Online Marketing: It’s Still Early, but Real Estate Is in Recovery

Posted By Paige On June 4, 2008 @ 4:10 pm In Technology | Comments Disabled

By Mike Parker

RISMEDIA, June 5, 2008-The tremendous adjustment we have been facing for the past year or so is reaching the point of equipoise and turning around. I am now convinced that we have reached that marker and that a VERY gradual increase in activity portends a return to the days of this being a good business. There are very good reasons for this cautious and fragile optimism that we need to encourage and repeat to everyone we know.

The adjustment is uniform

A downswing is only local until it is national, and it is only truly national when felt by all market segments across all economic segments. Figures for the last quarter seem to indicate that even the highest end cities and towns in the country are facing the reality that the excesses of the past years have overpriced and overvalued homes. Los Angeles Times reporter Peter Y. Hong proclaimed in his front page story on May 20, 2008: “CA Mansion for Sale, cheap. Ok, cheaper.” This is-believe it or not-a good thing for the real estate business. When the median home price in Newport Beach, CA, drops almost 34% and when the median price drops almost 13% in Beverly Hills, CA, the bloom is off the rose and the public sees that the correction has left no socioeconomic group untouched.

Collective anger begins to be replaced by acceptance of the new reality.

When the rich are portrayed as hurting, the public smells bargains

The rich are different from you and me, as the pundit said, but when the public sees that their pain is shared by the swells in luxury-land, the stigma of losing equity in one’s home is reduced. Recriminations about ‘ how stupid anyone could have been to allow themselves to land in the situation where their home is worth 33% less than they paid for it’ evaporate in the face of “the smart rich people” being precisely where the average homeowner is in the value of their home as an investment. Relief of a strange kind begins to dawn on the public’s perception of the housing situation and acceptance starts to creep in that prices were too high.

There is considerable pent-up demand for residential real estate out there. How many of us hear people say, “I am waiting for prices to come down enough so that I can afford what I really want”? Having witnessed this correction in my own neighborhood (and joining the public, who sees it in theirs), my reaction has been: “That is more like what that house is worth.” I have learned that the public can react with uncommon wisdom in times of turmoil, and the public thinks house prices are too high. They are correct. Consensus is that prices were 30% too high in many places, and that just can’t stand in the real world. As prices recede, buyers are starting to return. As prices recede, more conventional home buyers are encouraged to obtain “the deal of their lifetime.” It is here that you should be emphasizing the importance of timing to all your prospects.

Inventory is decreasing

According to a May 27th Bloomberg.com article, the supply of homes at the current rate of sales (April-526,000 units; up from 506,000 in March) dropped to 10.6 month’s worth, compared to 11.1 month’s worth in March. This is encouraging, as is the fact that the number of homes completed and waiting to be sold has dropped to 181,000; the fewest since last July. It is not recovery, but it is progress.

Inflation is up but interest rates are artificially low

The first fact means that values of homes will increase once this anomaly is past and the second means that mortgage prices are being generously subsidized by a government who fears a complete meltdown of the economy. This will not last forever. The time to buy is now.

Yes, we have other issues to deal with, but at least we aren’t China

Another 278,000 homes destroyed in a 6.0 aftershock. A barrier lake caused by the quake threatens another 1.2 million people. 10 million people are homeless. It would appear that we will be importing less China-made goods in the immediate future, but more importantly, our economy is not facing huge disasters like those. Ours are generally man-made and the result of an inane government foreign policy, no government energy policy, and a reigning government apparently shocked at the price of a gallon of gasoline. Our problems are fixable.

Speaking of “fixing”: Remember how this mess started and avoid enabling it in the future

The current problem has its roots in completely ludicrous “financing.” Many homes were sold overpriced because people could get a loan with no equity. With no real down payment (equity investment) required, the price of the house became less relevant than the monthly payment-a monthly payment that usually had an artificially low initial year interest rate and that required no real documentation that the buyer could truly afford the payment.

Through the rose colored glasses of five straight years of 20% or more appreciation, refinancing these loans to more conventional specifications was viewed as “a lock.” As prices went higher and higher, it became necessary for most buyers to invoke this ludicrous financing in order to qualify for the mortgage on the home they wanted. When the merry-go-round of packaging these loans as securities stopped and left the lenders holding bags full of loans that they could not sell as investments nor hold as investments as they did not meet regulators criteria (Gee, do you think perhaps these loans should not have been made if they were too junky to be allowed in a lender’s portfolio?), the engine driving the appreciation stalled. (It’s called a “market correction.”)

