Taming those 'animal spirits' for a housing rebound

It seems that there’s just nothing better than an old-fashioned boom-and-bust cycle in the housing market to reveal what economist John Maynard Keynes dubbed ‘animal spirits’ in the middle of the Great Depression. Harnessed appropriately, it fuels the ‘naïve optimism’ that builders and developers require to place risky bets on new developments, when a constant barrage of economic externalities can derail even the best-laid plans.

But when these spirits turn dark – as they have in this ‘Great Recession,’ aggregate human psychology can prevent lenders from lending, consumers from spending and homebuyers from venturing into sales offices far beyond what traditional economics alone would dictate.

It is precisely this type of phenomenon that economists Robert Shiller (the Yale University professor and co-founder of the S&P/Case-Shiller Index) and Nobel Laureate George Akerlof (a professor at UC Berkeley), discuss in their recent book, “Animal Spirits: How Human Psychology Drives the Economy, and Why It Matters for Global Capitalism.”

Having recently read this book to review for the Inman News service, I also thought its lessons were appropriate for the building industry, given that it was housing which sparked the economic maelstrom in which we still find ourselves. As an adjunct to the review, I was also able to interview Dr. Shiller for a new show I’m hosting on BlogTalkRadio.com, The Housing Chronicles.

A primary thesis of the book is the failure of macro-economic theory over the past generation to properly account for these animal spirits, which can be subdivided into confidence, fairness, corrupt/anti-social behavior, the illusion of how money really works, and the stories that people and societies tell themselves to explain their place in the world. Somewhat like the 2005 book “Freakonomics,” the authors then apply these theories to questions ranging from why countries fall into depressions to why real estate markets seem to always go through cycles.

So what’s the solution to prevent these spirits from again running amuk? For starters – and jump-started by the combination of a newly liberal White House and a somewhat compliant Congress – the authors think we’re on the precipice of a major shift in macro-economic policy. Instead of the hands-off approach which catapulted Ronald Reagan to the Presidency more than a generation ago, tomorrow’s economy will involve a lot more regulation.

Yet in order to prevent this regulation from stomping out the entrepreneurial energy which will lead to a rebound, Shiller and Akerlof also suggest that both individuals and government will have to learn how the economy truly works, and then apply that knowledge to such vexing questions as investing in stocks or real estate, the practical administration of Social Security or healthcare, and how to balance financial goals against life’s many other decisions.

For builders and developers, this shift could also provide a great opportunity to revive or initiate seminars (or Internet-based webinars) on money management, how to appropriately budget for a homebuying purchase, and how to ignore those animal spirits which arise from short- or medium-term changes in the market in pursuit of a longer-term goal: that of paying off a house in which to live.

My review of "Animal Spirits" now online

Recently, I had the opportunity to interview Dr. Robert Shiller, the Yale University professor and co-author of the new book "Animal Spirits: How Human Psychology Drives the Economy, and Why it Matters for Global Capitalism," which is now online at BlogTalkRadio. You can also access that interview by clicking on the BlogTalkRadio player on the right hand margin of this blog.

That review was published today by Inman News, which can find by clicking here. An excerpt:

Ever wonder why a seemingly slam-dunk deal suddenly gets thrown off the rails even though none of the terms have changed?

Perhaps you should blame "animal spirits" gone awry, a term economist John Maynard Keynes coined in the middle of the Great Depression to describe the type of "naive optimism" that is a necessary ingredient for businesses to invest, for entrepreneurs to take risks -- and for potential homebuyers to sign those documents at the closing table.

Left to their own devices, however, these same spirits can fall dramatically, thus becoming a psychological barrier to a properly functioning economy.

In their recent book "Animal Spirits: How Human Psychology Drives the Economy, and Why it Matters for Global Capitalism," economists George A. Akerlof, a Nobel laureate and professor from University of California, Berkeley, and Robert J. Shiller, co-creator of the Standard & Poor's/Case-Shiller Index for home prices and a professor at Yale University, spent over five years researching, dissecting and explaining the importance of these animal spirits in the global economy.

