Mortgage Rates Report

The 2008 Housing Outlook article for US Investors won the Odysseus Medal this week.  I've stated before that this is quite an honor as it is an anthology of the week's best real estate opinions on the internet.

 

Excellent articles about real estate :

 

Kris Berg — Real estate blogging, The Real Reason Your Agent Should be Blogging Michael Wurzer — Advertising, Everything Is Advertising Geno Petro — Serendipity, Serendipity, straight up Jay Thompson — NAR COE, 7,373 Words - The NAR Code of Ethics Brian Brady — Market outlook, 2008 Housing Market Outlook For U.S. Investors Chris Johnson — 2011, Why 2011 might not even be the end Jim Watkins — Foreclosure, Sad Story of a Family in Foreclosure: Some things You Hate to See Mariana Wagner — RE agent, You know you’re a real estate agent if… Jim Duncan — NAR speak, Why use a realtor - decoding nar-speak Robert Ashby — Credit crunch, What Should be Done About the Continued Credit Crunch? How About Nothing? Marlow Harris — Iggy’s House, Iggy’s House and B.S. Realty Jeff Brown — Lenders lend, Lenders Clearing Deck To Blink, Uh, Lend — What Will They Think of Next? Cathleen Colins — Memories, Memories of my Dad in the house he never got to see

Home builders are professional marketers and, as such, are the most important “class” of sellers you must watch in your local market.  Home builders have a lower costs, answer to a higher authority, and are more sensitive to inventories than Mr.& Mrs. Jones of Perkasie, PA.  Let me explain what that means and why it is important to you, the Professional Realtor.

Home builders have a lower cost of funds.  In 1995,  builders were a mostly entrepreneurial bunch.  They were regional, smaller, and privately-held.  Less than 20% of the home builders were publicly-owned; their source of capital was debt.  Debt requires servicing and has a lower margin for error in pricing.  Hence, the homebuilders “marked to the market” frequently through drastic price reductions.  They didn’t fear class-action suits from homeowners because their pricing was necessary to the survival of the company.  In short, they had shallow pockets and did what the banks told them to do.

Homebuilders answer to a higher authority today; Wall Street.  The figures for publicly-held builders have flip-flopped.  Today less than 20% of the builders are privately held with the rest publicly-traded.  This has a profound effect on the pricing cycle because builders are viewed as a vertically integrated retailer now.  Did you ever wonder how these mega developments have the staying power they have now?  That staying power is a function of the cost of capital which today, is equity.  Equity financing is longer term money and requires no servicing, at least, in the near term.

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