In much of the country, homes were 30% or more overpriced when compared to the demographics of the local homebuyer and what they could afford in a conventionally evaluated (e.g., realistically evaluated) mortgage loan. In the rush to continue the expansion, normally conservative real estate people found themselves urging clients to avail themselves of these dangerous loans. We all know the adage “Pigs get fat but hogs get slaughtered” and the overheated market produced plenty of hogs. The next time this kind of financing appears, think about the hangover and don’t be quick to embrace it.

The outlook from here

I’ll leave the formulae to the economists and simply remind everyone that a pendulum goes through distinct stages as it prepares to reverse its swing. I see us now at the stage where it has almost reached its furthest point and is slowing before beginning its swing the other way; in context, sometime in the early summer months the pendulum will reach dead stop and the initial smidgeon of return and upswing, gaining real momentum in the fall. “Things will be fine in 2009.”

That is, the election will be over, the country will feel less drifting and focus will be on moving forward. Due to the timing of the pricing correction that is now running its course, the economic groundswell that typically accompanies a new President will lift all boats. The consumer will believe that the worst is past and the time to buy is now; sellers will know that-in order to sell-reasonable pricing is paramount. It’s the perfect circumstance to produce that buying frame of mind in the consumer. I am well aware that many brighter minds than my own predict a “false recovery” that will be dashed by Wall Street layoffs, reality striking down private equity firms, and a continuing loss of consumer confidence.

Those facts are tough ones, but Wall Street is not Main Street and Mr. and Mrs. Average American aren’t going to have their confidence shaken by the tragedy of investment bankers and brokers ending their multi-million dollar bonus days. Folks, consumer confidence can begin with us. “Physician, heal thyself.”

How to implement this scenario into your Online Marketing

So many agents are unaware of the value in shaping public opinion that the Internet has. If you have a website, you can affect public opinion-if only in the percentage of the public that sees your website (Plug: Just one more reason you need to be sure that Internet buyers can find your website!). Why not change your homepage copy to reflect that this is probably one of the best times to buy a home in 10 years? (Yes, 10 years-the last five were overpriced and the next five will likely see reasonable appreciation as the major price corrections have occurred.

Five years from now, the 30% correction evident today will have been recaptured, and we’ll all be dealing with overpriced housing, again.) Why not lead with the greeting “It’s the best time to buy a home in 10 years!” on your site? Besides helping validate what an ever increasing segment of the buying public believes, you’ll be positively placing yourself to succeed. You do this at meetings, coffee shops and dinners-do it online, too! As the recovery gains momentum, “I think I can” will be replaced by “I’m glad I did.”

Start your organic online marketing today and be selling homes in the fall

Nothing happens overnight-recoveries or success in online marketing for Realtors®. This is the right time to do what you should do to make a share of the 82% of transactions that involve the Internet find you, and to make just a few of the 73% of buyers who chose their agent with a search engine find you. There is a ramp-up to recovery and there is a ramp-up to success in online marketing. Stop wringing your hands and start wringing sales out of the Internet.

Keeping our feet firmly planted on the ground

Our economy has many dangers facing it today and housing is but one of them. People can buy fewer luxuries, purchase more fuel-efficient vehicles, cut back on most everything, but everyone needs a place to live in safety and comfort. The validity of the home as a sterling investment that is a safe place for a family to put their payments is unshaken. When all is said and done and all the abuses of the past few years have been corrected we are left with the fact that everyone wants and needs a home. When that home is a better value and when sound fiscal principles are reapplied to home ownership, there is no wiser investment for America’s families. All this will pass, but real estate professionals and homes will still be here to fill the desire in every family for homeownership. Please keep that in perspective and start encouraging the turnaround that is lurking within view. And don’t forget that adjustment of prices-while painful in the short term– is a good thing!

About the Author: Mike Parker is a principal at the Blackwater Consulting Group, Inc., and specializes in online marketing for real estate professionals.

 The Current subprime meltdown is a wake up call for everybody in the mortgage industry.  It offers an opportunity for homeowners to fortify their mortgage for the next few years and for you to generate new loans immediately.

First and foremost everyone....homeowners,mortgage planners, Realtors,Financial Planners and CPAs ...need to face the brutal facts:

• The game has changed.  For the past five years, guidelines and mortgage programs have expanded and increaased ...now they are tighting and retracting.
• 100% LTV programs are going away.
• DEBT- to - income ratios are getting tighter.
• CREDIT standards are getting tighter.
• LENDERS aren't as flexible as they have been over the past 5 years.
• FORECLOSURES are going up and financially stressed homeowners need advice more than ever.

IF homeowners are proactive, they can navigate a soft landing. IF they are not, they could find themselves in situations outside their control that could lead to personal financial disasters like bankruptcy and forclosure.  

EVERY member of the wealth team ----- LOAN OFFICERS, REALTORS, FINANCIAL PLANNERS,and CPAs ---- need to understand the current realities so they can best advise their clients.

 

 

 

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