It is their conclusion that longstanding theories of "rational expectations" and "efficient markets" are so flawed on their own that any credible economic models must take into account these spirits to avoid future catastrophes.

Read the entire interview here.

Interview with Robert Shiller now online at BlogTalkRadio

My interview with Robert Shiller, author of the new book "Animal Spirits: How Human Psychology Drives the Economy, and Why it Matters for Global Capitalism" is now online at BlogTalkRadio. You can also listen to the interview by clicking on the widget on the right hand margin of this blog.

This interview will be accompanying my upcoming review of the book for the syndicated news service Inman News.

Interview tomorrow with Robert Shiller, co-author of "Animal Spirits"

On Wed., July 1st at noon (Pacific time, 3pm Eastern time) I managed to snag an interview with Robert Shiller, Princeton University professor, co-founder of the S&P/Case-Shiller index and co-author of the new book "Animal Spirits: How Human Psychology Drives the Economy, and Why It Matters for Global Capitalism" for my Housing Chronicles show on BlogTalkRadio.com.

You can either listen to the first 15 minutes streamed live or listen to the podcast afterwards (I'll post a link). I'll be citing this interview for my upcoming review of the book for Inman News.

Next book review: "Animal Spirits"

For my next book review for Inman News, I selected the book "Animal Spirits: How Human Psychology Drives the Economy, and Why it Matters for Global Capitalism" by economists George Akerlof and Robert Shiller.

The reason I chose it was because few markets are more prone to human psychology than residential real estate, so I was hopeful that the book would provide some tools to real estate agents to educate potential buyers when deciding to enter into a deal.

I'm also trying -- so far unsuccessfully -- to grab 15 minutes of Dr. Shiller's time for a brief, 15-minute interview for my HousingChronicles show on BlogTalkRadio (and also to help with my review). Since I've interviewed the authors of nearly every book I've reviewed for Inman News and the L.A. Times -- including other noted economists such as Richard Florida and Mark Zandi, who regularly testifies in front of Congress -- I was thinking Dr. Shiller would be willing to do the same.

However, since the PR rep for his publisher is having zero luck scheduling this interview, if any readers of this blog have any sway with Dr. Shiller, you'd have my gratitude to intervene. While the lack of an interview certainly won't stop me from writing the review, I'd find it much easier to tie it directly to the Inman News audience with a few specific questions. After all, this isn't the type of book to which your average real estate agent would gravitate, so I had to talk my editor into letting me review it in the first place.

According to Amazon.com, here's a description of the book:

The global financial crisis has made it painfully clear that powerful psychological forces are imperiling the wealth of nations today. From blind faith in ever-rising housing prices to plummeting confidence in capital markets, "animal spirits" are driving financial events worldwide. In this book, acclaimed economists George Akerlof and Robert Shiller challenge the economic wisdom that got us into this mess, and put forward a bold new vision that will transform economics and restore prosperity.

Akerlof and Shiller reassert the necessity of an active government role in economic policymaking by recovering the idea of animal spirits, a term John Maynard Keynes used to describe the gloom and despondence that led to the Great Depression and the changing psychology that accompanied recovery. Like Keynes, Akerlof and Shiller know that managing these animal spirits requires the steady hand of government--simply allowing markets to work won't do it. In rebuilding the case for a more robust, behaviorally informed Keynesianism, they detail the most pervasive effects of animal spirits in contemporary economic life--such as confidence, fear, bad faith, corruption, a concern for fairness, and the stories we tell ourselves about our economic fortunes--and show how Reaganomics, Thatcherism, and the rational expectations revolution failed to account for them.

Animal Spirits offers a road map for reversing the financial misfortunes besetting us today. Read it and learn how leaders can channel animal spirits--the powerful forces of human psychology that are afoot in the world economy today.

Keynesianism, Reaganomics and Thatcherism? I can't wait!

