Everyday some poor sap of a real estate agent is in the media trying to get us to believe that the market has turned and good days are just around the corner. They quote numbers of prices being up 2% from last year and just ignore that that was down 30% from the year before. Everyone of them claims to be really busy, so why do they need to protest so much and why do they seem so desperate. They may be busy, but they aren't making much money that is for sure. A look at almost any market in the USA shows the most important statistic for any broker just sucks...not price...liquidity. No transactions, no money.
My dog Suzie just had to have her leg taken off because of cancer. If we hadn't done this she was going to die. She moped for a few days but then just seemed to decide that she was now a three legged dog and was going to make the best of it. She now proudly skips everywhere and is swimming, chasing and loving life just as she ever did. She reset to the new reality and got on with it.
Of course if Suzie was a "Realtor Dog" she wouldn't have done this. Instead she would have looked at her stump everyday and then excitedly barked..."it's growing back", "it's growing back". If we could speak mutt that would have been OK for a few days but after it not actually growing back we would have had little choice but to ignore her or shove her in the garden.
As it is not legal in most states to put your Realtor in the garden or chain them to the fence, we have to try and hope they can get Suzie's message metaphorically. Stop looking to the past to predict the future. Stop telling us that the old price is coming back, we know it isn't, we read the papers. Instead, adjust to the new reality and tell us what is really going on now. Be informed, not just about around the corner but around the world. Don't tell us prices haven't gone down if virtually nobody is selling anything. Be different. We don't need promoters any more just like we don't need Palm Pilots or Hummers. We need experts not bullshitters.
Real estate agents. Be honest. Which are you?
Friday, July 30, 2010
Tuesday, April 6, 2010
The Myth of Luxury
I have not been blogging for a while as I have been working on a new book I am co-writing with Ross Honeywill of the Social Intelligence Lab about the importance of understanding the NEO and Traditional typology in the modern business environment. It is often said that everyone has a book inside of them, which if is true for me, it is definitely stuck in there and finding it hard to work its way out! Thankfully I have Ross to do all the hard work that I can talk credit for at a later stage.
I have just returned from speaking at the Ragatz Fractional Conference in San Francisco and I have to say it was a strange experience. Speaker after speaker was repeating the mantra of demographics (there's lots of people in the world) and wealth (some of them have money). It was a little like watching the band playing on the Titanic - nice to a point but not exactly relevant to the situation at hand.
What has evoled for us over recent months is that it has become clear that it is absolutely vital for people to rethink and understand who their audience is and NOT under any circumstances get stuck in the middle between NEOs and Traditionals. Apple is making a fortune out of hitting almost every NEO touchpoint will effortless skill, and Wal-Mart isn't doing too badly driving home the value message to the millions of Traditionals out there. What you don't want to be is not as beautiful or unique as the Apple of your particular industry, nor do you want to be priced higher than the Wal-Mart of your sector either. The middle is the worse place to be.
This brings me on to the subject of luxury. Thanks to the very nice people at Calistoga Ranch I was driving an S-Class Mercedes last week and it got me thinking. When I was a kid and my dad had one of the worst cars on the road, a Vauxhall Viva (simply dreadful) I remember getting a lift in my friends dad's Mercedes. It wasn't just a different car, it was a different world. The seats were made of dead cow as opposed to my dad's vinyl ones, the windows rolled down at the press of a button rather than a sticky handle and the stereo, now we are talking. My dad's car had a radio and this being late 1970's England it had about 4 stations on it, all of them bad. My friend's dad's Mercedes had a a stereo with lots of speakers. I distinctly remember thinking that David Bowie must have been sitting in the back seat so good did Star Man sound, but then Rod Stewart must have been hidden in the trunk. Never has Maggie May sounded so good.
