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Countdown to Meltdown: Doomsday scenarios for “Hallucinating Homebuyers”

Long_emergency1This doomsday scenario is worth
scanning, not just because the author — a former editor of Rolling
Stone magazine
and author of three books on suburban sprawl — calls the
real estate bubble the “last act in the sorry drama of the hallucinated
economy” but because it’s the second economic doomsday scenario we’ve heard in 36 hours and offers some potential decision-making criteria for home buyers.  Writing about James Howard Kunstler’s new book The Long Emergency,the Santa Cruz Sentinel says:   

"Understanding the deep changes the United States and the rest of the
world will experience as early as this decade, he said, could be the
deciding factor in which thriving communities of today become the ghost
towns of tomorrow."

"The middle
class will become distressed, the construction industry flat,
interstate hauling will disappear, airlines will become toast and our
daily lives will be defined by what’s within walking distance."

"Suburbs, large cities and McMansions will become slums."

The
good news is that “Some communities will fair better than others during
the “Long Emergency.” So how do you find one if you are planning on buying a home this year despite repeated warnings of the real estate bubble? 

Posted in Book reviews, Foreclosures, In the News, Real Estate Bubble

Should I Buy a House in the Bay Area?–Running the Numbers

Godzilla_crowds1The brain is hardwired to expect patterns to repeat themselves, says Harvard Business School professor Terry Burnham author of Mean Markets & Lizard Brains:  How to Profit from the New Science of Irrationality, which may explain why many smart people still want to buy homes at irrationally
high prices.  Publisher John Wiley & Sons writes: 

"In contrast to old-school assumptions of cool-headed rationality, the
new behavioral school embraces hot-blooded human irrationality as a
core feature of both individuals and financial markets. The 2002 Nobel
Prize in Economics was awarded to scholars of this new scientific
approach to irrationality. …The human brain contains ancient structures that exert
powerful and often unconscious influences on behavior. This "lizard
brain" may have helped our ancestors eat and reproduce, but it wreaks
havoc with our finances. Going far beyond cataloguing our financial
foibles, Dr. Burnham applies this novel approach to all of today’s most
important financial topics: the stock market, the economy, real estate,
bonds, mortgages, inflation, and savings. This broad and scholarly
investigation provides an in-depth look at why manias, panics, and
crashes happen, and why people are built to want to buy at irrationally
high prices…"

How should smart home buyers protect themselves?  Make every single financial decision rationally, not emotionally, says Burnham.  Analyze your own behavior, find out where your emotional weaknesses are, and act in rational ways to counteract them.  Most economists believe that people are rational but over the past 20 years they have found that is not the case.  People make all kinds of mistakes, driven by emotional non-rational factors whether they are evaluating stocks, bonds, or housing.

When asked by The Motley Fool if he would buy, sell or hold real estate right now, Burnham said, "Real estate is not a bubble, but it is overpriced.  …the reason it has gotten there is that people have been fooled by low interest rates."  Burnham’s bottom line advice in the radio interview today:  "Don’t buy, I say "hold" as I do in the book."  Chapter Nine, entitled "Live in Your Home; Make Your Money at Work" includes a seven page subchapter on the housing bubble.  You can view the table of contents, index, and reader reviews on Amazon.com.  I haven’t read the book or the section on the housing bubble yet but am eager to do so. 

What’s your take — is the irrational exuberance in the housing market being driven by our lizard brains or something else? 

Posted in Book reviews, Real Estate Bubble

Wanted: New generation of “fee-for-service” real estate consultants to help “An Army of Davids” save $30 billion annually

Raving about the book, An Army of Davids, Web 2.0 real estate blogger Mike Price, founder of MLPodcast, quotes author and Instapundit guru Glenn Reynolds as saying:

"It’s not just that fewer people can do the same work, it’s that they
don’t need a big company to provide the infrastructure to do the work,
in fact, they may be far more efficient without the big company and all
the inefficiencies and stumbling blocks that its bureaucracy and
techno-structure seem to produce."

Price concludes with this warning to traditional real estate agents "who don’t get it:"

"This new paradigm of singularity powered by technology and changes in
social structures can not be denied, so you’ll have to ask yourself if
you’re prepared to sell to a client that is all too familiar with the
concepts."

At The Real Estate Cafe, there is no such thing as a client who is "all too familiar with" Web 2.0 or the real estate market 😉  In fact, we assume our clients know more than us about the local housing markets some of them have been monitoring for more than a decade using the internet and good old-fashioned word of mouth.  That was the case this morning with our latest buyer client. 

Unfortunately, what some of tech-savvy house hunters don’t realize is that the rules of the current real estate industry sometimes penalize self-reliant, do-it-yourself’ers who wait too long to ask a buyer agency willing to rebate 2/3rds of the buyers agency fee, like Redfin; or rebate 3/4rds of the buyer agency fee, like BuyerSideRealty; or rebate 100% of the buyer agency fee, like The Real Estate Cafe to represent them.

Until real estate commissions are uncoupled, and buyer and sellers agents negotiate separate fees independently with their respective clients, web-savvy homebuyers need to be equally savvy about inadvertently forfeiting thousands of dollars in rebates by communicating directly with listing agents, online or off, who are always eager to collect both sides of the obsolete, two-sided real estate commission.  That’s part of what is keeping the bloated real estate dinosaurs, Reynolds pokes fun at in his statement above, profitable.  As they fall under the weight over their own inefficiency, a new generation of "micro-brokers," with modest or minuscule overhead costs and reasonable consulting fees, will gladly help "An Army of Davids" save an estimated $30 billion dollars annually.

Posted in "We" companies, Book reviews, Change Agents, Commission Reform, Do-it-yourself, Dual Agency Detective, Podcasts, Savings & Rebates, Tech Trends, Unbundling the Commission
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