Can't wait for the interview? Buy the book at Amazon.com (now only $9.99), or click on the widget below:

My review of "Real Estate and the Financial Crisis" now online

My review of the book "Real Estate and the Financial Crisis: How Turmoil in the Capital Markets is Restructuring Real Estate Finance"by economist and real estate writer Anthony Downs is now online at Inman News.

For now, here's an excerpt from the review:

As a senior fellow at the well-respected Brookings Institution, a Washington, D.C., think tank with decades spent studying real estate markets, Downs didn't have to rely much on outside experts: in fact, he said that most of his research was conducted on the Internet. He cautions, though, that for the research novice it's often difficult to distinguish between fact and fiction on the World Wide (and wild) Web.

Downs, with 26 other books and more than 500 articles to his credit, has taken readers down similar paths before, including 2007's "Niagara of Capital: How Global Capital Has Transformed Housing and Real Estate Markets" as well as "An Economic Theory of Democracy" (1957) and "Inside Bureaucracy" (1967), the latter two of which are considered academic classics.

Consequently, although the book is designed somewhat like a textbook in format -- including nine chapters and various subsections -- the author's narrative gift for telling stories about complicated economic and political issues makes his latest release easy to both skim and read in greater detail (you may find yourself jotting down notes in the margins). He doesn't "dumb down" the subject matter like a populist real estate book with an exclamation point in the title might do...

Towards the end of the book, Downs gets out his economic crystal ball to peer ahead into the future, and what he sees still remains a bit murky: a credit crunch lasting another one to three years, the real estate capital market gradually improving as investors grow impatient with other asset classes, but a timeline that will depend greatly on how the broader stock market fares in comparison.

Within that context, the author assigns probabilities to four potential future scenarios, including a weak U.S. recession and a speedy recovery by the end of 2009 (15 percent chance); a bad U.S. recession in 2009 and tight credit through 2010 (65 percent); a more serious recession lasting throughout 2010 resulting in a collapse of the dollar and higher interest rates (8 percent); and a recession lasting two to three years including massive federal spending, ongoing inflationary pressures and high interest rates (12 percent).

So what is Downs' latest update from my interview with him? A 65 percent chance of a two-year recession (lasting into 2010), and new housing production levels lower in 2009 than in 2008.

Let's just hope that it's this scenario that turns out to be true and not the one which leads to rampant inflation, high interest rates and a dollar collapse.

I also interviewed author Downs for my show at BlogTalkRadio, which you can either listen to here or by clicking on the audio player on the right margin of this blog.

Want to buy this book? Click here or on the link below.

Next BlogTalkRadio interview with author Anthony Downs

This Thursday, May 21st at 12 noon, I'll be interviewing Anthony Downs, author of the book "Real Estate and the Financial Crisis: How Turmoil in the Capital Markets is Restructuring Real Estate Finance," which I'll soon be reviewing for Inman News.

This is the 27th book for Downs, a PhD-educated economist with the Brookings Institution, who has also written "Niagara of Capital: How Global Capital Has Transformed Housing and Real Estate Markets," "Still Stuck in Traffic," and "Growth Management and Affordable Housing: Do They Conflict?" Earlier in his career, he also wrote "An Economic Theory of Democracy" and "Inside Bureaucracy."

Downs, also a well-known speaker, has consulted with the nation's largest corporations, developers and government agencies, so I'm looking forward to an interesting interview.

Want to listen to the interview on Thursday? Click here, although if you miss it I will post it as a podcast and link to this blog.

Want to buy his book? Click here to order from the Housing Chronicles bookstore at Amazon.com as well as his previous books and those of other authors I've interviewed.

Book review of "After The Fall" published at Inman News

My review of the book "After the Fall: Opportunities and Strategies for Real Estate Investing in the Coming Decade" by Steve Bergsman is now online at Inman News. As an adjunct to this review, I also interviewed Bergsman for my new Housing Chronicles show on BlogTalkRadio, which you can listen to by clicking here or listening to it on the widget below:



From the review:

With the housing market still in tatters but showing some signs of life and the commercial markets starting their own freefall, many investors continue to consider real estate one of the last places to put their dollars to work.

