time-consuming and expensive to carve out a niche as, say, a condo specialist, especially when other, non-niche business insists on wandering by. An agent builds his or her business mainly on relationships, and no one knows only condo owners. Specialize in estates and trusts? You need expertise to set them up, sure, but what's so tricky about selling a home held in an estate or trust?
Broker Bill peers into the future and sees a "paradigm shift" (this changes everything!) from "agent-centered transactions to customer-centered ones". "Agent-centered transactions"? Yeah, I forgot to tell you, this was last year's "paradigm shift", but if the transaction is all about me, then my wife is wondering why I drop everything at a moment's notice and work seven days a week, often into the night, to serve my clients—and I'm not the only agent who does. "Agent-centered"? It's the client, not the agent, who's the focal point of the small army of service providers—loan agents, loan processors, appraisers, inspectors, escrow officers, admins, assistants—essential to a successful transaction.
"Agents...will come to be termed something else" (may I suggest "His Radiance" or "Your Illustriousness"?) while "professionals will receive higher compensation and enhanced social prestige." Right, and cities will run out of parks and public buildings to name after them.
I don't mean to belittle Broker Bill (much) but none of his thinking is original and all of it is highly speculative. This stuff has been hanging around waiting for someone serious to take it seriously since at least 1998 when I got in the business. Ten years later it's still the pipe dream of the real estate savior/outsider, as today's "paradigm shift" competes with yesterday's "paradigm shift" and the old-time bricks-and-mortar discounters for the small slice of pie reserved for price cutters and other real estate questions most consumers aren't asking. As a new agent I could be excused for laboring under the delusion that this was the future of real estate. Maybe Broker Bill is new, but the grandfatherly look suggests otherwise.
Also no novice is another real estate broker and a regular Inman contributor I'll call Mother Teresa. Mother Teresa tackles the always-timely question, Is now a good time to buy? She begins on a righteous note, deploring "the land of NAR", where "it is always a great time to buy real estate", and complaining that "NAR likes to put a positive spin on buying real estate". Yet in the same paragraph she acknowledges that NAR is "a huge trade association and exists to promote our industry". So tell me, Mother, why would you or anyone else put down the NAR, or any trade association, for doing what trade associations are supposed to do, and what their members expect them to do: promote their industry?
Want real estate truths without the spin? Then you're Diogenes, looking for the last honest man. Everybody got spin, from the bubbleheads and academic real estate economists, those amateur and professional amateur critics of the industry, on the "left", to the industry itself on the "right". Trust people who've never been in contract in their life? Not on your life. Trust the people who can get you in contract? Sorry, but at some point you may have to. Trust the people in real estate who say, "You can trust me, but everyone else is dirty"? I don't think so.
Trust the analysis of the social scientists? No, trust that they too have an ideology. As one of the more famous of their kind, economist Joseph Schumpeter, he of "creative destruction" fame, says, "Analytic work begins with material provided by our vision of things, and this vision is ideological almost by definition. It embodies the picture of things as we wish to see them...the way we see things can hardly be distinguished from the way in which we wish to see them". Trust the outsiders because their outsider-ness keeps them objective? No, says, Schumpeter, "it is not even true that he who hates a social system will form an objectively more correct vision of it than he who loves it".
So take that, industry critics.
So back to the question: is now a good time to buy? "For people like me", says Mother Teresa, "it is a good time to buy and sell real estate". Why? Her home is almost paid for, so she can price it to sell in a down market. She takes the proceeds and plows it into another home, "and as a Realtor I know where the bargains are and how to negotiate a deal". This statement puzzles me for two reasons. First, I'm a Realtor too, working in a wide range of markets, and I don't know where the bargains are. I do know where the really cheap homes are, but I also know that they're really cheap for really good reasons, reasons that make them fair deals but no bargains. And second, if Mother Teresa knows how to "negotiate a deal" for herself, why doesn't she be generous and "negotiate a deal" for her clients too? In fact, I'll bet she does, and has her entire career; in fact, it's what her buyer clients expect her to do. So why stop now? So tell me again, Mother, what makes you more suited to buying in a down market than the clients you so ably represent at the negotiating table?
According to Mother Teresa, the current market is a wild and woolly affair that many should avoid. Like the "neighbors two doors down who bought a townhouse three years ago" and "would take a loss if they sold". But what if those neighbors want to sell or need to sell? What's wrong with taking a loss if a) they can cover it, and b) the single-family home they want or need has lost almost as much value as their current home? Should they sit on their hands waiting for the flashing neon BUY NOW! light that every self-defeating market timer waits for, the one that puts him or her squarely back in a seller's market? What kind of hot tip is this? And where was Mother Teresa and her "just say no" advice three years ago when these townhouse owners were buying at the top of the market?
Mother Teresa demands to know whether the industry expects "consumers to trust us when the foreclosure rate has gone through the ceiling and we are still telling buyers that now is a good time to buy?" You bet I'm telling first-time buyers and investors and anyone else who knows enough to buy in a buyer's market that now is a good time to buy, with motivated sellers, prices down almost 50 percent in first-time buyer neighborhoods and interest rates hovering around 5 percent. If this isn't a buyer's earthly Valhalla, I don't know what is. And those buyers will trust me, alright, because they know an earthly Valhalla when they see it. In fact, that's why they came to me. What should I do now, let them down? Because now is a good time for people like them to buy. Then again, maybe I should tell them to hide under their beds until everybody and his brother thinks real estate is a sure bet again.
"Apparently, for some who bought in the last couple of years it was not such a good time to buy..." Yes, buying in a seller's market is never the best idea, but for most buyers it's the most comfortable time to buy. And, gosh, I guess buying a home you can't afford the moment your loan's interest rate adjusts upward isn't such a good idea after all, but that's true of any market, and it's irrelevant to today's buyer, who has to go through airport-security like scrutiny to get a loan.
Since most of Inman's readers are real estate professionals who see through Mother Teresa's reasoning, her article gets a cool reception, right?
"Nicely written...and I agree completely."
"Very well said."
"Killer post."
"A great article because it is the truth."
"Oy". Sorry, that's my response.
All agents have to sell is their expertise, so it's never a good day when the industry's spokespersons sound just as unclear on the concept as the industry's critics. Fortunately, the damage the insiders do is just as minimal as that which the outsiders do. Real estate's motivated consumers always know enough to lead, and always end up dragging a part of the industry behind them.