Notorious R.O.B.

Ted Williams: .406 batting average in 1941. Me: .600 in 2009. Sorta...

Coming off of an awesome, Hall-of-Fame type of year in which I batted .600 in predictions (or, alternatively, a year in which I only got 6 out of 10 predictions even remotely close to right, and hence am a big #FAIL), I thought I would don the Nostradamus hat once again and make foolish predictions for 2011. I know I should make 10 predictions, but… y’know, I’m sort of stuck on that number Seven.

Here are seven predictions for 2011. Many are guaranteed to be wrong, or your money back! But as a bonus, each prediction comes with a music video for your entertainment.

[Warning: don’t read this is you’re feeling happy and optimistic, and you want to stay that way. I’m personally feeling happy and optimistic, but as I put this together, I can’t help but want to reach for strong drink for the industry as a whole. I know I tend towards bearishness, and some might suggest, alarmism, so… I’d suggest you go read some other 2011 predictions posts as well. Here are a few I’ve seen myself: Lani on Agent Genius, Greg Robertson on VendorAlley, and this whole series over at Inman.com.

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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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My friend Matt Dollinger recently commented on a post by the longtime real estate expert Steve Harney. Both were commenting on the doom & gloom article from Time Magazine on how homeownership is overrated. Steve Harney rightfully takes Time to task:

Again, they are simply arguing a miniscule point of an extensive research paper that proves the benefits of homeownership. Where is their research, their study, their expert testimony disproving this study’s results? They gave none because there is none. (Emphasis in original.)

Matt, in commenting on what Steve Harney wrote, and on the gloomy headlines from newspapers and magazines, suggests that real estate agents need to start focusing on how to answer questions from confused consumers:

We all understand that this is a difficult time for those in real estate… both consumers and agents alike.  However, your job above all else, is to become the Trusted Advisor of those closest to you and choosing you to represent them.  That means that you are responsible for being able to decipher fact from fiction and opinion from proof.  There are many conflicting headlines out there today published by everyone from trusted sources like Wall Street Journal, CNN and many others.  Your job is to sift through this material and create KNOWLEDGE from the DATA presented.  Only by creating this knowledge and providing it objectively to your clients can you truly assist in their decision to buy, sell or invest in real estate.

I agree wholeheartedly with both Steve and Matt insofar as their trashing of Time’s “reporting” and their recommendations to real estate professionals.  I do, however, think that the implications they draw are not necessarily what we’re going to face.

I believe that every real estate professional today, like it or not, has to become an amateur political analyst because it is well-nigh impossible even to understand what to make of conflicting headlines without understanding the political implications.

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Welcome to the first Carnival of Real Estate Policy.  It seems impossible that the real estate blogosphere has gone so long without talking more about government policy given that real estate is a heavily regulated industry, and the more important organization in real estate is a industry lobby group (NAR).  But for the most part, we bloggers in real estate have spent most of our time and energy talking about the market, about the homebuying process, and about marketing techniques, including social media.  Hopefully, we will start to talk more and more about the policy issues that will have far-reaching consequences for the industry, for consumers, and for government.

As is often the case, posts about policy often cannot be distinguished from posts about politics. One’s political views will inform one’s policy preferences.  As the editor (and host, and chief cook and bottle washer) of the Carnival, I have chosen not to accept posts that I felt were purely political: interested more in scoring points for or against one party or another, or one politician or another.  But it is often impossible to separate policy debates from political ones, so you will find posts you consider to be political; well, I’ve tried.

Here are the posts for this inaugural edition of the Carnival of Real Estate Policy:

What Comes After the Future of Housing?

Jeff Corbett, Mr. XBroker himself, looks at possible scenarios for Fannie and Freddie based on the comments from the Conference on the Future of Housing Finance.

Recovery Through Policy or Free Markets?

Brian Hickey of Teardowns.com argues that what the government needs to do is free up capital and get out of the real estate transaction.

Will the Homebuyer Tax Credit Return?

Jay Thompson, Phoenix Real Estate Guy, discusses the possibility that the $8,000 Homebuyer Tax Credit may be extended once again.

Recovering from the Real Estate Katrina

Rich Bailey, of The Gopher Files, works the disaster analogy.

Rogue Housing Market Recalibrates to the New Abnormal

David Arbit, of Minneapolis Area Assocation of REALTORS and 10K Research, provides numbers that show the Homebuyer Tax Credit merely pulled demand forward.

A Follow Up to the Hot Issue of Reform for Freddie and Fannie

Mark Brian, a REALTOR and blogger from South Carolina, discusses more Fannie and Freddie and what the government should do about them.

The New Housing Policy – Will It Repair the Housing Market?

Linsey Planeta, the broker-owner of M Realty in Orange County, CA, worries about the new housing policy’s impact on the market.

Fannie and Freddie: Into Commercial Real Estate, Out of Residential

My submission to the Carnival, where I look into why I believe the 30-year fixed rate mortgage is on its way out and how that will occur.