Why does this matter? Well the modern S-Class was very "nice" but it wasn't really that different from lots of other cars. Pretty much any car these days comes with pretty much everything that used to make the luxury cars, well luxury. The differences are now incremental; a slightly better stereo, cooled seats in the back for nobody to sit on, a nasty little noise that told me someone was in my blind spot to save me the draconian step of having to look over my own shoulder while over taking. Not exactly David Bowie and Rod Stewart are they?
Then I realized. With so much of the emphasis upon selling us luxury in almost every element of our lives, what most people seem to have not realized is that we already have it. Granite counter tops, rain showers and wood floors in our houses, music at our fingertips, foods from around the world and access to pretty much anything we want whenever we want. It doesn't mean that luxury isn't still desirable, it just tends to be incremental, like the S Class. That makes it far less valuable than it used to be.
S0 what is valuable? Valuable is something I don't have; something that makes my life immeasurably easier, more beautiful and more memorable. Valuable is design that excites, technology that frees and experiences that linger in your mind and you want to share. These are worth paying for, whatever they cost.
Learning the difference may well be the difference between prosperity or joining the whistling with the band on the Titanic.
I have just returned from speaking at the Ragatz Fractional Conference in San Francisco and I have to say it was a strange experience. Speaker after speaker was repeating the mantra of demographics (there's lots of people in the world) and wealth (some of them have money). It was a little like watching the band playing on the Titanic - nice to a point but not exactly relevant to the situation at hand.
What has evoled for us over recent months is that it has become clear that it is absolutely vital for people to rethink and understand who their audience is and NOT under any circumstances get stuck in the middle between NEOs and Traditionals. Apple is making a fortune out of hitting almost every NEO touchpoint will effortless skill, and Wal-Mart isn't doing too badly driving home the value message to the millions of Traditionals out there. What you don't want to be is not as beautiful or unique as the Apple of your particular industry, nor do you want to be priced higher than the Wal-Mart of your sector either. The middle is the worse place to be.
This brings me on to the subject of luxury. Thanks to the very nice people at Calistoga Ranch I was driving an S-Class Mercedes last week and it got me thinking. When I was a kid and my dad had one of the worst cars on the road, a Vauxhall Viva (simply dreadful) I remember getting a lift in my friends dad's Mercedes. It wasn't just a different car, it was a different world. The seats were made of dead cow as opposed to my dad's vinyl ones, the windows rolled down at the press of a button rather than a sticky handle and the stereo, now we are talking. My dad's car had a radio and this being late 1970's England it had about 4 stations on it, all of them bad. My friend's dad's Mercedes had a a stereo with lots of speakers. I distinctly remember thinking that David Bowie must have been sitting in the back seat so good did Star Man sound, but then Rod Stewart must have been hidden in the trunk. Never has Maggie May sounded so good.
Why does this matter? Well the modern S-Class was very "nice" but it wasn't really that different from lots of other cars. Pretty much any car these days comes with pretty much everything that used to make the luxury cars, well luxury. The differences are now incremental; a slightly better stereo, cooled seats in the back for nobody to sit on, a nasty little noise that told me someone was in my blind spot to save me the draconian step of having to look over my own shoulder while over taking. Not exactly David Bowie and Rod Stewart are they?
Then I realized. With so much of the emphasis upon selling us luxury in almost every element of our lives, what most people seem to have not realized is that we already have it. Granite counter tops, rain showers and wood floors in our houses, music at our fingertips, foods from around the world and access to pretty much anything we want whenever we want. It doesn't mean that luxury isn't still desirable, it just tends to be incremental, like the S Class. That makes it far less valuable than it used to be.
S0 what is valuable? Valuable is something I don't have; something that makes my life immeasurably easier, more beautiful and more memorable. Valuable is design that excites, technology that frees and experiences that linger in your mind and you want to share. These are worth paying for, whatever they cost.
Learning the difference may well be the difference between prosperity or joining the whistling with the band on the Titanic.
