Real Estate: The Impact of Today s Challenges on Tomorrow s Future

January 27, 2009 Real Estate: The Impact of Today’s Challenges on Tomorrow’s Future Dan Forsman President and CEO Prudential Georgia Atlanta, GA Lar...
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January 27, 2009

Real Estate: The Impact of Today’s Challenges on Tomorrow’s Future Dan Forsman President and CEO Prudential Georgia Atlanta, GA

Larry Knapp President Alain Pinel Realtors San Francisco, CA

Pam O’Connor, SCRP President/CEO Leading Real Estate Companies of the World® Chicago, IL

This audio program © 2009 Worldwide ERC®

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Today’s Presenters

Dan Forsman

Larry Knapp

© 2009 Worldwide ERC®

Pam O’Connor, SCRP

Learning Zone Zip-Poll What Industry Segment Do You Represent? 1. 2. 3. 4. 5.

Appraiser Broker Corporate Relocation Management Company Other

© 2009 Worldwide ERC®

© 2009 Worldwide ERC®

State of the Market • Crisis-level marketplace • Will spawn paradigm changes • To create solutions, we must first analyze the situation – the purpose of today’s webinar • The recipe for managing the negatives and exploiting the positives includes a key ingredient: LEADERSHIP! © 2009 Worldwide ERC®

Learning Zone Zip-Poll Results What Industry Segment Do You Represent? 1. 2. 3. 4. 5.

Appraiser Broker Corporate Relocation Management Company Other

© 2009 Worldwide ERC®

Understanding the Landscape: S.W.O.T. Analysis • Strengths (of the current real estate environment as it relates to relocation) • Weaknesses • Opportunities • Threats

© 2009 Worldwide ERC®

Strengths Strength #1 The value of housing as a long-term investment Impact on relocation: Timing of transfers plays a major role © 2009 Worldwide ERC®

Return on Investment Jan 2000 - Sept 2008 72

Even

-12.7

- 45

Dow

S&P

Nasdaq

Real Estate

PMI Value of Homeownership Study Price Appreciation

498%

Return on Equity

301% 139% 35% 5 Years Source: PMI October 2007

71% 10 Years

110% 15 Years

Strengths Strength #2 More favorable affordability levels than seen in several years Impact on relocation: Entry barriers for transferees to high-cost markets is mitigated © 2009 Worldwide ERC®

Strengths Strength #3 Strong home buyer demographics, with Gen X/Gen Y buyer population larger than Baby Boomers Impact on relocation: Relocation programs must customize policy and communication channels to these younger transferees © 2009 Worldwide ERC®

Today’s Consumer Today’s Consumer Name

Number

Age in 2006 Matures/Civics 58 million 61+

Born

Baby Boomers

78 million 42-60

Before 1946 1946-1964

Gen-Xers

48 million 30-41

1965-1976

Gen-Yers/ Millenials

73 million 12-29

1977-1994

Home Buyer Demographics Home Buyer Demographics 40 35 30 25 20 15 10 5 0 Civics/Matures Boomers

U.S. home buyers First-time home buyers

Gen-X

Gen-Y

Strengths Strength #4 Recent cost-cutting and restructuring that are making brokerage firms healthier and more efficient Impact on relocation: Corporations/third party companies must look more closely at real estate company resources/stability than at agents alone © 2009 Worldwide ERC®

Strengths Strength #5 Cyclical nature of housing… It historically rebounds! Impact on relocation: Robust property management and rental programs need to be offered as alternatives to minimize losses while waiting for the turn. © 2009 Worldwide ERC®

Weaknesses Weakness #1 Poor consumer confidence, uncertainty and pessimism – valid but also fueled by the media Impact on relocation: Buyers in “neutral,” corporate inventory rising as a result, home sale programs more essential to achieve transfer acceptance © 2009 Worldwide ERC®

© 2009 Worldwide ERC®

Weaknesses Weakness #2 Inadequate messaging of the real estate community to provide context to media soundbites and/or counter them Impact on relocation: Less-than-persuasive counseling given to corporate clients to support wise decision-making © 2009 Worldwide ERC®

Housing Appreciation Pattern 89%

25%

Source: Brookings Papers 9/08

27%

25%

29%

Assuming a 10% fall in prices… On a $300,000 house, a  family/corporation loses 

$576.92 per week by not accepting realistic offers

“Reports appear to be pointing to a bottom in the housing problem; in fact, maybe the tiniest beginnings of a recovery. The reality is a possible upturn in the housing trend, and at the very least we are getting a bottom”. -Lawrence Kudlow ,host of CNBC’s Kudlow & Company

Source: Kudlow’s Money Politics 7/24/08

This could be the time to buy a house.

“I am now telling you that between now and the next six months you have to buy a house.”