In his new book, "After the Fall: Opportunities and Strategies for Real Estate Investing in the Coming Decade," veteran real estate and travel writer Steve Bergsman argues that now is precisely the time to start considering what types of real estate sectors -- whether residential, commercial or leisure -- should be on your shopping list, both today and in the future...

For each chapter, the author takes us through a brief business journey beginning with an overview, followed by "Where We Are Today," "Where We Were," "Where We Are Headed" and "Fundamentals."

Readers can easily thumb through to whichever chapters they deem most relevant for analysis on the past, present and future for their sectors of interest. In addition, a "Bonus Box" at the end of each chapter focuses on a recent trend for a particular land use sector, such as "The Office Condominium," "Flex Space" (for industrial uses) or "Locations for Knowledge Workers" (for retail uses).

In the case of the commercial real estate markets, Bergsman paints a future portrait of haves and have-nots, in which the largest investors will favor larger urban, international centers such as New York, Washington, D.C., or Los Angeles, while largely ignoring tertiary, largely domestic markets such as St. Louis or Minneapolis.

By 2012, however, the author thinks it will actually be the sleepy, stable apartment market that will be one of the best places for institutional dollars, having likely rebounded from several years of weakness in that sector's underlying fundamentals and a dearth of new construction...

One sub-sector expected to resist the outgoing tide is senior housing, which already went through its own boom-and-bust cycle earlier in the decade and, by 2010, will enjoy a strong surge of favorable demographics as boomers begin to retire in larger numbers.

Looking ahead, two residential sectors Bergsman expects to underperform the market include: condominiums (especially those in popular vacation areas such as Las Vegas or South Florida) and, at least until the next decade, second homes.

However, due to future demographic trends pointing to an aging population, smaller families and a growing preference for returning to the city centers, condos located in urban areas that haven't been overbuilt could return to health as early as 2010, he said...

Finally, although most real estate sectors are expected to return to basic fundamentals for most of the 2010-20 years, one heralded star of the housing boom -- the exurban McMansion built on the far fringes of metropolitan centers -- could likely become its most visible victims of the bust.

Featuring large lots at the expense of a long commute and few public transit options, some industry observers think such single-family homes will eventually be subdivided and become housing for the poor -- which, ironically, is exactly what happened to buildings in various downtown areas as a car-crazy populace moved out to new suburbs during the mid-20th century (see Inman News report on urban, suburban and rural growth and planning trends in the aftermath of the housing boom).

Of the 57 million existing single-family homes on large lots, nearly 40 percent, or 22 million, could have considerable trouble finding buyers in the years ahead as larger economic, political and cultural forces change the way Americans live and view residential real estate as an investment class...

Click here for entire review.

Interview with Steve Bergsman, author of "After the Fall"

Today I had the opportunity to interview author Steve Bergsman, who recently published a new book on real estate investing called 'After the Fall: Opportunities and Strategies for Real Estate Investing in the Coming Decade.' In order to make The Housing Chronicles Blog more multi-media, I have launched a new show on BlogTalkRadio called, fittingly enough, Patrick Duffy's Housing Chronicles. Clever, huh?

Steve is certainly no neophyte to either the fields of journalism or real estate, having written the books Maverick Real Estate Financing, Maverick Real Estate Investing and Passport to Exotic Real Estate. He is also a noted travel writer, with visits to 120 countries over a period of 20 years, and his work has been published in more than 100 publications around the world. I think his travels probably give him an interesting take on real estate here in the U.S., as I've found that travel to other countries is really the best education available.

I'll soon be writing up a review of his latest book for Inman News, but for now I wanted to share today's interview, which I'll feature again once the review is published. You can listen to the podcast below:

My review of "The Great Housing Bubble" now online

My book review of "The Great Housing Bubble" by Lawrence Roberts is now online at Inman News. From the review:

Besides working at his day job as a planning and development consultant in Orange County, Calif., author Lawrence Roberts regularly moonlights as the chief blogger for The Irvine Housing Blog. The book arose from Roberts' experience as a blogger and from the many reader comments he received while blogging.

