Saturday, January 29, 2011

THE LITTLE BOOK OF BULL MOVES

What's happening today in the US economy is not an adjustment - it's an earthquake.

That's Peter Schiff's premise in "The Little Book of Bull Moves (in Bear Markets)", an interesting and somewhat scary read which argues that we have entered an era of economic deconstruction and deleveraging that's bound to continue for another 10 years.

Instead of producing goods of services to run the economy, the United States government has chosen to print money.  In the next decade, Schiff argues, the economy will have to return to its traditional roots of producing and saving rather than borrowing and consuming if America is going to retain it's place as a global economic leader.

If the housing bubble has already popped, what's next?

Schiff believes that the next big government bailout coming will be for student loans, as millions of loans default and students walk away from billions of dollars in debt they cannot repay because the jobs they thought were waiting for them are no longer there.  College education, Schiff says, is overleveraged in the same way housing was overleveraged.  And because of it, tuitions have become artificially high because of the government's push to make college accessible to everyone.
That easy access to college-education financing is about to end, according to Schiff, and when it does, the price of a college education will fall and universities will see double-digit enrollment declines. 

As America becomes poorer, Schiff argues, our service-based economy will suffer.  Financing and banking services, retail sales, travel and tourism are all going to be hit hard.  Somewhat surprisingly, Schiff is also bearish on health care, despite the fact our population is aging and more life-extending medical procedures are available than ever before.  Schiff believes the government simply will not be able to afford to provide such high-level care and as individual wealth diminishes, citizens won't be able to take advantage of the advances in health care. 

We'll see more foreigners, who are benefiting from rapid growth in their own production-based economies, coming to the US to take advantage of our health care innovations while Americans are priced out of the market. 

What industries will be the next to cycle up?  Schiff believes the winners in the next wave will be engineering, construction, agriculture, commercial fishing, computers and technology, textiles and anything related to the "New Energy Economy", which is big here in Colorado. 

America has got to rebuild it's economic base, according to Schiff, and those industries that actually produce will be better situated than those which simply provide services.

Whether you agree or not with Schiff's viewpoint, "The Little Book of Bull Moves (in Bear Markets)" is a compelling read.  It stimulates thought, and it's foundational points are worth considering. 

We are all going to have raise our IQ when it comes to economics, and Schiff's book offers plenty of heavy and compelling theories to ponder. 

Sunday, January 23, 2011

REALTORS PROPERTY RESOURCE

Realtors Property Resource is here! So what is Realtors Property Resource (RPR), and why does it matter?

In an age where more and more housing information is available at the fingertips of the consumer, the National Association of Realtors launched the RPR project three years ago in an attempt to ensure that Realtors stay relevant in a rapidly changing industry.

In short, NAR has poured more than $10 million into building a national database of houses. Type in any address in the country, and RPR spits out up to 40 pages of reports and data, including ownership history, mortgage history, property tax history, recent sales history, comparable sales history, school and community information… the list goes on and on.  It's sort of like "Carfax" for houses.

So I can be sitting in my office in Denver and if someone calls me wanting to relocate, but has a home to sell in California first, in a few keystrokes I can see exactly what that house looks like, know its history, see the mortgage information, and assess its salability. It’s an incredible resource that provides information that’s infinitely more detailed than what consumers can find on Zillow or Trulia or any of the other real estate data aggregation sites on the Internet.

Most consumers don’t understand that Realtors pay thousands of dollars per year in memberships, associations, subscriptions, professional insurance fees and continuing education programs. And many agents are dropping out of the business because unless you are selling homes, the start up costs, day to day expenses and legal liabilities are just too high.

RPR, if used properly by agents, is a game-changer. It’s a valuable tool that will help agents make better assessments about neighborhoods, communities and specific parcels of real estate in particular. It increases the agent's knowledge base and give Realtors access to information that simply isn't available anywhere else.  Kudos to NAR for delivering real value at a time when all agents need to be upping their game.

