That's why Tom Kunz, chief executive of Century 21 Real Estate, can safely call himself the "lone wolf" in seeing opportunity rather than defeat when he takes a look at the current economic
It's the job of a business leader to maintain a positive, yet realistic, outlook even in the most troubling times. When it comes to this beaten and bruised housing market, who could ever expect that sort of optimism from anyone?
That's why Tom Kunz, chief executive of Century 21 Real Estate, can safely call himself the "lone wolf" in seeing opportunity rather than defeat when he takes a look at the current economic environment and thinks: It's time to go to work.
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"The facts are the facts. Mortgage companies are hurting right now. People are being laid off. But the fact is the conditions in the market are extremely favorable to anybody who is really interested in doing something."
He's referring to the people you hear less about these days, the people who are in a position to buy because, given dramatic price drops, this is indeed the time to make the move. However, it's going to be tough on the sales end.
Still, Kunz affirms: "If its priced right, it'll sell."
According to the National Association of Realtors, existing median home prices will decline 6.1%, to $200,900 in the first quarter of 2008, from the same period a year ago, while new median home prices are expected to decline 7.7% to $235,700.
The NAR is forecasting that existing home sales will continue to fall in the first quarter, declining 23.5%, to 4.91 million. New single-family home sales are expected to decline 24.9% to 641,000.
Kunz talked to Forbes.com about strategies on doing business in a tough market, his views on the U.S. Economic Stimulus Act and the chances of people getting rich in the real estate business once again.
Forbes.com: When is the housing data going to improve? When are we going to get out of this slump?
Tom Kunz: I learned a long time ago don't make any predictions as to what the market is going to do because, every time you do, it tends to do weird things. What I can tell you is what's going on in the market right now.
I'm probably the lone wolf out here. When I look at the market place, or any time I look at any market, there are four fundamental things that I look at that kind of give me an indication as to what type of market we're in.
That's a favorable position. Secondly -- people who have jobs -- are they getting any increases in income? I know that in 2006 they had a 3.5% to 4% increase, and I suspect that'll improve. So that's a positive.
The big thing next to jobs is cost of capital. We've actually seen rates fall in the last couple weeks. So they're still in mid-range single digit, which is outstanding.
The fourth thing is inventory. So when you look at those four things, every other major adjustment that I've seen in the marketplace since 1970 when I got in this business, you have high unemployment, no increases in income, double-digit interest rates and a lot of inventory. To me, that says there's a lot of pent up demand in the marketplace. The conditions are excellent in my estimation.
And if people are looking to move up or move to a better neighborhood, sideways move in terms of the size of the house, or in some cases downsize, there's no better time than right now. That's not because I'm in the real estate business, that's just what I see in the marketplace.
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What do you think of the new stimulus package?
I think there's some very positive stuff that's going to come out of it. Is it going to solve all of the problems? No, I don't think so. Especially if you see the FHA (mortgage lending) limits increasing. You'd get a better rate with a higher priced home. The amount of money that is going to be put into the economy, I don't know that that's going to be enough to have somebody go buy a home. It might help them pay off some bills and put them in a better position.
Sure, it's a buyer's market, but aren't sellers going to have great difficulty selling right now considering the condition of the marketplace?
If it's priced right, it'll sell. That doesn't mean that you'll have to give it away, it just means that you have to take a look at what other properties in the marketplace are selling for. What you typically end up hearing, and I was probably an example of this, in 2005 when my wife was moving out here to Southern California, part of moving here was that we wouldn't sell the house out there.
But I had an offer for $1.3 million that was a non-contingent, full-cash offer. I had to turn it down. The home right now was just appraised just slightly under $1 million. I just refinanced it. So I could sit back and say I lost $300,000 on this home.
There are some great deals in the marketplace that the consumer is so skittish because of what they're hearing. The facts are the facts. Mortgage companies are hurting right now. People are being laid off. But the fact is the conditions in the market are extremely favorable to anybody who is really interested in doing something.
What is going to get these people to think like you are and let them know that everything is going to be all right? And that if you're interested in selling that this is the time to do it?
That's the hard part. We've got about 110,000 agents in the U.S., 140,000 worldwide. And so what we're doing the first part of this year to those offices, to our agents, you need to get out and tell this story.