Monday, December 7, 2009
'Tis the Season of Shouting
So we find ourselves approaching the time of year of supposed goodwill to all men and the like. I’m particularly fond of this despite the overt consumerism that seems to dominate everything. However, far more annoying than the endless rounds of festive piped music in the stores or the delirious fervent of some poor parent trying to find the soon to be forgotten “hot” toy of the season (a guinea pig this year apparently), is the advertising that so many companies undertake.
Perhaps even more so when the economy sucks, but every year it seems that most marketers seem to feel that the only way to get their message heard is to yell louder than the last. When they all do this together at this time of year, spouting one supposed deal after another; the cacophony is deafening. Literally.
Also it is quite pointless, despite what the common (but wrong) wisdom may tell us every year. It actually turns off the highest spending of consumers (the New Economic Order) and appeals only to the Traditionals, who are focused upon price and nothing else. Inevitably it can bring some short term success but always leads to the wrong long term question: Instead of “how do you get people to pay full price again after such heavy discounting”, the real challenge, is “how do you attract the less price focused consumers when you have previously done everything in your power to drive them away?”
I had the misfortune to wander into an Eddie Bauer store yesterday, attracted by a jacket they had on a display. The moment my toes crossed the threshold I was assailed by a fiendishly motivated “sales guy” who proceeded to tell me about the discounts and what great deals they had. I wanted to run away but he wouldn’t relent from grabbing random things off of the shelf (none of which even remotely interested) me and explaining what a great deal they were. I never did look at the jacket.
On Planet Traditional (for that is what it is) this is seen as aggressive salesmanship and “giving the consumer what they want”, but is it really that? No matter how many times I read that consumers have changed I can’t help noticing that they really haven’t. Sure, those who shops primarily on price are getting ever more accustomed to better deals, to such an extent that they will not buy without one. But what about the rest of us, who really don’t care what the deal is until we know if we want the bloody thing! Or as the research shows us, the 24% of the population that dominate the big spending category? Well, we can’t hear you because you are shouting to loud.
In all the noise and deal making, the biggest opportunities for your business are covering their ears and heading for the exits. You won’t notice they have gone. At least not until you cash up at the end of the day!
Perhaps even more so when the economy sucks, but every year it seems that most marketers seem to feel that the only way to get their message heard is to yell louder than the last. When they all do this together at this time of year, spouting one supposed deal after another; the cacophony is deafening. Literally.
Also it is quite pointless, despite what the common (but wrong) wisdom may tell us every year. It actually turns off the highest spending of consumers (the New Economic Order) and appeals only to the Traditionals, who are focused upon price and nothing else. Inevitably it can bring some short term success but always leads to the wrong long term question: Instead of “how do you get people to pay full price again after such heavy discounting”, the real challenge, is “how do you attract the less price focused consumers when you have previously done everything in your power to drive them away?”
I had the misfortune to wander into an Eddie Bauer store yesterday, attracted by a jacket they had on a display. The moment my toes crossed the threshold I was assailed by a fiendishly motivated “sales guy” who proceeded to tell me about the discounts and what great deals they had. I wanted to run away but he wouldn’t relent from grabbing random things off of the shelf (none of which even remotely interested) me and explaining what a great deal they were. I never did look at the jacket.
On Planet Traditional (for that is what it is) this is seen as aggressive salesmanship and “giving the consumer what they want”, but is it really that? No matter how many times I read that consumers have changed I can’t help noticing that they really haven’t. Sure, those who shops primarily on price are getting ever more accustomed to better deals, to such an extent that they will not buy without one. But what about the rest of us, who really don’t care what the deal is until we know if we want the bloody thing! Or as the research shows us, the 24% of the population that dominate the big spending category? Well, we can’t hear you because you are shouting to loud.
In all the noise and deal making, the biggest opportunities for your business are covering their ears and heading for the exits. You won’t notice they have gone. At least not until you cash up at the end of the day!
Tuesday, November 17, 2009
The Strategy for Individual Real Estate Agents
Since we launched Fingerprint Strategies we have had a consistent flow of questions from individual real estate agents asking us how this applies to their business. It seems as if many of you are finding that no matter how hard you work you get caught in the trap of lots of people looking but very few deals. Nothing surprising there, as the vast majority of what we have all been trained to do is targeted towards Traditionals who aren't buying, rather than NEOs who are.
