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real estate market

This week’s report that more than 11.3 million homeowners owed more on their house than their house was worth has prompted a fair amount of discussion among the people I talk with.

The big question is what the data point means.

In practical terms, almost 1/3 of homeowners don’t have an ownership interest in their home.  They are tenants to the bank, and at some point have to make a decision whether the cash cost of the mortgage is competitive with the cost of a comparable rental unit.  Most experts agree that consumers executing short sales will get dinged on their credit report — though not as badly as in a foreclosure — and will need two years of credit seasoning before they can buy a new home.

Of course, emotions factor in to the consumer’s decision in the short-term.   They’ll hope that values will recover enough to let them regain some equity.  They’ll decide that they don’t want to leave their HoCase-Shiller House Prices Indicesme, with a capital H.  And, they’ll wonder whether the government will find a way to step in and help them regain some value. (The continued paring of price declines in the Case Shiller reports fuels the hope that their home will rebound in value.)

Banks have a vested interest in managing the flow of foreclosures and short sales in the market.  The more distressed properties that come into the market, the more downward pressure on prices, forcing banks to de-value the loans on their books.  In the simplest terms, the banks have an incentive to keep the negative equity loans off the market.

Combine the bank and the consumer incentives and you have a stagnant market.  The foreclosure and short sales inventory hangs over the market, but with little threat of creating another precipitous drop in prices.

Talking about this situation with a colleague, we speculated on what this unnatural market dynamic will mean for real estate this year.  One scenario — which I advanced — was that the volume of home sales could easily stay flat, or decline slightly, in 2010, but that the value of those homes would be up significantly from 2009.  The mix of inventory will shift, as more and more  buyers gain confidence that market has bottomed out and begin to compete for the best inventory in the market.

This kind of activity will be the nature of the slow grind the real estate market, and the economy overall, is going to experience over the next couple of years.  It’s not glamorous…not one bit…but it won’t be as traumatic as the past 24 months.

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When thinking about the home sales market, I find it useful to look at the relative velocity of sales.

This metric captures just how significant the slowdown in home sales was over the past few years, and how strong the recovery has been in 2009.

Since 1999, the number of homes sold in October has been 48% higher than the number of homes sold in January, on average.

Screen shot 2009-11-25 at 11.44.25 AM.jpg

The home sales market performed within a relatively narrow band from 1999 to 2005. In 2006, however, October home sales were only 16% higher than January. The market had come to a virtual halt.

In 2009, October sales are 94% higher than in January.

From month-to-month, the relative velocity of home sales follows a fairly predictable pattern. The next chart shows sales from July to September for each year in the past decade.

2009 is clearly an anomaly, inasmuch as there has been minimal drop-off in home sales at the beginning of fall.

Screen shot 2009-11-25 at 11.52.46 AM.jpg

Clearly, the impending expiration of the government housing tax break in November helped to sustain the market velocity. While it’s likely that the rate will slow into the winter, the artificial stimulus has had the effect of re-charging the home sales market. Inventory has been worked off and the gap between seller and buyer price expectations has narrowed.

Going into 2010, we have the dynamics of a normalized housing market in place.

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The ROI of social media marketing: 3 case studies

November 9, 2009

A common question when I talk with businesses — large and small alike — about social media is exactly what the benefits to their business will be.
The short answer is more customers. The long answer is that they will increase their digital footprint by using social media tools to distribute content relevant to their [...]

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Advertising is about hope

October 27, 2009

Last Tuesday I spoke on a panel at Folio:’s ConnexLive conference. Tony Silber moderated, and steered the conversation with some urgency to simple questions about the future of the business we have all made our living from for a long while — magazines.
One of the panelists was Bernie Mann, a successful radio entrepreneur from [...]

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Home sales are within a normal band, but the market pressures are not

October 7, 2009

Earlier this year, I spent some time sifting through historical household and housing data to develop a perspective on what “normal” demand for homes was. One conclusion of that analysis, concluded in May, was there was roughly 18 months of excess housing inventory in the market, and as that inventory was worked through, home [...]

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Some highlights from Move.com’s earnings call

August 6, 2009

Move.com is the 10,000 pound gorilla in the real estate internet market, and the long-time player has been making a number of changes under the leadership of new CEO Steve Berkowitz. The company’s quarterly earnings call is a good opportunity to check in with the direction of their strategy and to assess the potential [...]

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Our social media project gets a little press: Project Massive Network

June 9, 2009

Our social media project at NCI gets a little press.

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