Notorious R.O.B.

As a blogger, rather than a “credentialed journalist” (whatever that means), I have the freedom to just pass on rumors, as long as I label them as such. Well, consider this one of those rumors I have not confirmed yet. [UPDATE] I just got a second person to confirm the rumor. Two people saying the same thing now moves this past the realm of rumor into a confirmed report. More detail below..

I’ve heard from a reliable source earlier this evening that there are some major changes afoot at NAR. The biggest upshot of the changes is that starting in 2012, portions of the dues from NAR members will go towards supporting RPR, REALTORS Federal Credit Union, and other so-called “Second Century” Initiatives. A few minutes of Googling suggests that the original Second Century Initiatives program — which included a line item for “The creation of a national gateway for real estate information, not a national MLS” – was funded by a $16 increase in dues in 2008.

But from the start, RPR was presented as a wholly-owned for-profit business unit of NAR that would be self-sustaining, after the initial investment of roughly $25 million to buy the Cyberhomes assets from LPS and a few million for LPS data. The idea was that the data generated by RPR would be very valuable when sold to financial institutions, government agencies, and the like, and the operation would throw off enough cash not only to continue providing the system to REALTORS at no charge, but also to generate enough profit to pay back NAR.

For reference, here’s a report of a Q&A session with Dale Ross, CEO of RPR, back in March of 2010:

Why should Second Century need to be paid back?

NAR’s Second Century fund is a venture capital fund which must paid back for its investments. However, that’s not the source of RPR’s funding. RPR money comes from an NAR technology fund set up with $100 million fund (from investments); NAR’s Finance Committee stipulated that monies must be paid back to replenish fund.

Since you’re providing RPR for free, where is money coming from? What happens if your revenue models are way off?

Three scenarios: app doesn’t work, we shut down; app works and rev model works, win-win; app works but rev model off. We project we’ll need $50 million/yr to run it… if it is valuable and not generating cash, we’ll figure up another funding source. If members want it and NAR Directors decide that is best way, that could be a member dues increase. I have never seen pro formas work; I have pushed the numbers around based on a 36-month breakeven. We’ll see. (Underline added for emphasis)

Well, if the rumors that member dues will start paying for RPR starting 2012 are true, then I’m gonna take a wild stab and suggest that the 36-month pro formas were way optimistic. Since we’re looking at a dues increase in two years (launch in 2009, dues funding decision in 2011 to take place in 2012) to support RPR.

A few questions arise. The first of which is, “So uh, is this true?” I’d love for anyone who can confirm or deny the rumor. Please feel free to contact me privately via email, twitter, Facebook, phone, whatever. My contact information is on the About page. More questions follow, all of which assume this rumor of dues funding for RPR and other Second Century Initiatives is indeed true.

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Over on Agent Genius, there’s a post about some study done as a marketing tool by Moby (the “let people know where you are” app) with REALTORS in mind. Apparently, September is “REALTOR Safety Month” at NAR, and the good folks there have put together a bunch of materials for y’all.

Now, the study apparently showed (I say apparently because I’m not putting my name/email in to download the said study, thereby ending up in their CRM software) that 1 in 4 men REALTORS carried a knife or a gun with them while “on the job”, while only 7% or so of women REALTORS did so. Lani Rosales, the Editor-in-Chief of AgentGenius, writes:

The above chart outlines Canadian and American answers and although we knew a small portion of real estate professionals would indicate carrying a gun, especially those practicing in the foreclosure or short sale markets, but despite a massive disparity between men and women regarding carrying a gun or knife on the job, it is extremely intriguing that one in four male Realtors indicate they carry a knife or gun while on the job. One in four women carry some form of pepper spray while only five percent of male Realtors do.

The major differences between the behaviors between male Realtors and female Realtors is highly intriguing, but it is most interesting that such a high number of men carry either a knife or gun while they are on the job.

I’m not sure what Lani finds interesting about the difference, but what I find interesting — nay, disturbing and of great concern — is the fact that only 5% of women REALTORS carry a gun while working. If anyone should go about with a concealed firearm while working, it is the female REALTOR.

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A mere six days ago, NAR’s Chief Economist (and my doppelganger) Lawrence Yun released this cheery video forecast on housing for the remainder of the year:

Lawrence is predicting a slight pickup for 2011 over 2010; he thinks the second half of this year will be better than the second half of last year. New home sales will still be hurting, he thinks, but existing home sales should improve.

