2006 for many real estate professionals will be remembered as the year the market turned. The year was by no means a bust for housing — most economists still expect it to be the third best on record for sales — but a slowdown hit hard in many markets, causing brokers and agents to hunker down and focus on the basics. Memorable developments in online real estate include the launch of Zillow, a free site that offers valuations and information on some 64 million properties, and the explosive growth of real estate blogs. Also this year, more brokers started sending listings to search sites Google Base, Trulia and Oodle. And 2006 had its share of controversy, with the Federal Trade Commission initiating law enforcement actions against a number of MLSs, former Homestore CEO Stuart Wolff going to trial for his role in a lucrative accounting scandal, and banking regulators laying down tighter restrictions on riskier nontraditional, or “exotic,” mortgages.
Here are our picks for the most memorable real estate stories of 2006:
Stuart Wolff found guilty. Former Homestore CEO Stuart Wolff, who was in charge when the company was caught up in a major accounting scandal, went to trial this year and was found guilty of conspiracy, filing false statements with the Securities and Exchange Commission, lying to accountants, fraudulent insider trading, and falsification of corporate books and records. He was sentenced to 15 years in federal prison, and ordered to pay $5 million in fines and restitution. Wolff is appealing the conviction and sentencing. Another former executive, Peter Tafeen, entered a plea agreement in March and agreed to testify against his former boss, Wolff. Tafeen pleaded guilty to one count of securities fraud for his participation in a fraudulent advertising scheme and was sentenced to 30 months in federal prison followed by three years of supervised release.
Zillow opens for business. The brains behind online travel giant Expedia made their debut in real estate this year with the launch of Zillow, a site that offers free access to online home-value estimates, coined as “Zestimates.” The company quickly became Internet famous and climbed to the top of Web traffic results for real estate sites. Many real estate professionals have complained that Zillow’s home-value estimates are inaccurate, and the company has said it intends to improve its data over time. Zillow’s launch also set off a wave of copycat offerings and caused many Web sites to feature their home-value offerings front and center.
In December, Zillow announced it would allow consumers and agents to mark homes on Zillow as “for sale.” The company also said that homeowners now can post a “Make Me Move” price for a property.
Important fair-housing ruling has implications for online listings sites. A U.S. District Court Judge in November ruled that online classified service Craigslist.org is not a publisher and can’t be forced to stop its users from posting alleged discriminatory housing advertisements. Craigslist was sued in February by the Chicago Lawyers’ Committee for Civil Rights Under Law, a nonprofit consortium of 45 law firms that works to end discriminatory housing practices. The ruling is the latest of several in which courts have held that Web sites that serve as intermediaries to allow users to post ads or commentary enjoy protections under the Communications Decency Act not afforded to print publications such as newspapers.
FTC ramps up antitrust crackdown. The Federal Trade Commission in October announced a “real estate competition sweep” that included seven law enforcement actions. The agency announced litigation against two multiple listing services and settlements with several other MLSs based on policies restricting a classification of property listings. Five consent agreements resolved separate investigations against the MLSs over similar policies that prohibited the display of certain property listings on some home-search Web sites, and the litigation targeted two MLSs in Michigan that refused to withdraw similar policies. One MLS, MiRealSource, has since agreed to settle, pending FTC approval. The FTC is proceeding in its complaint against RealComp II Ltd., a corporation owned by several Realtor boards and associations in Michigan that has about 14,800 members.
Also, the Justice Department’s antitrust lawsuit against the National Association of Realtors proceeded this year and is still pending. The NAR has said it has no plans to settle the suit, which alleges the trade group’s policies for online listings display are too restrictive, so we’re bound to see this story again all throughout 2007.
RE/MAX unveils national network of home listings sites. RE/MAX International this year launched a national network of broker IDX Web sites, enabling consumers at www.remax.com to search among more than 1.7 million available home listings.Every RE/MAX office in the country has the chance to sign up for a broker IDX Web site to be included in the listings network. IDX, or Internet data exchange, is an Internet-based exchange of property listings data among real estate brokers. In addition to a spot in the national network, RE/MAX brokers have access to a back-end lead management system called Lead Street.
Real estate blogoshere comes to life. Real estate blogs really took off this year, with more solo agents getting into the mix and more blogging on collaborative sites. The weekly Real Estate Blog Carnival was born (thanks to Zillow for initiating this) and has picked up steam in its more than 20 weeks going strong. The blog carnival convenes at a new host blog each week where the blog publisher chooses the best posts of the week and displays them for real estate blog junkies to enjoy. Also, Inman News added the “Most Innovative Blog” category to the annual Inman Innovator Awards in July.
Year of market correction: Home sales decline, and decline again. Major market change hit the real estate industry in 2006. Inventory increased substantially in many markets and home builders started seeing their home orders decline and cancellations rise. The rate of existing-home sales ended a six-month slide and rose 0.5 percent in October compared to September, but remained 11.5 percent below the October 2005 level, according to the National Association of Realtors.
Home-price growth also cooled in many markets. Nationwide home-price appreciation in the third quarter was 0.86 percent, or an annualized rate of 3.45 percent — the lowest since the second quarter of 1998, according to the Office of Federal Housing Enterprise Oversight. That compares to a 5.1 percent annual appreciation rate in the second quarter of 2006. Nationwide, home prices were up 7.7 percent in the last 12 months.
Hedge your housing bets. The Chicago Mercantile Exchange officially launched trading on housing futures contracts in May, allowing people to invest in the residential real estate market without actually owning property. Futures contracts currently are available for Boston, Chicago, Denver, Las Vegas, Los Angeles, Miami, New York, San Diego, San Francisco and Washington, D.C., and the Merc uses the S&P/Case-Shiller Home Price Index for each city in the futures market.
‘Exotic’ loans get all the attention. In recent years, so-called “exotic” mortgages have increased in usage as buyers in expensive markets looked for new financing methods to be able to afford homes. These nontraditional loans — including interest-only, no doc loans and various option adjustable-rate mortgages — grabbed the attention of regulators, who grew concerned that many borrowers didn’t understand the risk involved. Federal banking regulators published new guidelines for banks to follow when originating and underwriting nontraditional mortgages that carry potential payment shock for borrowers. The new guidelines require lenders to analyze a borrower’s ability to repay not only the initial loan amount, but also any additional principal that may accrue in the case of a payment-option loan with negative amortization. Some banks and industry groups have said the guidelines are too restrictive.
Movement grows for MLS consolidation and data sharing. A number of multiple listing services this year pushed for consolidation and data sharing among MLSs that serve overlapping markets. In Chicago, plans are in the works to merge the Multiple Listing Service of Northern Illinois (one of the largest MLSs in the nation) and MAP MLS to form one larger broker-owned MLS. In Southern California, the Southern California Multiple Listing Service (SoCalMLS) and the Southland Regional Association of Realtors (SRAR) announced an agreement to form the second-largest multiple listing service in the nation. In Northern California, a group of MLSs formed the Northern California Real Estate Exchange (NCREX) in an effort to merge into a single MLS with a common database, common rules and a single fee for members.
Also in line with changing MLSs, the National Association of Realtors this year formed an advisory group to consider the future of MLSs.
Kickback probes, lawsuits spread. The title insurance industry continued to feel the weight of regulator attention this year as more probes into affiliated business arrangements and alleged illegal kickback schemes unraveled. An investigation in Washington state found the use of incentives and giveaways in the title insurance industry so pervasive that officials decided to focus on future prevention and compliance. That led consumers who bought title insurance from the companies to file a lawsuit seeking to recover the amounts the companies allegedly overcharged the plaintiffs and an injunction blocking further illegal inducements.
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