If you're looking for a cheery and breezy "Housing Bubble Explained for Dummies," this isn't the book for you, nor would that even serve its purpose. What's compelling about it is that the author has a background in real estate that's far removed from the sales process, so he's able to step back and provide the sort of unemotional, macroeconomic overview that seems quite atypical for a guide to investing in real estate.

Of course, that makes perfect sense considering his master's degree in land development from Texas A&M University, which runs a well-respected real estate department.

Click here for full review.

Inman News suggests 10 ways to reform buying/selling of real estate

The editors of the real estate news site Inman News have introduced a list of 10 suggested reforms for residential real estate. I happen to think these are all very interesting, but of course those who've learned to game the system in their favor are already writing in with howls of protests. There are LOTS of things to be fixed in this country, and I think it's courageous of Inman, which depends on tens of thousands of subscriptions from real estate brokers' Web sites, to at least start a dialogue.

From an editor's note: Inman News has compiled a list of 10 reforms for the real estate industry. The list incorporates ideas shared by readers in our Roadmap to Recovery project, in which we asked you for your input. We were overwhelmed with the response. The compilation below is our best effort to summarize these reforms.

The suggested reforms are listed below -- in order to read the full posting you need to have a subscription to the site:

1. Create a more effective regulatory framework for real estate and mortgage professionals.

2. Reform the mortgage origination process.

3. Promote a more efficient real estate industry, reducing costs and promoting services that favor the consumer.

4. Ensure competition and transparency in the way real estate agents are compensated.

5. Consolidate MLS information into a single national database.

6. Real estate professionals should provide buyers and sellers with vastly improved market analytics.

7. Reform the mortgage securitization process.

8. Reduce settlement services costs, regulate bundling of services to prevent price gouging.

9. Ensure affordable housing, smart development.

10. Remove barriers to alternative business models.

Obama's budget goes after mortgage interest deduction

I'm starting to feel a bit sorry for singles making over $200,000 and couples making over $250,000 per year, as it seems they're going to be paying the freight for a revamped health care system.

Meanwhile, much of the country continues to waddle around, hitting up McDonald's drive-through windows and avoiding regular exercise, thus driving insurance costs up for everyone. This will probably turn out to be one of the biggest political fights of Obama's first year.

From Inman News:

Industry groups representing Realtors, home builders and mortgage lenders are up in arms over the Obama administration's proposal to roll back the itemized deduction rate for wealthy taxpayers -- including deductions homeowners can claim on mortgage-interest payments and other expenses associated with homeownership.

The rollback of the tax break wouldn't take effect until 2011, and would apply only to families earning more than $250,000 and individuals making $200,000 or more -- less than 4 percent of taxpayers in 2006.

The Obama administration, which floated the idea in releasing its proposed budget Thursday, says capping the itemized deduction rate for wealthy families and individuals at 28 percent would raise $318 billion over 10 years, expanding health insurance coverage while lowering health care costs.

But industry industry groups say the change would hurt home sales and prices at a time when homebuyers need incentives, not disincentives, to buy...

Click here for full story.

My review of the book "Shift" now online

Wondering how to take advantage of the abrupt shift in the residential real estate market from boom to bust? My book review of "Shift: How Top Real Estate Agents Tackle Tough Times" is now online at Inman News:

Whereas the first part of "Shift" focuses on a macro-economic overview of the how, why and when real estate shifts happen -- both in terms of sellers' and buyers' markets -- the second part is where the "workbook" begins in earnest.

Offering "12 Tactics for Tough Times" for readers in a hurry to put the advice to good use, the authors walk us through the various facets of running a real estate business, including being realistic; right-sizing staffing levels; using appropriate marketing techniques (including a take-no-prisoners approach to the Internet); pricing ahead of the market; creating urgency for buyers; mastering creative financing techniques; becoming experts on short sales, REOs and foreclosures; and bullet-proofing transactions by making yourself the last line of defense against flaky agents, dishonest lenders and skittish buyers.