Source: Mad Money Blog 7/23/2008

“But I don’t think all this necessarily means that you should put off buying until certain prices have bottomed out, assuming you’re planning to live in your house for, say, at least five years as opposed to flipping it.” 11-04-08

Weaknesses Weakness #3 Declining home values and the question of “have we hit bottom yet?” Impact on relocation: Overpricing by transferee sellers leading to long marketing times, unproductive employees, and high inventory costs for corporations © 2009 Worldwide ERC®

Perspective – Rate/price dynamic $500,000 @ 6% = $2,997.75 8% price decline: $460,000 @ 7% = $3,060.69

© 2009 Worldwide ERC®

Realistic Offer Evaluation Marketing time costs $300,000 home @ 1.5% monthly carrying costs $4500/month in expenses x 6 months marketing time $27,000 total carrying costs Depreciation of 10%/year = 5% for six months $15,000 lower value 6 months from now Total cost impact = $42,000 The first offer is often the best one. These factors must be considered in evaluating corporate inventory offers…and even those during marketing period which could avoid taking the property into inventory. © 2009 Worldwide ERC®

Weaknesses Weakness #4 Overpopulated real estate industry and inadequate agent and manager skill sets for today’s demanding environment Impact on relocation: Not enough control exerted to choose proficient agents, and high referral fees that drive away those best suited to meet the needs of transferees/corporations © 2009 Worldwide ERC®

Weaknesses Weakness #5 ‘Day trader’ buyer mindset of recent years leading to overbuying, short-term flipper focus and using home equity as a ‘bank’ Impact on relocation: Upside-down transferees who either will not relocate as a result or who have to be compensated by programs © 2009 Worldwide ERC®

S & P Case-Shiller Index Appreciation 1996 - 2006

62.09%

Drop Since Sept 2007

-9.47%

Home Value - Bought in 2003

+6.44%

Home Value - Bought in 2004

+2.70

Home Value - Bought in 2005

-2.31%

Home Value - Bought in 2006

-6.36%

Home Value - Bought in 2007

-6.96%

© 2009 Worldwide ERC®

November, 2008

Opportunities

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Point of maximum  risk in investment

Euphoria Denial Excitement

Optimism

Fear Panic Optimism

Hope Despondency

Depression

Point of maximum  opportunity

Source: Westcourt Funds

Opportunities Opportunity #1 No better time to buy a home based on low interest rates, affordable prices, inventory choices, and leverage with sellers Impact on relocation: Luxury of having transferees “buy right” to mitigate future relocation problems, and to offset what they may lose at the origin location © 2009 Worldwide ERC®

© 2009 Worldwide ERC®

Opportunities Opportunity #2 Ability to innovate that doesn’t seem necessary in a busy, thriving market – allowing us to modify policy, behavior, and structure, and to redeploy resources to deliver new kinds of value Impact on relocation: Chance to retool legacy policy, analyze true vendor value, and make programs more nimble for the future © 2009 Worldwide ERC®

Opportunities

"You never want a serious crisis to go to waste. This crisis provides the opportunity for us to do things that you could not do before." --Obama Chief of Staff Rahm Emanuel December, 2008 © 2009 Worldwide ERC®

Opportunities Opportunity #3 Growth and competitive differentiation for the ‘fittest’ brokerages as weak firms disappear through consolidation, walkovers, or closing their doors Impact on relocation: Enhanced skills and value of real estate providers, easier to identify who is really good, chance for best relocation companies to emerge © 2009 Worldwide ERC®

Opportunities Opportunity #4 More needy customers for whom practitioners can provide deep value and earn long-term ‘customers for life’ loyalty Impact on relocation: Scarce job market and employee-focused programs will make for more grateful transferees who value their companies and jobs © 2009 Worldwide ERC®

Opportunities Opportunity #5 Tearing down silos within companies and within the industry because we’re in a crisis mode where all must collaborate to develop solutions Impact on relocation: Rare time to integrate the agendas of corporations, third parties, van lines, brokers, appraisers & enhance mutual respect © 2009 Worldwide ERC®

Threats

© 2009 Worldwide ERC®

Crisis = Opportunity

How we view and manage threats, and take advantage of the opportunities they provide, is what ultimately matters.

© 2009 Worldwide ERC®

Threats Threat #1 Troubled economy, deficits, long-term bail-out consequences, failing companies Impact on relocation: Declining relocation volume affecting corporate success and financial viability of relocation industry suppliers © 2009 Worldwide ERC®

Threats Threat #2 Rising unemployment numbers

Impact on relocation: Fewer buyers for relocation properties, employee resistance to moving based on job security © 2009 Worldwide ERC®

Threats Threat #3 Increasing foreclosures further affecting supply, prices of other properties, and neighborhood quality Impact on relocation: May affect employee’s home value if near foreclosures, or delays if making an offer on an REO property © 2009 Worldwide ERC®

Threats Threat #4 Emergence of new real estate providers who could replace existing brokers and agents unless these incumbents deliver a compelling value proposition Impact on relocation: ‘New-age’ companies not schooled in relocation and institutional leads, also could lead to more Internet/relocation program channel conflict © 2009 Worldwide ERC®

Threats Threat #5 Communication disconnect between real estate providers and corporate relocation representatives leading to poor results Impact on relocation: Higher costs due to improper pricing/marketing, and potentially, losses in the war for talent if relocation practices are not aligned with the troubled housing market © 2009 Worldwide ERC®

Worldwide ERC® Member Questions

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Visit the Worldwide ERC® web site at www.worldwideerc.org, or contact Worldwide ERC® for more information on these topics. +1 703 842 3400

© 2009 Worldwide ERC®

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