This can be really eye opening once you come to see the world through the filter of NEO vs. Traditional and know that they view the world completely differently and respond to different things. I have had this conversation over and over again with people inside the industry over the last few months and time and again it is like a light finally goes on for them. The fishing analogy that you can't catch salmon by fishing in a trout pond seems to nail it for many.
88% of the people who plan to buy a home in 2010 are NEOs
So, rather than try and talk to every real estate agent who doesn't want to slide into oblivion one by one, we have put together a comprehensive training program on who NEOs are, why they will dominate real estate over the coming years and the skills you need to learn in order to attract them to your business.This is now available under a new venture called the Advanced Marketing Institute. If you are a real estate agent of any shape, form or color and you want to have a business that thrives rather than just struggles to survive, I urge you to go an take a look at it immediately. (Click Here)
Chris
This can be really eye opening once you come to see the world through the filter of NEO vs. Traditional and know that they view the world completely differently and respond to different things. I have had this conversation over and over again with people inside the industry over the last few months and time and again it is like a light finally goes on for them. The fishing analogy that you can't catch salmon by fishing in a trout pond seems to nail it for many.
88% of the people who plan to buy a home in 2010 are NEOs
So, rather than try and talk to every real estate agent who doesn't want to slide into oblivion one by one, we have put together a comprehensive training program on who NEOs are, why they will dominate real estate over the coming years and the skills you need to learn in order to attract them to your business.This is now available under a new venture called the Advanced Marketing Institute. If you are a real estate agent of any shape, form or color and you want to have a business that thrives rather than just struggles to survive, I urge you to go an take a look at it immediately. (Click Here)
Chris
Thursday, October 1, 2009
The Power of the Deal
The amazing thing about understanding the world through a NEO/Traditional filter is that almost every day something comes along that just demonstrates the point perfectly.
I haven't posted for a while as I have been focusing on building a video based training product for people in the real estate field to be able to understand the importance of building your business around the people who are actually going to buy over the coming years, rather than banging your head against the wall selling to a market that has disappeared. We should be ready to launch this in a couple of weeks.
Unfortunately the government didn't get the memo!
The Cash For Clunkers program was a perfect piece of Traditional marketing, unfortunately it also highlights the reality of trying to get Traditionals to spend money when it doesn't feel safe to them to do so. The set up was perfect: A once in a lifetime offer for a very limited period of time, of what basically was free money. Of course Traditionals responded, they can't help themselves sometimes, as the love of the deal is just built into their DNA. Auto sales spiked, not of Subaru's, Mini's and Audi A3's (they were all selling pretty well anyway) but of Chryslers and GM cars - little "TDWs" - Traditional Deal Wagons - never bought for the experience, always for the deal.
Men in clip-on ties rejoiced as deal hungry buyers flocked back in to their domestic dealerships. Everything was well with the world again.
But then....
The deal stopped and with it so did the buying. In fact today it was announced that auto sales slumped in September, particularly for Chrysler and GM who dropped 42% and 45% respectively.
However before you go all Rush Limbaugh on me this does not mean the program was a failure. These people did not just bring forward the purchase of a vehicle they would have bought anyway - most of them were driving cars built when Monica was still going down on Bill in the Oval office! They were not buyers until they got a deal they just couldn't refuse.
This highlights the real difficulty of trying to sell to Traditionals in anything other than the best of times. The deal has to be irresistible and as soon as the deal ends, so do the sales. The only point of a sale or promotion is to beat the last one. It has to become breathless. Cut prices, offer guarantees and then cut prices again.
If you want to build your business on the mainstream Traditionals in 2009 you need to cut so far that what little blood that is left in your body oozes out of every available orifice. As and when $8,000 tax incentives or real estate foreclosures dry up and the "deal of the century" appears to have passed, the same will happen with low priced homes marketed to Traditionals. It is inevitable, sadly.