Click here for full review.

Click here to buy a copy (or copies).

Review of "Financial Shock" now online at Inman News

My first writing assignment for Inman News, a book review of the book "Financial Shock" by economist Mark Zandi, co-founder of Moody's Economy.com, is now online. Since the book was published in the summer -- and therefore before the recent stock market swoons and other financial challenges -- I also interviewed Dr. Zandi by phone for his views on the recent events. What I like about Zandi, both over the phone and in his book, is his ability to speak in plain English about complex economic issues. From InmanNews.com:

When Mark Zandi, chief economist and co-founder of Moody's Economy.com, decided to write a book on the implosion of the subprime mortgage industry earlier this year, the global meltdown in the financial markets and impact to the overall economy had yet to surface. Yet because the book is so comprehensive, it still provides an excellent framework from which to understand the root causes of the crisis, from the mistakes made by Alan Greenspan to the rapid rise of irresponsible lenders who rewrote the rules of underwriting based on their own short-term interests...

Click here for full review.

An update on Mark Zandi's book "Financial Shock"

As one of my first freelance writing assignments for the real estate news syndicator Inman News, I'm going to be reviewing the book by Mark Zandi called Financial Shock: A 360º Look at the Subprime Mortgage Implosion, and How to Avoid the Next Financial Crisis.

Zandi, who is also widely quoted as an economic expert in the national press as well as a consultant to the McCain campaign, has been better known as Chief Economist and co-founder of Moody's Economy.com, so he's in a particularly good position to write the book, which provides a comprehensive overview of the sub-prime crisis, the related fall-out and, more importantly, some policy prescriptions for how to avoid similar mistakes in the future.

However, since his book was printed in July it missed out on some of the recent events, so I thought it was important to interview Dr. Zandi for any updates. Some money quotes:

On whether or not a government bailout is a wise move:

"It's guarding against the downside risks, which are quite considerable...If we don't down this path quickly, then the policy choices will get overwhelmed by the magnitude of the problem."

On what's next for the homebuilding industry:

"I would expect it to go through a very significant rationalization, and expect to see more failures, although the big, publicly traded builders are still in business and I don't think that's going to change."

On what else needs to be done to fix the housing market:

"Another write-down plan should be implemented and keep on trying to forestall foreclosures...It's a reasonable way to go to write down the first mortgage to the point that it becomes affordable and guarantee the part that's written down to the lender."

On the current economy:

"I think we've been in a recession for a year and will be through next summer -- about the worst we've experienced since the end of WWII, although perhaps not as bad as the 1982 downturn. I would expect unemployment rates to peak at 8% by early 2010."

Grassroots rage building over the federal bailout

It's one thing to see "no bailout" tags at the end of blog comments, but with a growing backlash against a federal bailout of the financial industry -- which is apparently trying to add everything but the kitchen sink in with failed mortgages -- it's easy to see why Congress can't seem to agree on a solution. Columnist Lou Barnes takes it on:

Any large-scale federal financial rescue was certain to face political chaos. However, within hours of rollout last Thursday this rescue collided with two linked and disastrous forces that may yet defeat immediate rescue...

Most grown-ups know that it's a mistake to ask a group to vote on an important proposal without prior discussion. You wouldn't spring something big on your PTA, your HOA or your book club and demand an immediate approval. You wouldn't ask a Cub Scout troop to vote on a field trip without some testing of the water.

Hank Paulson would. Hank has had 13 months to prepare a contingency plan in case market solutions to this crisis failed, and quietly to explore alternatives with Congress. Instead, he dumped on Congress a three-page sketch of a highly technical and questionable proposal. Tuesday's hearings in the first minutes revealed bipartisan, confused, angry and incredulous Senators, and an ill-prepared Paulson...