Thursday, January 20, 2011

STAGING SELLS

My current opinion about the local housing market is that there are two types of homes that are selling:

1) Beat up dogs, heavily discounted, and…

2) The nicest homes in a price range, with spotless interiors, quality finishes and great curb appeal, which still must be reasonably priced.

Beat up dogs, usually bank-owned rehab projects, account for about 10 to 15% of the market, and the turnkey beauties also account for 10 to 15% of the market. For the 75% of homes in the middle, it’s a tough road right now.

So how do you get your home to sell in this environment? The answer is obvious – you have to win the beauty contest while being willing to compete in the price war.

As part of my listing services package, I bring a stager in to look at every new listing I take. And based on her feedback, I will often have my sellers spend several days (and sometimes weeks) cleaning, decluttering, updating and polishing the finishes of their homes. New paint and carpet do wonders, as do clean windows, new fixtures and fresh towels. Removing as much as one-third of a seller’s personal belongings can create space and give flow to a previously cluttered home, and buyers will still pay for space and cleanliness.

In a good market, staging will put money in your pocket by raising the value of your home above the cost of improvements and cleaning. In today’s market, where half of the homes listed for sale in the Denver MLS never sell, it may not be as profitable (although it sometimes is), but it will get your home sold when others linger on the market for weeks and months.

Not everyone wants to stage and not everyone wants to clean. But then, not everyone is going to successfully sell their home, either. In this market, sellers have to outwork their competition, and that means doing what is necessary up front so that when a buyer walks through the front door, there are no objections and the feelings are all positive.  Clutter, dirt, and deferred maintenance create confusion in the mind of buyers, and the confused mind will always say no when there are other alternatives available.

In my opinion, you have to focus on the first 21 to 30 days of market time as your one and only window to sell for a “retail” price. If you don’t move it in the first month, staleness sets in, and in this market, many buyers will carve you up on price once you have gone stale.

If you’ve got 21 to 30 days to capture that retail buyer, your home simply cannot be a “work in progress”. It needs to be a finished product, polished and ready. Buyers today want quality or value… anything in the middle just won’t do.

Sunday, January 16, 2011

IF YOU’VE BEEN HERE, YOU KNOW

One of my goals for 2010 was to spend at night at The Broadmoor Hotel in Colorado Springs. Annually ranked among the top five hotels in the United States, The Broadmoor is pure quality. From a 3,000 acre campus to a world class golf course to some of the best food in America, The Broadmoor stands tall as one of the crown jewels of American hospitality.

There was a trigger to my goal – and it was production related. The Broadmoor does not fit neatly into many budgets, so I set a production goal for 2010 which I reached on December 21. It was close.

Having spent my 24 hours at The Broadmoor (much of which was devoted to gathering my thoughts in the ornate lobbies and sitting areas and working on my goals and objectives for 2011), I wrote down some observations about what makes The Broadmoor so special.

1) Location – The Broadmoor has an incredible location and campus, at the foot of Cheyenne Mountain with jagged peaks, soaring evergreens and high blue skies fanning out behind the hotel’s famous fa├žade. Cheyenne Lake separates the two main towers, and in the winter months the water freezes and geese land and take off from the frozen surface in dramatic formations.

2) Quality Finishes – Just stroll the hallways and look at the rooms. Hundreds of high quality paintings and photographs, marble everywhere, beautiful window coverings, roaring fires. There are six inch baseboards and 12 inch moldings.  The chairs are comfortable, the bookcases ornate, the brass handles shiny and clean.

3) Attention to Detail – Once we identified ourselves to the valet, from that moment forward it seemed every employee at The Broadmoor knew us by name. Once we made our dinner reservation, every employee at the restaurant knew us by name. And this attention to detail doesn’t just stop with names… look at the windows. Every pane is crystal clear, probably cleaned twice a week. The shower was spotless. Not a speck of dust in the room. No cobwebs in the chandeliers. They don’t miss details here.