Thanks to everyone who participated in this first edition of Carnival of Real Estate Policy.

-rsh

PS: I just scheduled the next edition for October 3rd; submission deadline is October 1st.  The BlogCarnival link is here: http://blogcarnival.com/bc/eprof_39138.html

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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Bringing you a giant cornucopia of helpful changes!

My friend Matthew Shadbolt alerted me to this editorial by Ken Harney, a columnist for the Washington Post, that was published on The Real Deal.  Harney believes that the not-yet-fully-formed Consumer Financial Protection Bureau can’t get here fast enough, and that the days of wine and roses will soon dawn upon us:

The financial reform bill signed into law by President Obama may look like a giant cornucopia of helpful changes for homebuyers and loan applicants — not the least of which will be the creation of a powerful Consumer Financial Protection Bureau to ride herd on the mortgage lending industry.

Well, forgive the snark, but… a giant cornucopia of helpful changes for homebuyers and loan applicants?Really?

Let’s see what the wondrous benefits of a $500m federal agency we’re about to receive are.

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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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1906 San Francisco earthquake

There was, apparently, an earthquake in Washington DC not too long ago.  Thankfully, no one was hurt, and no serious property damage occurred as the 3.6 magnitude tremor rolled through.  Mere days later, however, I learned that another tremor — this one not registered on any geological survey — centered around Washington DC occurred.  From the Washington Post:

Responding to the collapse in home prices and the huge number of foreclosures, the Obama administration is pursuing an overhaul of government policy that could diverge from the emphasis on homeownership embraced by former administrations.

“In previous eras, we haven’t seen people question whether homeownership was the right decision. It was just assumed that’s where you want to go,” said Raphael Bostic, a senior official in the Department of Housing and Urban Development. “You’re not going to hear us say that.”

While this particular tremor hasn’t developed yet into anything earth-shattering just yet, and there are absolutely no details available just yet, for anyone even remotely connected to the real estate industry, these statements amount to a tectonic shift of realignment.

What rough beast, its hour come around at last, slouches towards DC to be born?

Conjectures follow.

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A while back, I wrote on Inman (subscription required) that the single greatest asset of realtors was political power, and got mixed comments about that position.  Well, the time to find out is upon us:

The popular tax break for mortgage interest, once considered untouchable, is falling under the scrutiny of policymakers and economic experts seeking ways to close huge deficits.

Although Congress last year rejected the White House’s proposed cut to the amount wealthier taxpayers can deduct for home mortgage interest payments, the administration included it again in its 2010 budget — saying it could save $208 billion over the next decade.

When NAR lauched HouseLogic.com last year, one of the examples it used to talk about how important HouseLogic.com would be was defending the home mortgage interest deduction.  With the Obama Administration putting the elimination of the mortgage interest deduction back on the agenda for 2010, it’s time to find out just how powerful NAR is, and whether NAR does in fact add value to the Realtor or not.

Plus, given that the “recovery” of 2009 and spring of 2010 (I have my doubts on how much of the recent market is a recovery vs. simply pulling deals forward in time, but nevertheless…) was widely seen as having been fueled by a $8,000 first time homebuyer tax credit, the elimination of the mortgage interest should have interesting — if devastating — consequences for the market.

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I think I might have fallen in love with Larson/Sobotka.  I haven’t the faintest idea who they are, but it looks like they combine some business consulting with legal work with something else involving MLSes and such.  Bears looking into more.

But they have done a great service for the RE.net by compiling a guide to the new VOW policy.  In fact, they call it a clearinghouse for the new NAR VOW rules, and I think it fits.  There’s a lot of depth here, and a lot of breadth.  Check it out in full.

For myself, I immediately zeroed in on this:

What a VOW is

For purposes of the DOJ/NAR settlement, a VOW is:

A web site, or feature of a web site, operated by a Broker or for a Broker by another Person through which the Broker is capable of providing real estate brokerage services to consumer with whom the Broker has first established a Broker-consumer relationship (as defined by state law) where the consumer has the opportunity to search MLS data, subject to the Broker’s oversight, supervision, and accountability. (See Policy Section I.1.) [Emphasis mine.]

Interesting.  The law-school training kicks in and I see at least three questions to be resolved, probably through litigation:

1.  What does “providing” mean?

2.  What sorts of activities constitute “real estate brokerage services”?  Is this governed by state regulations?  Or is this to be under some common law agency theories?

3.  If state law defines “Broker-consumer relationship”, then what to make of provisions like this one from Delaware?:

Entering a name and email address on an Internet or World Wide Web site is sufficient to establish a broker-consumer relationship for the use of that system, but does not in of itself create a broker-customer or client relationship for any other purpose.

Especially in light of the clause that reads, “capable of providing real estate services” in the NAR DOJ settlement, under Delaware law, there may be enough of a relationship created by entering a name and email address to use a VOW but not to take advantage of any of the real estate services provided.  Does that even make any sense?  Isn’t the display of property information itself a “provision of real estate services”?