Over last weekend another force erupted all over the country: native, grassroots rage at a bailout that would leave all the big institutions in place -- officers, directors, stockholders, all -- and offer to taxpayers the absurd promise of payback from hundreds of billions of trash that the institutions couldn't unload on anyone else.

You tell me your precious markets will melt down without this? Why do I care? Your stock market can go to goddamn zero on Monday, and then you can come down here with me to find out how it feels not to be able pay the bills. More than half of Americans have no stake in these markets, no savings at all; and there is a political price to be paid for extreme inequality of income.

This bailout, incomprehensible to civilians and many experts and senators, should have taken ownership in the institutions involved. Proper vetting to Congress months ago would have gotten that done. Instead, the same ancient American forces that ignited the Palin phenomenon, Jefferson-Jackson-Bryan-LaFollette populism, have mobilized an anti-bank, anti-smarty-pants, street-level riot not seen in modern times.

Completing the scene: President Bush's nasty little speech on Wednesday, assigning blame and taking no responsibility; Senator McCain's grandstand play on economic issues he's said for decades he's not any good at; and Senator Obama's silent tip-toeing along.

Notes from Real Estate Connect SF

Each year in San Francisco since 1996 (and now also in New York City), a dedicated group of technologists, real estate pros and other industry leaders gather to discuss the most pressing issues impacting the business of real estate. Founded by Inman News Founder & Publisher Bradley Inman, the Real Estate Connect conference has steadily grown in both attendance and prominence, with Internet companies such as Yahoo!, Google, Zillow and Trulia now among its top exhibitors.

It’s also the place where a network such as HGTV can promote their new website, called FrontDoor.com, and provides a unique opportunity for a company like Realogy – which owns the Century 21, Coldwell Banker and ERA brands – for a splashy announcement of its latest brokerage namesake, Better Homes & Gardens. Even Craig Newmark, founder of the eponymous Craigslist.com, was there to share his thoughts on his site (12 billion page views per month, most of which originate in the U.S.) and his site’s great success (listening to the constant input from users).

The big theme at this year’s conference was the future of the ‘nomadic consumer.’ Given the convergence of emerging trends such as smart phones taking on complex tasks once relegated to personal computers, faster and improved wireless networks, and information being stored on a vast computing ‘cloud’ rather than on individual hard drives, the day when consumers, suppliers and subcontractors will increasingly drive around to new home communities and require instantaneous information will soon be here, with the spoils being accorded to those who prepare the best.

Part of that preparation will be reconfiguring existing websites for an Internet that will be just as video-centric as television. Gradually, words and pictures will be replaced by instructive video to a generation that was not only weaned on it, but has adopted it as an art form for sites such as YouTube. Still, it will be the search for a new home itself that will require new and better tools for a buyer pool now just beginning to see the importance (and prudence) of becoming a fully informed consumer.

I’d expect to see more companies jumping out of the shadows -- such as Zillow, Trulia and Redfin -- that force established players such as Realtor.com, Homescape or NewHomeSource to change their game plans not just once in awhile, but continuously in order to remain relevant. At the same time, some of these new entrants continue to hit some bumps along the road as they learn that technological expertise alone is a poor substitute for years in the real estate trenches. Addressing these issues will become even more important as the real estate listings business becomes a global enterprise.

The housing industry is also a natural fit for social networks and blogging, since these often-unedited forums allow potential customers to make a human connection with a real person instead of a generic company website with the requisite disclosures in a 5-point font. Rather than listings remaining prisoners of the 900-plus separate MLS systems throughout the country, an individual with a page on ActiveRain (a popular social network for real estate) or their own blog can now include specific listings, foreclosures or even analytical tools so buyers don’t feel the need to surf to other sites to be informed. Although some currently popular blogs cheering on the housing bust may end up with short lives when the market revives, those dedicated to objectivity and intellectual honesty will continue to battle traditional newspapers and magazines for online attention.

