Steve Jakubowski, writing here on March 16, 2006, may have been the first to connect the two words "subprime" and "tsunami" when he wrote:
"History has shown that ‘hockey stick’ growth patterns in the subprime industry are more likely caused by looser adherence to underwriting standards than by increased demand for subprime products among qualified borrowers. If, in fact, looser credit standards have driven the current exponential growth since 2000 in subprime lending, then waves of defaults will be "tsunami-like" in proportion."
As we now know the waves of subprime defaults that Mr. Jakubowski presciently cited grew massively into system-scraping, spare-no-institution monster waves now rolling through world economies. The great Real Estate Investment Tsunami (REIT?) of 2008 will reshape the banking, housing and real estate landscapes — indeed, the global economic landscape — for years to come.
It is understandable that most of us didn’t hear the "waves breaking far outside." As Fareed Zakaria pointed out recently in Newsweek:
"Two decades of easy money and innovative financial products meant that virtually anyone could borrow any amount of money for any purpose. If we wanted a bigger house, a better TV or a faster car, and we didn’t actually have the money to pay for it, no problem. We put it on a credit card, took out a massive mortgage and financed our fantasies. As the fantasies grew, so did household debt, from $680 billion in 1974 to $14 trillion today. The total has doubled in just the past seven years."
That same fantasy thinking especially applied to housing. Many started to believe that our houses were infallible investment vehicles, and that home values would climb ad infinitum. Many thought that flipping this house or that condo would lead to unflappable wealth. We understood that spending easy-to-secure home equity loans would increase personal debt, but high-margin profits at sale would more than cover our accumulating debt load. We celebrated, with self-satisfied winks and nods, the hyper-inflated appraisals our houses received when we put them on the market.
The wholesale purging that the tsunami will result in will splash against every corner of the lending, housing and real estate industries. To be sure, it may remove many of the reprobates who helped get us into this mess, but it will also hurt myriad hardworking individuals and well-run firms who have done nothing wrong but be in the wrong market (or mortgage) at the wrong time.
It’s not correct to say that the real estate market needed this massive a purging, but many I talk to in the trade have said the industry has long been in need of a serious stem-to-stern clearing of the decks. Oversized staffs of less-than-aggressive agents, insufficient data-mining and technical systems, unremarkable lead generation and sales tools, and "old guard" hierarchical structures have held the industry in a late-20th-century grip for a long time.
Although some enlightened heads of top real estate firms, perceptive bloggers and a few keen media concerns have addressed these and other long-standing issues, as long as home sales were up, real change was slow to come.
No longer. Real change now means real survival. When these tremendous waves (and their worldwide ripples) have subsided, and the flotsam and jetsam of questionable loans, shoddy lending practices and credit default swaps are cleared away in lieu of viable, time-tested products, a stronger, more stable, more equitable housing market will emerge and with it, a more competitive, more transparent, more personalized, more digital real estate industry as well.
We’re not starting from scratch by any means. Over the last decade the real estate industry launched scores of new business practices to meet the demands of the new digital marketplace. It had made good strides in converting its "slap-on-the-back, come-down-to-the-office-I’ll-show-you-the-listings" analog business into a new, Web-based, more transparent and more collaborative business in order to survive.
Now brokers and agents will have no choice but to become adept at using the digital and social media tools readily available to them. If not, it’s almost inevitable that a new crop of upstart, smart, ambitious and digitally progressive agents flooding into this new ecosystem may very well out-hustle, out-assert, out-digitize, out-market, out-data-mine and out-sell them by the byte-load.
Brokers and agents with experience and expertise should energize these newly fertilized grounds by collaborating openly with home buyers about all aspects of buying, selling and remodeling homes.
They should become experts in conversational marketing and know how to use digital tools like blogging, widgets, RSS feeds, IM and Twitter; they should know how to market on social networks like Facebook, MySpace and LinkedIn; they should fine-tune the use of e-mail and mobile alert applications.
They should host online home-buying workshops for first-time home buyers and hold free home investment "bar camps" for consumers in local environments and online. They should integrate neighborhood-matching and advanced mapping on their own Web sites. They should blog and vlog, not just to themselves, as many do now, but to the information-hungry, safe-haven-seeking consumers trying to understand the new real estate market in their area. They should hold staging seminars for their clients both in person and online. They should develop and participate in online real estate forums. They should proactively collaborate with homeowners, appraisers, builders and other brokers and agents to enhance the image of their local markets.
And more. They should develop Web sites (and Facebook pages) for their clients’ homes with complete listing details, video home tours, two-way interactive chat rooms, pictorial remodeling histories, community overviews and more. They should produce well-crafted videos, high-resolution photographic, even 3-D slide shows. They should distribute those videos and listing details across the Web for maximum reach, targeted specifically to potential buyers. They should also demand instant, accurate and informative click-stream metrics to better understand consumer behaviors around those listings.
The tsunami that just hit us will not wipe us out completely, but it will remake the landscape. Now’s the time to re-plant, re-grow and revitalize our real state markets. And now we have some pretty awesome digital tools to do so.
Channing L. Dawson is the senior advisor to Frondoor.com.
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