The most important thing is to get to a professional real estate agent and let them walk you through the steps of what you really can do. The more people we can get talking about it, I think the faster we're going to see people do some things.
And who knows, if we've got enough people beating that drum and making that happen, we may solve this whole recession thing that everybody's talking about.
What are you doing to get buyers and sellers to your locations, and if they're not getting there, how are you helping the agents at these locations?
We're going to go out and hit some of the major marketplaces such as Southern California, some of the ones that are really just hurt. Florida, maybe Chicago, some of those areas.
We're hopefully going to do some more media blitz with it, so hopefully in some of the major metropolitan areas where there's some national news media. We've been getting some of the agents media training so we could get them involved with the local PR campaign.
Then we're just going to go out and do a mail blitz with our Web sites and maybe some TV or radio. For lack of a better term, hold some buying seminars, to pull people in those marketplaces and say, "Let's take a look at what you can do."
Once we start the process, maybe some of our competitors will start doing the same thing.
This is as much as I like to think we could make it happen. This is an industry issue. I would hope that if we start to see some momentum from us that hopefully some of our competitors pick up on that and get out and do what they can to make it happen too.
Is this the worst it has been since you got into the business?
Personally, I don't think it's the toughest. I could remember when interest rates were pushing 16, 17, 18%. That's a little more of an uphill push. But I think it's probably one of the toughest that I've seen given some very positive conditions. It really boils down to consumer confidence and what's going on.
You look back to June of last year, 95% of the people in the U.S. have never even heard the word subprime, let alone understand what it is. Then they started reading all this stuff and hearing it on TV, Internet, newspapers and everywhere else that big companies are going out of business or they're writing billions of dollars off and prices are falling and all that kind of stuff. The interesting thing about it, they really think that they can wait it out and hit the bottom.
At some point sometimes, I have to just sit back and kind of laugh because I see numbers all day long in all markets. And at best from a consumer stand point, the numbers they're going to hear are at least 45 days old. So by the time they hear a number and they think the market has bottomed, if in fact it has, it will already have strung up 45 days ago.
It's the same thing here. I can't predict what it's going to hit. All of our numbers come in after the fact. Same numbers you dig up from the National Association of Realtors or the (National Association of Homebuilders) or whatever, all of those numbers are historical numbers for at least the last 30 to 45 days.
And so we have to take a look at why do people really move. Most people make moves, not because they could sell their house and make a killing, they move because of life events--birth, death, divorce, marriage--those kind of things.
These are reasons people have to make a decision to do it. We saw that when interest rates were 15, 16, 17% and people were still buying real estate because they had to.
We feel that there's got to be somewhere between about 4.7 and 5 million homes. That's a normal market.
We just have to adjust ourselves to that fact, and the truth of the matter is, in terms of agents and everything else that's going, we need these adjustments every now and then.
I actually thought that we were going to see a decline year over year, but we didn't. It's pretty flat to where we were the last couple of years. So people are still interested in getting into the business, which is a good thing at this point. Because if you look back, 2002 or somewhere in that neighborhood, the National Association of Realtors had 600,000 or 650,000 members. I think they capped out in 2005 at somewhere around 1.3 million. In fact, they're probably still pretty close to that.
All of that increase has never seen a market that was anything but vertical up until the last two years.
The fact is that this is a great industry. I think in a lot cases, I'd like to see a few more barriers to entry to it. Maybe some more educational processes. I think that it is relatively easy to get a real estate license in most states.
The issue is companies like ours that have to install the standards and the ethical behavior to take place in the real estate marketplace.
Will there ever be another chance to get rich in real estate?
If you go back historically and look, you go back a number of years, you're going to see that this is a very cyclical marketplace and industry and that it typically runs in cycles of four to six years.
We saw this last run, that it's kind of about a seven-year run. And so far we're in about the third year of an adjustment period. It will return. The issue is that the profitability shouldn't be determined by the market going up or going down, it's really determined how you adjust your company to whatever marketplace you find yourself.
There is capability in a market that we're going in right now that people make money, and it's just how you control. You have to have enough coming in on the top line and reduce and control your middle line to generate the profits on the bottom line.