Hello Everyone! I hope your 2009 is off to a good start! As part of our new blogging feature on the Realty Corporation of America web site, I wanted to take a minute to provide this brief market overview. These observations about recent developments are purely my own and they are based on discussions with clients, lenders and our amazingly talented mortgage, auction, real estate and construction team at Realty Corp.
As you know, we’ve seen a significant drop in interest rates in the last few months. Traditionally, the Federal Reserve uses reduction in interest rates to spark economic activity. Under current circumstances, with the financial system under such pressure, lower interest rates have multiple benefits to our Country. Obviously, low rates encourages mortgage refinancing – an important way to increase consumer’s disposable income AND get funds back into the banking system. While credit standards remain very tight and “stated” income loans are virtually impossible to get at the moment, we are seeing the early signs of a substantial pick up in the mortgage business. Our mortgage affiliate, Transcontinental Lending Group, has seen a significant increase in mortgage applications. With many properties worth much less than they were just a few years ago, appraisal and valuation issues have been a serious impediment to getting deals finalized. And while credit issues have held up or killed many deals, the number of inquiries has significantly increased. Given the fact that over two thirds of our competition has disappeared, we believe the near term future will see more deals getting done – and our hard working team getting paid – at a much higher level of frequency than we’ve seen in several years.
The real estate market appears to have settled down to a “new normal” of low activity and many sellers who are simply unable to sell. The properties that are selling are in excellent condition or priced in an extremely reasonable fashion. The market is largely “REO driven” and is characterized by decreased valuations and continued “work off” of excess inventory. While more foreclosures are coming, the worst news is now factored into real estate pricing. Our Auction Services Division (www.realtycorpauctions.com) has seen a steady increase in inquiries as more and more sellers decide to get what they can for a property and simply move on. An auction that is marketed well (with numerous open houses, radio and TV advertising, e mail campaigns and other invigorated promotion) brings true market value for real estate. If market value is defined as what a willing buyer will pay in an open bidding process, then auctions deliver current value – as long as the marketing “cast a wide net” and has alerted potential buyers that the property was being auctioned. In any event, Realty Corp has seen some (but not all) lenders work with us on short sales, we’ve seen asset managers increasingly price our bank listings reasonably and we’ve seen cash rich investors selectively venturing back into the market. Bottom Line: 2009 is likely to see the last of the price declines in the real estate market for a while. Unfortunately, we may see several years of “flat” valuations and tough market conditions until underlying economic activity picks up. However, real estate is cyclical and – at some point – excess supply is worked off and demand returns to more normal levels. An increase in bank lending would certainly help, as we’ve gone from subprime lenders literally throwing money at borrowers to today’s environment – where many hard working and qualified individuals cannot access the mortgage market.
Finally, I wanted to mention that changes in technology have continued to impact the real estate brokerage business. Several examples come to mind: First, print advertising has been almost completely useless as a mechanism for driving buyer calls to real estate agents. Second, social networking and creating “spheres” are vital ways for real estate agents and loan officers to network and attract clients. Third, the continued decreases in the costs of technology mean that the big guys simply do not have any intrinsic advantage over smaller or younger real estate companies. Realty Corp is able to offer every single service that any large broker can – at a much lower cost. So technology and the ability to pack our web site full of timely information and real time data have allowed us to create value for clients and compete effectively. Simply stated, I don’t think we could have built our business ten or twenty years ago when the larger players in the business dominated the market and tightly controlled information. Technology has leveled the playing field and lowered costs for consumers and upstarts. I expect these trends to continue and to accelerate. Bottom Line: a relentless focus on lowering costs, adding value for clients and providing more innovative and cost effective solutions for clients is vital for success.
As always, your comments and suggestions are welcome. Our company is the mirror opposite of the big Mega Brokers and the franchised real estate firms. We started the Company in the basement of my house with two credit cards and big dreams! We have always prided ourselves on diversity, innovative services, an entreprenurial culture and an open sharing of ideas and a spirited interaction with clients, consumers and members of our industry. So let us know what’s on your mind, let us know how we can improve our Company and let us know if we can be of service to you.
On behalf of the most talented and hardest working team in the real estate business, I would like to thank you very much for taking the time to read my Blog! I am looking forward to hearing your comments!
Tony Viola
President
Realty Corporation of America
Tony@realtycorpofamerica.com
(216) 214-4665
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