Thankfully it isn't my job is rescue entire ailing industries. I get to show people that another type of person exists out there. 59 million of them who have the spending power and mindset to buy when they find something that fits their own personal values. It means relookng at the whole way you do business and think about who your buyers are, which takes some effort. But if even the Federal government can't buy their way back in to Traditionals wallets, what are your other options?
Chris
I haven't posted for a while as I have been focusing on building a video based training product for people in the real estate field to be able to understand the importance of building your business around the people who are actually going to buy over the coming years, rather than banging your head against the wall selling to a market that has disappeared. We should be ready to launch this in a couple of weeks.
Unfortunately the government didn't get the memo!
The Cash For Clunkers program was a perfect piece of Traditional marketing, unfortunately it also highlights the reality of trying to get Traditionals to spend money when it doesn't feel safe to them to do so. The set up was perfect: A once in a lifetime offer for a very limited period of time, of what basically was free money. Of course Traditionals responded, they can't help themselves sometimes, as the love of the deal is just built into their DNA. Auto sales spiked, not of Subaru's, Mini's and Audi A3's (they were all selling pretty well anyway) but of Chryslers and GM cars - little "TDWs" - Traditional Deal Wagons - never bought for the experience, always for the deal.
Men in clip-on ties rejoiced as deal hungry buyers flocked back in to their domestic dealerships. Everything was well with the world again.
But then....
The deal stopped and with it so did the buying. In fact today it was announced that auto sales slumped in September, particularly for Chrysler and GM who dropped 42% and 45% respectively.
However before you go all Rush Limbaugh on me this does not mean the program was a failure. These people did not just bring forward the purchase of a vehicle they would have bought anyway - most of them were driving cars built when Monica was still going down on Bill in the Oval office! They were not buyers until they got a deal they just couldn't refuse.
This highlights the real difficulty of trying to sell to Traditionals in anything other than the best of times. The deal has to be irresistible and as soon as the deal ends, so do the sales. The only point of a sale or promotion is to beat the last one. It has to become breathless. Cut prices, offer guarantees and then cut prices again.
If you want to build your business on the mainstream Traditionals in 2009 you need to cut so far that what little blood that is left in your body oozes out of every available orifice. As and when $8,000 tax incentives or real estate foreclosures dry up and the "deal of the century" appears to have passed, the same will happen with low priced homes marketed to Traditionals. It is inevitable, sadly.
Thankfully it isn't my job is rescue entire ailing industries. I get to show people that another type of person exists out there. 59 million of them who have the spending power and mindset to buy when they find something that fits their own personal values. It means relookng at the whole way you do business and think about who your buyers are, which takes some effort. But if even the Federal government can't buy their way back in to Traditionals wallets, what are your other options?
Chris
Tuesday, August 11, 2009
The Economy of One
I had fully intended to write the second piece about the Case Schiller price index changes last week, but there has been so much information and opinion to absorb that I wanted to take the time to read other people's opinions, particularly on the excellent Housing News Live site.
There has been a fair degree of triumphalism, particularly from the realtor community, that all the problems are behind us and we can now see evidence that things are going to return to normal. Take a look at this historical chart of house prices and it gives some perspective to the outlandish effect that the securitization growth of the early part of this decade had upon prices,even more so when you note that there was really no income growth during this period. Note this chart is adjusted for inflation, which makes it even more stunning.
There is undoubtedly sales growth, as people who have been holding off buying have been jumping in to the market and taking advantage of the low interest rates for insured mortgages and the tax incentives (which are due to end in November). As the proportion of total sales made up by short sales and foreclosures drops this automatically means that average prices go up. But this is not house prices rising! Go back to grade school math and it is easy to realize this.
