Information ~ Questions ~ Real Estate

As the congressional debate continues over the crafting of the what will probably become known as “Bailoutgate” or something equally absurd, I offer a few comments on today’s “bailout” news:

Bloomberg had a nice little interview with Congressman Barney Frank (D-MA) wherein Frank noted that part of the plan would include punitive restrictions on CEO’s financial compensation. This is really just positioning for creating regulatory restrictions on executive compensation that is currently based on share value rather than business accomplishment. The fear that all business leaders should have is that the finger pointing is going to affect everything in business. I would expect the bailout is going to happen, Congressman Frank noting that there is little choice but to support the idea, subject to some wrangling over the details. But the cost of the bailout will not end with the 700 billion price tag. The real cost will be regulatory zeal on a scale not seen since the 1930’s. Think of the financial crises as an unexpected fire in a crowded building, with Congress acting as untrained firefighters. Water will be sprayed everywhere but on the fire.

Just how the “bailout” will affect the housing market is any body’s guess. At the moment, the overall national housing market has lost perhaps 10% of the value it had in late summer of 2006. Of course 10% is just an educated guess, with some local markets having lost much more or slightly less. What is true is that most people are continuing to make their mortgage payment and, once the bleeding stop, the stability of those paying customers will provide the basis for a recovery. As I noted on Saturday, most people do want to own their home if possible. I believe that the home building industry will take a few years to recover, but as a builder once told me, builders build, and they will begin again as soon as possible. The public at large will begin buying homes again, for the same life cycle reasons they have always bought them.

To put a point on it, my lovely wife just returned from a convention in Vegas, where, she noted, there were mobs of people spending bushels of money. The difficulty today is that people would rather spend money playing in Vegas than buying big ticket items. Congress, recognizing that fact, and that the United States is a consumer economy, will pass the “bailout”, so that the American consumer starts spending money on Main Street. Then, watch out for the regulatory monster. It will come with indiscriminate fury.

As a career Realtor®, I have been helping Denver area consumers buy and sell homes for 30 years.  From the very beginning, I understood that my career choice was based in large part on the American Dream of home ownership.  The Dream is rooted deeply in the American social fabric, and while many capable adults in the United States don’t want to own their residence, most do.  In 2006, residential ownership peaked at over 70%, and today, even with the large number of foreclosures, the number of adults in the United States owning their homes is still 68%+.  The difficulty’s facing the financial industry today will pass.  Most American still want to own their home, and those that are financially capable will continue to do so.  Our definition of that capability has changed in the past 2 years, just as it changed in the early part of the the decade, but most people that want to buy a home will be able to do so again in the near future. 

As of this writing, our political leaders are meeting to craft a plan to bailout the financial industry by absorbing the “bad” home loans.  In the next few days, we will begin to understand just how that plan will work.  The only valid criticism of such a plan is “what took them so long?”.  The questions of just why this crises happened, who was at fault, and where to regulate in the future take a backseat to what to do and when to do it.  When is now, not next week, but right now, while some investor confidence has been restored in corporate value.  And the question of what is being written as I write. Congress will no doubt require regulatory authority to prevent the crises from happening again, but that is the simply the bureaucracy at work and the price that must be paid when the free market does not pay attention to its own well being. Do we need to know the answers to who and what? Yes, because most Americans will want that information to effect closure.  The system will adjust to new regulations, as it always has, and we will move on to other challenges.

The media of course will not tell the story exactly right, so most Americans will not fully understand the “bailout”.  Few people will, even those that craft the plan.  And the short and long term effect is not entirely predictable.  This much is probably true: (1) stopping the bleeding is necessary for the patient, in this case the American economy, to recover, and (2) the Federal budget will actually profit from this “bailout” in the longterm.  Remember, most Americans want to own their home, and will begin to buy as soon as the fear is past and credit is available.  The fact is, there is considerable money available through the FHA to buy homes right now, and Fannie Mae and Freddie Mac are still in business with large Federal infusions of mortgage money. If the market is free to function, then values will begin to rise.

It will take some years for the home market to fully recover the recent loss of value, but it will, in fact, recover.  Americans will continue to buy and sell homes, and Realtors® will be there to help them do it.  Will things be the same? NO! They never are the same, but we will move forward and feel good about ourselves as a country soon enough.

Join us on Sunday, September 21st from 12:00 to 5:00 for a neighborhood open house tour featuring some of the areas most exciting new developments!  Each site will have food, drinks and the opportunity to tour each project. You have the opportunity to visit 16 different new contruction projects in the Lower Highlands (LoHi) and Jefferson Park neighborhoods.  A few of these are “hardhat tours” so be sure to wear your comfy shoes! The tour will conclude at Pasquini’s (32nd and Zuni) where prizes to local restaurants will be auctioned off and just in case you didn’t fill up during the tour, you can sample some of their wonderful pizza!

Participating developments include;

3131 Zuni, 3505 Osage, 3650 Osage, Confluence Heights, Flats 15, Highland Bridge Lofts, Highland Views, HiVu29, Jefferson Park Townhomes, LoHi Lofts, Q36, Q-Mod, RiverClay, Sprocket on Wyandot, Shoshone Heights and the Wyandot Townhomes.

This open house tour is for neighbors, buyers, brokers, and anyone else that is interested in learning more about new construction projects in the LoHi neighborhood.

Please feel free to contact me if you have any questions and I hope to see you all on Sunday!

Sniffing around the edges of the so called “3rd party relocation” business there appears to be a belated recognition on the part of those providers that getting greedy with referral fees is costing them.  Of course the relocation business is in as much disarray as the rest of the real estate industry.  Many relocation service providers got caught short paying top dollar for employee home purchases as the local market declined.  Part of the root of that problem was the relocation companies asking for as much as 40% for a referral fee.  By the time the participating real estate brokerage recovered its cost of obtaining and maintaining the business, the average fee paid to the Realtor® was 30% to 35% of the total cooperative commission. Many productive and experienced Realtors® do not want to work for that level of compensation, so the referrals have been going to the brokerages less experienced sales associates.  20 years ago, relocation business generally was referred to a select group of well trained and experienced sales associates.  Quality control was tight, and transferring employees were well informed about the buying opportunities, knowing the sale was not that far away.  Let’s face it, experience shows, and experience expects to be justly compensated for that experience.

That 20 year comment I just made in the preceding paragraph is popping up all of the time lately.  It seems as if the entire real estate industry is stabilizing around the business operating principles of 20 years ago. You know, well trained people, experienced management, long view ownership, ETHICS!, things like that.