He based this forecast on the idea that the employment picture was slowly improving, as seen in this video:

Lawrence says he thinks we’ll see 1.5 million new jobs in 2011, maybe a little less. But “at least we’re not losing jobs, and losing potential for housing demand”. He thinks we’re on the right track, albeit slowly.

So he’s thinking 1.5M new jobs this year, 2M next year.

Well, the latest job report is dismal, even grim.  The official government report was that only 18,000 jobs were created in June, way, way below the expectations of economists of around 150,000. Furthermore, the news is even worse than it seems.

Ah, but there is a glimmer of hope, it seems… read on for more.

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Renter Nation!

The Wall Street Journal reports that rents are up and vacancies are down across the United States:

Apartment landlords are enjoying rising rents and falling vacancies.

The average effective rent, the amount paid after discounting, was $997 in the second quarter of the year, up from $974 a year earlier, according to a report scheduled for release Thursday by Reis Inc., which tracks leasing data for 82 markets. Second-quarter rents rose in all but two markets.

Yay for landlords, I suppose. And yay for me, for having predicted the whole Renter Nation thing several months back. But there are some unanswered questions that naturally come to mind. Let’s ask them, shall we?

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Men, they're coming for the mortgage interest deduction! This means war!

NAR has finally gone to the mattresses over Federal policy. Some time ago, I wrote that the mortgage interest deduction may be phased out or limited as part of Obama Administration’s new “sustainable housing” policy. At the time, I’ve heard quite a few people say, “It’ll never happen”. The thought was that the public loves the MID so much, they feel entitled to it, just like Social Security and Medicare. Plus, NAR is such a powerful political operation that no politician would ever dare touch the MID.

Well, the White House Deficit Commission unveiled its recommendation today, and guess what? The MID is most definitely on the table for outright elimination or significant limitation. From Housingwire:

Of the many proposals inside the document, the most contested one for the housing industry will be the mortgage-interest tax deduction. The commission proposes for the deduction to be limited to principal residences only and that eligible mortgages be capped at $500,000 instead of the $1 million current cap. The commission also proposed a 12% nonrefundable mortgage-interest tax credit for all taxpayers.

As expected, NAR criticized that part of the report, suggesting that eliminating or limiting the MID would cripple the housing market, drag values down another 15% or so, and so on. Investors who have been coming back into the market, at least for foreclosures and short sales, might need to redo all of their financial models based on the tax subsidy for mortgage interest not being there anymore. Buyers will need to redo their rent-vs-buy calculations. All sorts of bad things for housing, at least in the short-term, will come about.

Then earlier today, I see that NAR has put out a Call to Action to its members to call their Congresscritters to defend the MID. This is merely the opening battle, so how this issue gets resolved should signal how the rest of the Housing War of 2010-2012 will go.

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Blood Moon, aka, Hunter's Moon

A month ago, I read this depressing story on the Interwebs and it’s stuck with me since. Gary Shilling, the author, runs a research service for which one would pay a presumably hefty premium — I don’t subscribe to it, so I’m going simply on what’s on that website.

His conclusion is that housing prices will drop another 20% from today’s levels:

This huge and growing surplus inventory of houses will probably depress prices considerably from here, perhaps another 20% over the next several years. That would bring the total decline from the first quarter 2006 peak to 42%.

This may sound like a lot, but it would return single-family house prices, corrected for general inflation and also for the tendency of houses to increase in size over time, back to the flat trend that has held since 1890 ( Chart 26).

We are strong believers in reversions to the mean, especially when it has held for over a century and through so many huge changes in the economy in those years—two world wars and the 1930s Depression, the leap in government regulation and involvement in the economy, the economic transformation from an agricultural base to manufacturing and then to services, the post- World War II population shift from cities to suburbs, the western and southern transfer of population and economic strength, the movement from renting to homeownership and the accompanying spreading of mortgage financing, etc.

Seems to me that Gary Shilling runs a market research firm and normally gets paid for his analysis and opinions. They’re worth paying attention to, maybe. And the data, the charts, and the conclusion are pretty devastating and difficult to refute. Go read the whole thing; it might depress you a bit, but there’s some really good information and analysis there.

What I started wondering is, what would be some of the impact to the industry should Shilling’s predictions come to pass?

