Richard A. Smith – Real Estate’s Nostradamus?
I’m attending a conference of the top relocation professionals in the world (you know, real estate companies that move people from one part of the world to another) and this morning’s featured speaker was the CEO of Realogy, Richard A. Smith.
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For those of you who don’t know Richard Smith, he is one of the top executives in the US housing market. Realogy is not a well-known name, but it is the largest player (by a wide margin) in the real estate brokerage business. Realogy owns the master franchises for CENTURY 21, Coldwell Banker, ERA, Southebys, and the NRT.
Mr. Smith was a key player in bringing the Homebuyer Tax Credit to the market, and he will be very influential in the handling of Fannie and Freddie, so I just wanted to lay the foundation for why this guy should warrant some of your attention.
Richard A. Smith Says …
Mr. Smith spoke for hours, and he covered way too many important issues for me to report in a single post. Here are a few bullet points that I believe most real estate investors will want to know:
- When asked about his forecast of the future of the housing market, Richard Smith believes that for most markets, values are still going to be under pressure. But he believes we have bottomed on units and we should do better this year and 2012.
- GSEs- Government Sponsored Entities are not going away. Mr. Smith is directly involved with members of congress who are reviewing the (in)effectiveness of these organizations. He believes we will see some sort of “10 year plan” announced by a Congress who has no vision of 10 years (meaning the programs announced will be modified within 3 years).
- If GSEs are terminated and the residential mortgage market becomes purely private, the market will have no loans. Just look at commercial. The commercial market shut down for 2 years. What would happen to the US economy if there were no home loans for 2 years?
- QRM- A very hot topic right now is the regulations that are being considered for the residential mortgage industry. QRM (Qualified Residential Mortgage) is a new mortgage test rule that requires lenders to retain reserves for loans that do not meet new (still yet to be finalized) QRM standards. Early talks had lenders having to retain 5% of the loan amount in reserves if the loan exceeded 70% LTV. This type of standard would kill mortgage lenders, making a playing field where only the largest of banks could play. Expect more fight in this issue.
- What “we” need is a one-term president…
- Mortgage interest rates will remain low (election year) through this year and at least early next year.
- The Homebuyer Tax Credit was hugely successful, but it should have run another 6 months (through the end of 2010). Because of the tax credit, most likely year over year sales in the first half of this year won’t beat last year, but the 2nd half certainly will.
- White House, State and Federal pressures are holding major lenders back from clearing out foreclosures. Banks are not foreclosing on properties that they have every legal right to do so, but the federal government is telling them not to.
- Richard Smith believes 2 to 3 years worth of inventory in the shadows, four at the very worst. There is NOT 7 years worth of inventory.
- Mortgage Interest Deduction is under close scrutiny right now. It might be tweaked, but it won’t go away (without MAJOR tax reform). Smith does not see Congress having the guts to tackle the issues necessary for major tax reform.
Obviously, there was more covered, but I just can’t type that fast :).
To summarize, there is much happening politically that warrants our input with our elected officials. Whether you are a real estate investor or a real estate practitioner, the political decisions being made right now will have a huge impact on your ability to make a living in the coming years. Get involved.
The market is now moving into a recovery, but values will continue to slide even as unit sales start to rise. Pay close attention to the pace of liquidation of the shadow inventory by large banks, as this pace will determine the size of the glut and the intensity of the pressure on pricing.