Inman

Rebuilding trust, image in downturn

Falling home prices and mortgage rates could get many would-be home buyers off the fence in 2009, but many will continue to be wary of "catching a falling knife" or won’t be able to get financing if they’re ready to buy.

It will be up to a shrinking cadre of knowledgeable, tech-savvy agents and brokers to rebuild trust with consumers by providing "value added" information and insight to clients while finding ways to cut their own costs in order to boost razor-thin profit margins.

Those were some of the views expressed by participants in an Inman News "Roadmap to Recovery" town hall meeting via teleconference Wednesday.

The Roadmap to Recovery initiative asks Inman News readers to "reinvent the real estate industry and revive the housing market."

Participants in the town hall meeting — broker and blogger Kris Berg of San Diego Castles Realty; Cyberhomes Senior Vice President Marty Frame; Pam O’Connor, president and CEO of Leading Real Estate Companies of the World; and consultant Patrick Stone, chairman of The Stone Group — didn’t promise a revival of housing markets in 2009.

"I think it’s going to be another dismal year," Berg said. "I’m just looking to survive. We’re still going to have price declines, sales will be down."

While buyer sentiment "is fantastic" — and has been for months — there’s still a lot of fence-sitting because "nobody wants to be first" back in the market, Berg said. Buyers still want 15 percent off today’s home prices to cover themselves if prices continue to fall.

"Until it stops raining foreclosures, the ‘want-to’s’ won’t," said Berg, who writes the Inman News column "Letters From the Home Front."

Berg said her own business, in the San Diego area, is off about 50 percent from the peak. While sales peaked in 2005, Berg said her own business peaked in 2003 — because everybody "ran out and got their real estate license" and competition for listings intensified.

Citing a recent Chapman University Economic Forecast, Stone said home-price-to-income ratios are getting back in line with historical trends, but warned they "may overshoot" fundamentals on the way down. The forecast concluded that with home prices falling 34 percent in California in 2008, affordability is improving. But projected job losses in the first three quarters of 2009 will "more than offset" improvements in affordability, pushing home prices in the state down another 6.7 percent in 2009, the report said.

Another recent report by IHS Global Insight, "House Prices in America," reached similar conclusions about affordability. The report looked at historical home-price-to-income ratios in 330 metro areas, and concluded that at the end of September, homes were fairly valued in all but 33 of those markets. But with no end in sight to the downward spiral of house prices, it’s likely the correction will overshoot fundamental valuations on the downside, the report concluded (see story).

"The price issue is no longer the problem in real estate," Stone said. "The problem is the recession, consumer confidence, and people’s ability to borrow money."

Interest rates on conventional, conforming loans are at lows not seen in decades. But "the majority of those who fueled the boom were people who can’t qualify to borrow in the current market," Stone said.

Banks are poised to rein in credit-card lending by $2 trillion in the next 18 months, he said, and that will have a big impact on consumer spending and economic growth. Another problem that’s not yet fully appreciated is the impact rising vacancies in commercial, retail and office space will have on mortgage securitizations, Stone said. As commercial vacancies surge past 20 percent in 2010, that will lead to large losses for investors in commercial mortgage-backed securities.

For those and other reasons, "I think we’re looking at 2011" for signs of a recovery, Stone said.

The downturn means many inexperienced real estate agents who got their licenses during the boom will leave the profession. For those who remain, the name of the game will be rebuilding trust with consumers by providing information and analysis, panelists said. To survive, brokers will have to cut costs and shore up shrinking profit margins.

"We needed this correction — I think it’s Darwinism at its best," Berg said of the "cleansing" it will generate in the ranks of real estate professionals.

Consumers have lost trust in Realtors "because, I think, we gave them some bad advice in the past," Berg said. Buyers are "out there on the Internet" getting 12 different opinions from 12 different Realtors, which leads to paralysis, she said.

O’Connor said consumers have a "huge appetite" for statistics and analysis. "Not just information, which they can get (from many sources), but what does it mean?"

The key, O’Connor said, is for agents and brokers to be seen as experts. "Not just the things we’ve always done well, like walking them through the transaction and showing them what’s available … we’ve got to really talk statistics, be more straightforward with people."

Instead of looking at price trends during the boom years, which weren’t sustainable, it’s necessary to look at the last 40 years.

"If you tell the seller what the house is worth, and really push them on it" and not take overpriced listings, she said, "You’re going to be the hero."

Frame said traffic at Cyberhomes is at an an all-time high and growing, but that interest is shifting away from listings and toward issues surrounding homeownership such as valuations and market trends.

If listings were once the site’s prime draw, "Now they are trying to figure out what is happening" in their market, Frame said. "They hear about mortgage rates and understand on a primitive level how employment affects the market, but they want to know what does that mean for them? There is a lot more information online, from more places, that helps them get to the heart of that."

So if 2009 is going to be another challenging year, does that make it a good time to invest in new technology, or to streamline in order to cut costs?

"I think the answer is a resounding ‘Yes,’ if you are doing it in the right way for the right reasons," O’Connor said of investing in technology. Leading Real Estate Companies of the World, she said, is seeing "huge benefits" from a new blogging platform introduced over the summer.

"We’ve had buyers walk in with a blog post and say, ‘I want to look at this house,’ " O’Connor said. "This is really the time, when things are off, to not just run your business but build your business."

"You’ll be singing a much sadder song in a couple of years from now" if you don’t invest in technology now, agreed Berg, who recently became an independent broker. The challenges big brokers face are more about the changing industry and social dynamics than the down market, she said.

The increasingly fragmented world of online media means that the days when "my Grandma would never buy anything but Heinz ketchup because the big TV told her to" are over, Berg said.

The value of the big brokerage brand has been "significantly diminished" because technology gives agents and small brokers powers that only big brokerages once had, Berg said. "I can do the same things as big brokerages online, and clients don’t care" who is providing the services, she said. In some cases, she said, clients see a big broker as a negative.

Frame said that "anyone with statistics will have credibility." But for those considering buying technology, data content and the platform to publish it on, it’s important to be able to ad a layer of interpretation, he said. Knowing how their neighborhood or home is unique, Frame said, "helps people sift through all the stuff they can get through (the) self-directed technology universe."

O’Connor doesn’t see big brokerages as a thing of the past, but said they do need to be more selective in hiring, and in " ‘decruiting’ that bottom quartile who really hurt the brand." Brokers can provide new agents valuable training and skills, O’Connor said, but need better management practices. Instead of traditional "branch managers," brokerages need "subject matter experts" who can grow their business.

One way to "re-margin" the business is through lead generation — not just encumbered referrals, but going after particular market segments, like single women, O’Connor said.

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