What we are seeing is a pattern that is likely to play out for years to come. A reasonable number of sales in the part of the market that the Federal government can stimulate through incentives, loan modifications and the new major player in the market Ginnie Mae. This will lead to some degree of price stabilization nationally, but in the areas with the biggest problems, both in residential and soon commercial real estate (due to effect upon the local banks) it can still get worse, much worse.
But where is the growth going to come from?
One argument is inflation, left unchecked by a Federal Reserve looking to inflate its way out of deficit. This could lead to rising asset prices and interest rates kept low to stimulate growth. The people who believe this are trying to get you to load up on gold, buy a shot gun and move to a cabin in Montana! The way to convince yourself of this is to believe that the money supply is 100% under the control of the government and that they are printing money to bail out the economy. Lots of people are getting rich off of this theory. The only problem is that it completely ignores the way that the private sector effects and creates money supply through loans and securitization. When Morgan Stanley leverages its positions in the market by 25 to 1 using derivatives, aren't they also creating a monetary effect? With the cataclysmic shrinking of the market for securitized debt products (not because the banks don't want to make them, but because the buyers don't want to buy them) the growth in effective money supply (even if you believe Milton Friedman) just isn't there. I honestly believe Ben Bernanke is up at night worrying more about deflation than inflation.
The market is not going to rush back. It can't even if we all want it to. The wall of money just isn't there any more. Look at this chart again and you see the future of housing prices, they are basically just going to go back to trend unless someone (private or public) does something to distort their value again. For all the Fox News prophecies of doom every night, the Federal government alone cant do this and the banks have to pay attention to their balance sheets if they can't ship the loan off to someone else.
What does this mean for your home or project? Well it means different things if you own a house in a suburb where everything looks the same, or if you live in a unique property in a great urban or unique community. If you live in the mainstream, your market is dominated by those we have come to call Traditionals. Price is their deity and it will be a long time before they are ready, willing or able to chase prices up. The bruises are still there and will be for years to come. So, while liquidity will return in terms of the number of transactions, prices will be stuck in a pretty narrow range for some time. If you want to sell, you have to be the best deal or it will sit on the market.
If you live or have developed a property in a community that attracts NEOs, who value uniqueness and individuality then there is hope. Research shows us that these people are less orientated around price than other factors, such as design, individualization and sustainability. Price matters but it isn't everything. For a NEO what they own is a representation of who they are; never more so than the home they live in.
Our latest data indicates that 82% of people who plan to buy a home over the next 12 months can be classified as NEO or their lower earning Evolver brethren. If you are in the real estate business, if this data doesn't make you pay attention you are as smart as the foundations of your houses.
Of course, none of this matters though if you continue to promote your product in the manner that only appeals to the Traditionals - by focusing upon features, slick marketing messages and claims of luxury and lifestyle - this just makes it like everything else and so ultimately, all about price. It is only when you understand that there are 59 million markets of one out there AND you learn to talk their language that you can start to move beyond the ugly economics of many and into the far more optimistic economy of one.
NEOblogger
There has been a fair degree of triumphalism, particularly from the realtor community, that all the problems are behind us and we can now see evidence that things are going to return to normal. Take a look at this historical chart of house prices and it gives some perspective to the outlandish effect that the securitization growth of the early part of this decade had upon prices,even more so when you note that there was really no income growth during this period. Note this chart is adjusted for inflation, which makes it even more stunning.
There is undoubtedly sales growth, as people who have been holding off buying have been jumping in to the market and taking advantage of the low interest rates for insured mortgages and the tax incentives (which are due to end in November). As the proportion of total sales made up by short sales and foreclosures drops this automatically means that average prices go up. But this is not house prices rising! Go back to grade school math and it is easy to realize this.
What we are seeing is a pattern that is likely to play out for years to come. A reasonable number of sales in the part of the market that the Federal government can stimulate through incentives, loan modifications and the new major player in the market Ginnie Mae. This will lead to some degree of price stabilization nationally, but in the areas with the biggest problems, both in residential and soon commercial real estate (due to effect upon the local banks) it can still get worse, much worse.
But where is the growth going to come from?