Or does the NAR-DOJ settlement override Delaware law by operation of the Supremacy Clause?  Even when it specifically says state law controls definition of “Broker-consumer relationship”?

Heh.  I love regulations written by lawyers, don’t you?

But Larson/Sobotka has more riches in store for us:

• An IDX site is not a VOW. IDX is an MLS policy under which a brokerage firm participating in MLS grants permission to other brokers participating in MLS to advertise its listings on their web sites, in return for their permission to advertise their listings on its web site. IDX sites are governed by MLS IDX rules, which are entirely unaffected by the settlement. Note that a brokerage firm can operate both an IDX site and a VOW at the same location on the web. (For example, the brokerage can show the consumer some information on its IDX site but then require her to register to see the information available only through its VOW.)
• Zillow, Trulia, and other national aggregators and commercial distributors of listings are generally not VOWs. (Note that these sites are not IDX sites either, and the data feeds that some MLSs provide to them are not “IDX feeds,” as they are sometimes erroneously labeled.) These companies may receive listing data from brokers or MLSs, but display of those listings is subject to the agreements between the brokers or the MLSs and the aggregators. Neither the settlement, nor any of the policies imposed under it, applies to any of these types of sites. Note that if Zillow or one of these other sites were to become licensed as a brokerage firm, become a participant in an MLS, and actively assist consumers in buying or selling real estate (or both), it would be eligible to operate a VOW.
• MLS public consumer-accessible web sites are not VOWs. (Note that these sites are not IDX sites either, as they are sometimes erroneously labeled.) A VOW is by definition the web site of a real estate broker. An MLS could operate a VOW only if it were acting as a real estate broker – we are aware of no MLS that claims the right to do so.

If for nothing else, Larson/Sobotka deserves some sort of award for spelling these things out so clearly.  Now, to be sure, these should be construed as opinions of one law firm until litigation gives us definitive court rulings, but they strike me as being largely correct.

Assuming that Larson/Sobotka’s interpretations are correct, there are many implications that flow from the above three observations.

One, if IDX is entirely ungoverned by the settlement, then as Brian Larson points out, one can expect that the industry will begin to move towards VOW websites and away from IDX sites.  That could, in theory, be a Very Bad Thing for brokers and agents, however, as the plain fact is that imposing a “signup requirement” to consumers (especially if defined under state law, and that state law is onerous) will drive consumers away from such websites to those that are far more user-friendly.  How that will play out is wholly unknown.  Perhaps MLSes start relaxing IDX rules in response; perhaps brokers start working through their Real Estate Boards to change state regulations; perhaps something else altogether.  But this could be huge.

Two, if Zillow, et. al. are not VOW sites, then they do not fall under the protections (if that’s what they are) of the NAR-DOJ settlement.  So brokers or MLSes can explicitly prohibit its agents or members from giving data to these national aggregators without running afoul of the Settlement. Now, before you shrug, I happen to think there’s a fairly high likelihood of this happening.  Why?  Because of #3 –>

Three, if public-facing MLS websites (such as www.har.com) are not covered under the Settlement in any way, then they also don’t have to follow the “Broker-consumer relationship” rule either.  Which means that of all of the possible websites out there, only the MLS or Realtor Association websites can have all of the property info on every single listing without being subject to IDX rules, and without having to share any of those privileges with anyone else.

In other words, unless I’m totally misreading this, it seems to me that we now have a situation in which HAR (just to use an example; not that they would do this) could

1. display all of the listings info on HAR.com without limitation, and without the “signup” requirement;
2. prohibit all members of HAR from sending any data to Trulia, Zillow, or any national aggregator; and
3. force brokerages to use either shut-from-the-public VOW requirements, or ass-backwards IDX rules filled with purposely inane requirements to discourage the use of IDX.

Wow.  Just wow.

If this is a correct reading, then I differ with Brian Larson only in that even if there are 10,000 VOW’s by 2010, there will only be 50 websites by 2010 that any consumer goes to.

And how does this impact Realtor.com?  As Brian points out, nothing in the Settlement even mentions Realtor.com at all:

The settlement between DOJ and NAR makes no reference whatsoever to Realtor.com, either in the settlement agreement, in the attached VOW policy, or in the attached policy regarding the definition of “participant” in MLS. (In fact, the DOJ press release makes no mention of Realtor.com, either.) The DOJ lawsuit, and its settlement, deal almost exclusively with “virtual office web sites” which are by definition web sites of brokers participating in MLS offering brokerage services to their customers/clients. Realtor.com is not a VOW.

So Realtor.com is not a VOW.  Does its special relationship with NAR give it the same access that all of the local associations and MLSes now have? Will it be the sole national real estate website that can offer all of the information on a listing without requiring a consumer-broker relationship?

I’m thinking the answer might be Yes.

Talk about a seismic shift in the online real estate world.

Am I missing something crucial here?  Am I misinterpreting things?

-rsh

PS: I’m definitely adding the MLSTesseract to the blogroll.  A great site if you’re into some of the details of this stuff.