When talking to people about SmithAdams, the first question I frequently get is this: “You’re starting a real estate business in this economy? What are you thinking?”
“That doesn’t mean you can ignore the economy. Both customers and investors will be feeling pinched. It’s not necessarily a problem if customers feel pinched: you may even be able to benefit from it, by making things that save money. Startups often make things cheaper, so in that respect they’re better positioned to prosper in a recession than big companies.”
That’s precisely what I’m setting out to do. SmithAdams fee-for-service model can save consumers money. In this housing market, I think any of us would benefit from real estate transactions being more efficient and less costly.
To this point, I believe potential customers are more likely to be open to new ways of doing business in times like these. During the recent flush years when real estate property values were skyrocketing and homes were sold in a weekend, few questioned the wisdom of paying a 3% (one-sided) commission on property transactions — a commission that often translated into thousands of dollars. With the realty market in disarray, the SmithAdams value proposition has resonated strongly with almost everyone to whom I have spoken about our company.
Now is the time to apply the simplicity and straightforwardness of a fee-for-service model, similar to other professional services industries, to the business of real estate. Despite new technology and other changes in the real estate marketplace, the commission-based fee model has not evolved in decades. The bursting of the housing bubble presents an ideal time to reevaluate current real estate practices. Now is the time to start SmithAdams.
Given my background in data warehousing and business intelligence, it would surprise none of you that I loved Kenneth Duberstein’s op-ed piece in today’s New York Times advocated a web-based reporting system of key performance indicators for the country. The closing paragraph:
Great steps forward in American history occur at moments when our deeply held values are reaffirmed in the face of changing realities. Such a moment is at hand. We need a shared frame of reference that will enable us to practice collective accountability. If Congress acts soon, by the time President Obama delivers his first formal State of the Union address next year, Americans will be able to continually assess the state of the Union for themselves.
As a nation, we face complex problems where people legitimately have differing views on the best solutions. But it would be nice if we could at least agree what the problem looked like and where we are now. Such a system would be an important first step.
In more economic news, the New York Times had this article a couple of days ago pointing to a handful of economic indicators showing that, while the economy was still worsening, there are signs that at least the rate of descent may be slowing:
“You go from a free fall to a steady decline,” said Michael T. Darda, chief economist at MKM Partners. “Is that good? No, it’s not good, but at least you’re kind of falling at a slower pace, and that’s the first step to some of these indicators starting to flatten out.”
Note this section towards the end:
The government reported that 598,000 jobs were lost in January, the most for that month in two decades, and economists expect the unemployment rate to rise to 9 or 10 percent from January’s 7.6 percent. Because employment numbers typically lag the broader economy, millions of Americans may still be losing their jobs even after the recession bottoms out. [emphasis added by me]
As I have mentioned in a previous post, housing prices will rise with consumer confidence. If many Americans are losing jobs “even after the recession bottoms out,” I believe that an improvement in consumer confidence will lag behind other economic indicators in an upswing, and any increase in housing prices will lag even further behind that.
Paul Krugman’s NYT column yesterday discusses how, for the past decade, we have been living under the illusion that this was a period of great wealth creation. Unfortunately for us,
Last week the Federal Reserve released the results of the latest Survey of Consumer Finances, a triennial report on the assets and liabilities of American households. The bottom line is that there has been basically no wealth creation at all since the turn of the millennium: the net worth of the average American household, adjusted for inflation, is lower now than it was in 2001.
At this point, I think that illusion is fairly well shattered. Much of the growth in our economy was fueled by consumption enabled by personal leverage on real estate assets. Now that the run-up on asset values is gone, that leverage-based consumption is impossible — and our economy must contract. Further, much of that debt (secured by assets with newly-lowered values) is still there, an albatross for many consumers for some time to come.
To continue moving through the vicious cycle: the perception of our wealth drives our consumption, as well as the valuations of assets such as real estate property. As I argued in a previous post, we will need to see this perception fundamentally turn around before we see a general all-around growth in real estate prices. I think there is a long road ahead of us before we see this happen.
With all the ground shifting so rapidly in the real estate industry and the American economy, I was reminded of a video that was originally conceived as a PowerPoint presentation for a 150-person staff meeting at a Colorado high school in 2006 (see the Shift Happens wiki for the presentation’s history, source material, and various versions). It went viral and has been seen by at least five million viewers. Updated in 2007, the version embedded above is just as revealing now as when I first saw it. For instance — WAIT! There is more to read… read on »
I have been getting a lot of questions about the housing market, specifically regarding my thoughts on where home prices are going and whether this is a good time to sell or buy.
Before proceeding, and without singling out any one person or entity, let me offer this suggestion: use a healthy dose of skepticism when considering the advice/judgments/forecasts from “experts” who have a business/financial stake in how you act upon their predictions. The economic lessons of late (failing banks, irresponsible lending practices, corrupt investment funds, biased and inaccurate ratings by ratings agencies, and others) should give us pause. WAIT! There is more to read… read on »
The New York Times has this very interesting analysis of the evolving (and increasing) manner in which the federal government is involved in our financial sector. A must-read (in my humble opinion) for anyone interested in the benefits and risks for all of us as taxpayers and stakeholders.