4) The People - Most places you go, hospitality workers come and go with the wind.  Not at The Broadmoor.  Our bellhop had been with the hotel 23 years.  We talked to a concierge who had been there for over 15 years.  And the valet who parked our car had been there for nearly a decade.  It's rare to find a service industry that builds its brand around people, but that's what The Broadmoor has done.

The Broadmoor is the essence of quality, and that’s why I wanted to come here. I’m always interested in studying how to do things right, and in that regard, The Broadmoor sets a worthy example.

Saturday, January 8, 2011

FIVE PREDICTIONS FOR 2011

Okay, here we go with the start of a new year.  What will 2011 hold?

For real estate, buyers and sellers are going to have to align their expectations with the new realities of our economy.  Buyers want value and/or quality, and that means steep discounts and/or turnkey homes.  Sellers have to understand the market of 2006 has no bearing on the market of 2011, and it would be wise to give some thought to the fact that over 50% of all listings placed in the Denver MLS last year never sold.

It's a price war and a beauty contest, which means another year of hard work and new challenges.

Here are five predictions for 2011:

1) On December 31, 2011, mortgage rates will be closer to 6% than 5%.  This isn't a bold or daring prediction - in fact, it might be classified as "hopeful".  The inflation grenade is in the room, in the form of $2 trillion in stimulus spending and a government which seems incapable of tackling the deficit.  Higher gas prices, higher commodity prices and higher interest rates are all in the cards.

2) Rents continue to rise and vacancies fall.  If there is any bounceback at all in the economy, the benefit will flow to landlords before homeowners.  Rents have been on a steady upward march in Denver for three years, and statewide vacancy rates (led by Fort Collins, at 2.8%) are lower than they have been in years.  With tighter lending standards and fears about the housing market, the pool of renters will continue to grow, and the cashflow numbers should get better and better for landlords and investors.

3) The rich get richer.  I'm predicting a good year for Wall Street... but another lousy year on Main Street.  Corporate takeovers are big right now, as healthy giants swallow up wobbly competitors, boosting market share and beefing up the bottom line while disposing of more and more workers.  I'm not saying I agree with it - but it's what I see.  A Wall Street rally will help some and hurt others.  People with money are going to be able to buy what they want at incredible prices.

4) The high end of the market won't get any better in 2011.  I've been sounding the alarm on the high end of the market for the past three years.  In a contracting economy where people are hunkering down and living more conservatively, big is out.  And what that means is that today, at price points above $1 million, there are 15 homes on the market for each one under contract.  That's murder on prices, and it's going to continue for a while longer.

5) It's a great time to buy real estate, if it's priced right.  Buyers really do have incredible leverage right now, with high inventories, motivated sellers, low rates and cash-flow opportunities for investors.  Rising rates will be a concern, but the rise in rates will be offset by an improvement in consumer confidence.  The bottom line is that if you think we're going to climb out of this malaise, the alignment of the stars is about as good now as it's going to get for purchasing homes at the median price or below in Colorado.

None of these are excessively outrageous predictions, but I'm not trying to shock anyone.  It's just important to know which way the tide is flowing if you plan to swim in the ocean, because the quality of your decisions is based on the quality of your information.

What are the wildcards for 2011?  Well, you never know what the government is going to do, or if there's going to be some new program or initiative that helps or hurts the market.  Government regulation of condo lending (via Fannie and Freddie) has killed the condo market.  A loosening of underwriting guidelines here could reinvigorate that sector of the market.

A strong Wall Street rally may help stabilize the higher end of the market, but a bad year on Wall Street could be devastating.  What Congress does or doesn't do with taxes, health care, the national debt and ongoing deficit spending could affect rates and prices.

Then, of course, you've got the uncertainties of war, terrorism, employment and inflation.  

The bottom line is that in 2011, just like in 2010, buyers need to be cautious and sellers need to be realistic.  And that means making decisions with your head and not your heart.