One side benefit of the current housing downturn will be changes for the rebound that not only benefit the consumer, but strengthen an industry that has been damaged by the short-term interests of certain mortgage brokers, real estate agents and, yes, also some homebuilders. Imagine how much easier business will be with a simpler and more transparent mortgage system in which products are fully explained to buyers. Envision a time when those who dispense advice on one of life’s most important purchases – a new home – are more closely regulated and disciplined.

The resulting thinning of the real estate herd, many of whom only jumped in after seeing it as a get-rich-quick scheme, will eventually leave the real estate industry with a higher quality of sales executives and managers who can re-think the process of home sales in a world in which neither buyer nor seller has an information advantage. For the building industry veterans who recognize and embrace these new market realities, success will likely come sooner rather than later.

News Summary for Sunday 6/22/08

Commercial developers seeing return of recourse loans (Wall Street Journal)

Rates improving for some home loans (Wall Street Journal)

FHA wants to phase out seller-funded down payment charities (Washington Post)

Website pushes real estate analytics to new level (Inman News)

MLSs and brokers adding consumer-friendly tools to websites (Inman News)

Bush and Congress may finally negotiate housing deal (CNNMoney)

States increasingly tackling rising foreclosures (CNNMoney)

San Francisco launches solar roof program (BuilderOnline)

Diary of a homebuilder exiting a market (BuilderOnline)

Gas prices increasingly impacting homebuying decisions (USA T0day)

Lawsuit challenges real estate auctions

A lawsuit against companies which auction homes has been filed in California Superior Court according to Inman News, arguing that the "sold" price is really only an offer to the existing owner and that the companies force buyers to use their in-house settlement services. From the story:

A lawsuit filed in California Superior Court challenges real estate auction practices, charging that some auction companies engage in deceptive advertising and violate provisions of federal law related to real estate closing services.

Many modern real estate auctions are nothing more than a bait-and-switch scheme to lure hopeful buyers to submit offers that can later be accepted or rejected by the lenders/sellers, despite the general public's perception that once the auctioneer declares, 'Sold,' the property is in fact sold," the lawsuit charges...

Filed June 12 on behalf of three individuals who attended a real estate auction event in Southern California -- including one individual who is a RE/MAX real estate broker -- the lawsuit also charges that auction companies "direct and require the use of their settlement service providers and shift the cost of sales, including commissions, from the lenders/sellers to the consumers" in auction event signing rooms.

"The lenders'/sellers' representatives are not found in the signing room to sign the contracts; rather they are just there (to) sell loans and other settlement services," the lawsuit alleges.

Several auction companies, lenders Countrywide Home Loans Inc. and GMAC Mortgage LLC, and title and escrow companies are named as defendants in the lawsuit, which seeks class-action status...

In a reserve auction, which is common for real estate auctions, properties may ultimately not be sold to the winning bidder if a reserve price -- which is typically concealed during the auction process -- is not reached.

Real estate auction companies typically state in materials presented to attendees that sales are subject to lender approval, which means that winning bidders may not ultimately get the property at the price of the winning bid -- a lender may ask for a higher amount in order to complete the sale.

The lawsuit charges that auction companies use "fine print and covert documents at the auction event that state, 'subject to lender confirmation,' instead of truthfully saying, 'no sale is final today because the lender/sellers are not onsite at the live auction.' "

And the lawsuit charges that the fees collected by auction companies are in some cases unlawful under California real estate laws.

According to the complaint, the auction companies and other companies named in the lawsuit allegedly violated provisions of the Real Estate Settlement Procedures Act related to prohibited payment exchanges related to loan transactions and settlement services and "requiring the use of certain settlement service providers including ... title insurance companies."...

The lawsuit seeks to permanently enjoin the parties named in the lawsuit from using the auction-marketing methods and to be enjoined from violating unfair competition laws. Also, the lawsuit seeks to restore "all funds acquired by means of any act or practice declared by this court to be unlawful or fraudulent or constitute unfair competition ... or untrue or misleading advertising," among other relief.