One argument is inflation, left unchecked by a Federal Reserve looking to inflate its way out of deficit. This could lead to rising asset prices and interest rates kept low to stimulate growth. The people who believe this are trying to get you to load up on gold, buy a shot gun and move to a cabin in Montana! The way to convince yourself of this is to believe that the money supply is 100% under the control of the government and that they are printing money to bail out the economy. Lots of people are getting rich off of this theory. The only problem is that it completely ignores the way that the private sector effects and creates money supply through loans and securitization. When Morgan Stanley leverages its positions in the market by 25 to 1 using derivatives, aren't they also creating a monetary effect? With the cataclysmic shrinking of the market for securitized debt products (not because the banks don't want to make them, but because the buyers don't want to buy them) the growth in effective money supply (even if you believe Milton Friedman) just isn't there. I honestly believe Ben Bernanke is up at night worrying more about deflation than inflation.
The market is not going to rush back. It can't even if we all want it to. The wall of money just isn't there any more. Look at this chart again and you see the future of housing prices, they are basically just going to go back to trend unless someone (private or public) does something to distort their value again. For all the Fox News prophecies of doom every night, the Federal government alone cant do this and the banks have to pay attention to their balance sheets if they can't ship the loan off to someone else.
What does this mean for your home or project? Well it means different things if you own a house in a suburb where everything looks the same, or if you live in a unique property in a great urban or unique community. If you live in the mainstream, your market is dominated by those we have come to call Traditionals. Price is their deity and it will be a long time before they are ready, willing or able to chase prices up. The bruises are still there and will be for years to come. So, while liquidity will return in terms of the number of transactions, prices will be stuck in a pretty narrow range for some time. If you want to sell, you have to be the best deal or it will sit on the market.
If you live or have developed a property in a community that attracts NEOs, who value uniqueness and individuality then there is hope. Research shows us that these people are less orientated around price than other factors, such as design, individualization and sustainability. Price matters but it isn't everything. For a NEO what they own is a representation of who they are; never more so than the home they live in.
Our latest data indicates that 82% of people who plan to buy a home over the next 12 months can be classified as NEO or their lower earning Evolver brethren. If you are in the real estate business, if this data doesn't make you pay attention you are as smart as the foundations of your houses.
Of course, none of this matters though if you continue to promote your product in the manner that only appeals to the Traditionals - by focusing upon features, slick marketing messages and claims of luxury and lifestyle - this just makes it like everything else and so ultimately, all about price. It is only when you understand that there are 59 million markets of one out there AND you learn to talk their language that you can start to move beyond the ugly economics of many and into the far more optimistic economy of one.
NEOblogger
Thursday, July 30, 2009
Even a Dead Cat Bounces!
The latest Case Schiller Index published yesterday shows signs of a bottom in the US Housing market - this is great news. I am more than happy to put my fingers in my ears and cover my eyes so I can't see seasonally adjusted numbers, growing numbers of homes entering foreclosure after the early Obama moratorium expired in May or the still rising unemployment rate, as after over 2 years of falling prices in most U.S. markets, any news is good news.
However the really interesting thing is what happens now?
The numbers will probably be marginally positive for some time thanks to that dead cat. This financial market truism is that when something falls from a great height, once it bottoms it will bounce at least for a while, predominantly because of two reasons. The first is the comparative nature of statistics and our own innate ability to have them say whatever we want, so 27% lower than last year magically transforms into 1.5% higher than last month! In addition, and more importantly, it is a sign of a hangover of outdated rationality. By this I mean that there will always be some people in the world who believe that the economic crisis of the last couple of years is like a black cloud and that once it has passed over the normally sunny skies will resume and everything will go back to where it was before - i.e. nothing has really changed. These people are easy to spot, they are the ones with something to sell that they have been hanging on to for the last few years!