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(Originally posted on the 7DS Blog)

As reported by Inman News, NAR’s Multiple Listing Issues and Policies Committee has approved a new addition to the Internet Data Exchange (“IDX”) policy as follows:

Display of IDX Information by Real Estate Franchise Organizations

Participants may provide IDX information to their real estate franchise organizations (“franchisors”) to be indexed for display on franchisors’ websites. For purposes of this policy, “real estate franchisor” is defined as a company granting real estate brokerage franchises under the franchisor’s trademarks pursuant to a franchise disclosure document meeting applicable Federal Trade Commission rules. Display of IDX information by franchisors is subject to the following requirements and limitations. Failure of a franchisor to comply with the following requirements and limitations can, at the discretion of the MLS, result in suspension or termination of the participant(s)’ authority to provide IDX information to the franchisor:

• Initial search results that provide minimal information (e.g. “thumbnails”) are exempt from MLS-required disclosures (e.g. listing firm, listing agent, source of information, notice that information is deemed reliable but is not guaranteed accurate) provided that a direct link to a detailed (“full view”) display that includes all required disclosures is provided.
• Consumers can link directly to the detailed (“full view”) display that complies with MLS disclosure/display rules of the source MLS.
• IDX information is not used for any unauthorized purpose.
• Inaccurate or incomplete information related to any listing is promptly corrected by the franchisor at the request of the source MLS.
• No advertising may appear on pages displaying IDX information.
• IDX listing information will not be modified, manipulated or permanently retained.

Rationale: This proposed expansion of the IDX policy would authorize real estate franchise organizations, with their franchisees’ consent, to index those franchisees’ IDX displays, with the results being displayed on franchisors’ websites, subject to appropriate qualifications and limitations.

On the surface, this seems like a fairly minor change to the IDX policy.  But we’re not content to lick the surface of this watermelon.  Let’s dive in a bit with some questions that immediately arise.

CLICK HERE TO READ WHOLE POST ON 7DSASSOCIATES.COM

Back in September, when Move, Inc. (which operates Realtor.com, among other units) acquired ListHub, the leading syndicator of listings, there were a number of opinions and speculations on why Move would buy a syndicator of all things.  Given that Move gets a direct feed of all MLS listings under the NAR Operating Agreement, it didn’t make much sense to buy a supplier of listings.

I thought then that I knew the real strategic motivation behind Move’s acquisition, and how we’d eventually see it play out.  But I didn’t write anything about the acquisition at the time because I felt I was in possession of information I should treat as confidential, given how I acquired it.  Well, at NAR yesterday, I got a few minutes to speak with Steve Berkowitz, the new CEO of Move, as well as Errol Samuelson, President of Realtor.com, more “on the record” so to speak.  I confirmed most of my hypotheses, and learned a bit more about how Move intends to utilize its latest asset.

Short version: Move, with ListHub, will be creating and enforcing syndication standards across the industry that will both increase data protection for brokers and agents, and provide Move with a competitive advantage (or at least remove the competitive disadvantage) vis a vis other publishers, such as Trulia and Zillow.

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Your future tax dollars at work?

In my earlier post on the New Normal in real estate, a commenter took issue with my predictions about the future of the 30-year fixed rate mortgage (among other claims).  I thought I would expand on that aspect a bit.

The specific mechanism that I think will be put in place is a change in the mission of Fannie Mae and Freddie Mac (possibly other housing-related agencies, such as FHA, VA, and the state/local housing authorities).  I expect that Fannie/Freddie will actually become fully government-chartered entities (as NAR suggests) rather than this weird government-sponsored private companies that provide private rewards at public risk.  As a GCE, rather than a GSE, F&F will no longer have profit as its raison d’etre, but the promotion of public policy.

In this case, that public policy is to encourage the development of affordable rental properties across the low and middle-income spectrum, thereby reserving homeownership for the (relatively) wealthy who pose far less credit risk to lenders.

That, to me, spells the end of the 30-year fixed rate mortgage.

Allow me to step you through the argument for why this is likely to happen.  (Which is not to say I want this to happen, of course.)

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In part 1, I laid out some hints of what the Obama Administration has in mind for a new federal housing policy that would “reset the rules of the market” and engage in a “fundamental rethink” not just of the mechanics of housing finance, but of the objectives of housing policy themselves.  The Treasury now has all of the comments that it requested from the public and we can expect to see a proposal from the Administration sometime this fall or early next year.

In this post, I’d like to engage in the purest conjectures about what such a policy might look like.  I know that assumptions are dangerous, and any conjecture at this early stage is more likely to be wrong than right, but… hey, this is fun.  (If you’re a real estate and politics geek like me anyhow.)  So here we go.

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