But something big did change this time. The drastic price rises in real estate over the 2002-2007 period have been pretty conclusively been proven to have been caused by radical changes in the availability and cost of credit. Banks were able to make as many loans as they liked, package them up and sell them off to some unwitting investor somewhere else. 50% of U.S. mortgage backed CDO's were sold to overseas investors! Not just sub-prime, but every other category of loan too, including prime loans, which have the fastest growth in the rate of default in the nation right now.
Now along the way we heard a thousand reasons why prices were going up, pretty much all of them now debunked. After all, there are just as many baby boomers today as there were in 2006, but why are all those resort homes in Palm Springs and Naples only worth 40cents on the dollar today?
The thing to understand about the financing market is that it has changed for a long long time to come. We may have been able to sell the treasurers of multiple small towns in Norway and Argentina a package of loans wrapped with a AAA rating and a guarantee from AIG once, but I highly doubt they are going to line up to buy them again. As a result banks are going to be a lot more choosy about who they lend to and how much, as they are going to have to keep a lot more of those loans on the balance sheet themselves. It is now 2001 all over again, why should prices not reflect this.
The biggest engine of real estate price growth this century has gone and until we go through at least another couple of generations of business school grads who decide to ignore history and that this time they really have come up with the ability to eliminate risk through mathematical confusion, this isn't going to come back.
So does this mean its all doom and gloom. That my friend depends on who you are,where you live and what type of property you own. Real estate isn't going away, but the concept of "the market" will have to be re-imagined. People still prefer to own their own place for lots of reasons, but we will see a massive division between Winners and Losers, driven primarily upon the type of real estate and who it appeals to.
More tomorrow.
NEOblogger
However the really interesting thing is what happens now?
The numbers will probably be marginally positive for some time thanks to that dead cat. This financial market truism is that when something falls from a great height, once it bottoms it will bounce at least for a while, predominantly because of two reasons. The first is the comparative nature of statistics and our own innate ability to have them say whatever we want, so 27% lower than last year magically transforms into 1.5% higher than last month! In addition, and more importantly, it is a sign of a hangover of outdated rationality. By this I mean that there will always be some people in the world who believe that the economic crisis of the last couple of years is like a black cloud and that once it has passed over the normally sunny skies will resume and everything will go back to where it was before - i.e. nothing has really changed. These people are easy to spot, they are the ones with something to sell that they have been hanging on to for the last few years!
But something big did change this time. The drastic price rises in real estate over the 2002-2007 period have been pretty conclusively been proven to have been caused by radical changes in the availability and cost of credit. Banks were able to make as many loans as they liked, package them up and sell them off to some unwitting investor somewhere else. 50% of U.S. mortgage backed CDO's were sold to overseas investors! Not just sub-prime, but every other category of loan too, including prime loans, which have the fastest growth in the rate of default in the nation right now.
Now along the way we heard a thousand reasons why prices were going up, pretty much all of them now debunked. After all, there are just as many baby boomers today as there were in 2006, but why are all those resort homes in Palm Springs and Naples only worth 40cents on the dollar today?
The thing to understand about the financing market is that it has changed for a long long time to come. We may have been able to sell the treasurers of multiple small towns in Norway and Argentina a package of loans wrapped with a AAA rating and a guarantee from AIG once, but I highly doubt they are going to line up to buy them again. As a result banks are going to be a lot more choosy about who they lend to and how much, as they are going to have to keep a lot more of those loans on the balance sheet themselves. It is now 2001 all over again, why should prices not reflect this.
The biggest engine of real estate price growth this century has gone and until we go through at least another couple of generations of business school grads who decide to ignore history and that this time they really have come up with the ability to eliminate risk through mathematical confusion, this isn't going to come back.
So does this mean its all doom and gloom. That my friend depends on who you are,where you live and what type of property you own. Real estate isn't going away, but the concept of "the market" will have to be re-imagined. People still prefer to own their own place for lots of reasons, but we will see a massive division between Winners and Losers, driven primarily upon the type of real estate and who it appeals to.
More tomorrow.
NEOblogger
Subscribe to:
Posts (Atom)