Audio: Future of Housing Market Forecasted By RE/MAX CEO Liniger

Added August 19, 2009

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Summary: The future of the housing market doesn't look too grim, according to RE/MAX CEO Dave Liniger. He sat down with Ilyce Glink after a press conference to answer a few questions on his experience with RE/MAX, what he thinks will happen with the recession, his thoughts on foreclosures and the $8,000 first-time home buyer tax credit, how agents are handling the current market, and the future of the housing market. Listen to the podcast here and read the transcript below.

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Audio Transcript: Ilyce: Let's start back, I'm intrigued by the idea that it's 1973, it's the worst recession since the one we're in right now, and you decide it's a good idea to go out and start a business.

Dave: Well, I wasn't a very sophisticated business person. I had not completed college. I had gone to the military and then became a real estate salesman. All I knew was that I had people that wanted to buy houses, people that wanted to sell houses. I didn't read The Wall Street Journal and, to be honest with you, I didn't know what a recession was.

Ilyce: So it just seemed like sort of bad timing?

Dave: Well you know, I didn't think it was bad timing the first day, but within a year or two I figured out that I must've done something wrong.

Ilyce: What was it that turned things around for you? What was the attitude that you adopted that you, or when you reach out to small business owners today, what from your past, at that point in time, do you share with them going forward?

Dave: Well the customers that I was working with were buying and selling house uh despite the recession. It was tougher than it was in a good market, but they still were buying and selling houses. My sales associates were making a good living, they liked what we did, they liked our polices and we just continued to work with it.

Ilyce: Do you find that when you look at, we talked about mortgage problems and lender problems going forward and how people who really can't verify their income are really gonna have trouble maybe over the next ten years, when you back to the early 80s and interest rates were oh 18 percent to buy a house, it was pretty tough times then as well. How did you and your company get through it?

Dave: Well, you have to be innovative, and you have to try to find a way--over, around, under or through--you make the transaction work. We had people that wanted to buy that were saying, 'my god the interest rates are so high, but I still want to buy. I need a place.' We had sellers that were saying, 'Well, I could carry a second mortgage and maybe get 10 percent or 12 percent better than I could at the bank.' And so it's just piece by piece, property by property you work your way through it.

Ilyce: When you look at some of the obstacles today, and you talked about some of them in your speech earlier, it seems as though there are some things that we've wound up, whether it's enormous amounts of government debt, coming inflation, or even just the $8,000 first time home buyer tax credit pushing people to buy, but not the trade-up buyers to buy, seems like we're setting ourselves up for a very difficult few years in real estate.

Dave: I think that the next two years in the real estate business are going to be very complex. They'll be better than the last year. The last year was the worst, we're doing better this year. We can see the recovery coming. You just have to do your business better than you've ever done before: work harder, work smarter, take a little bit less. But in reality--long term--we're poised for a very very good real estate recovery.

Ilyce: In what year?

Dave: I think that you will see 2010 and [20]11 will still be moderately better than this year, however, by the middle of 2011, heading into 2012 you will see a very steady pickup in residential prices.

Ilyce: Do you think that we have to really wait until the boomers' children move up and start to buy homes?

Dave: Well, no. There's a market out there that's, that is uh, generational in nature, uh we know the boomers are here. Boomers are still going to be buying second homes. I'll be honest with you, right now for boomers who have considered a second home, not just a retirement home, the bargains they can get today in places where people live, like in Chicagoland they go to Florida, they go to the Carolinas, the bargains that they can get there today they couldn't of bought 15 years ago at these prices.

Ilyce: That's very true, you can't really well in Florida realtors are basically paying people to take the property these days. It's clear that you don't support a $15,000 buyer tax credit, but you do support an $8,000 home buyer tax credit, not just for first time buyers?

Dave: Yes, I would like to see it for all buyers. What we have to do is find a way to get rid of the excess inventory. There is too much foreclosed property, and the longer the foreclosed properties sit empty--if they are empty--the worse shape they get and the bigger the hit it is to the financial statements of the banks.

We have 1.8 million houses empty in the United States right now. Only 300,000 of them are brand new homes that home builders are sitting on, and so we have to solve that problem as much as we can because each one of those, the cost to the banks and so on if they are destroyed is oh 50 thousand, 200 thousand a piece. So the $8,000 is a short term stimulus that needs to help us until such a point that the excess is gone. Then you will have stabilization of prices and the demand will pick up.

Ilyce: Aren't you gonna run out of first time buyers, or all home buyers to a greater or lesser degree, especially if it's limited by income?

Dave: Well, the part of the market that's overburdened with excess inventory right now is the lower end of the market. There aren't thousands and thousands of mansions out there over a million dollars sitting around empty. It is the lower end of the property that we need to solve, and once you solve that, people will go back to a normal market.

Ilyce: What's the contraction looking like? Now you said the realtors have 1.1 million, but there was talk for a while about them closing in on 2 million realtors. They've taken a big hit in terms of them membership, I'm sure you've taken a big hit for RE/MAX agents. What is your contraction rate look like and what do you see going forward?

Dave: Well, um, the problem, let me put it into perspective for you. In the year 2000, we did 5 million resales and 1 million new houses and at that time there were 800 thousand realtors, many of those were incompetent. And then you move forward to 2006, [200]7 and [200]8 you got 1.4 million realtors and in 2008 you had about 5 and a half million real estate transactions.

And so there is an overcapacity of offices, and an overcapacity of agents. Mostly, the overcapacity of the agents were the newer agents, less experienced, that really weren't serious about the business. I would anticipate we could lose another 100 thousand agents in the real estate organization and that would be good for our industry.

Ilyce: So in your organization you are seeing some shrinkage as well.

Dave: Yes, our shrinkage in the United States has probably been in the neighborhood of about ten percent, which is pretty good compared to what NAR has lost, but our agents, on average, have got 13 years experience in the business, we don't take near as many beginners or anything and so our people have kind of been through these markets before.

Ilyce: But they haven't been to a place where homes prices have shrunk from 35 to 55 percent, and their comissions as well. How is it impacting the dollar bottom line?

Dave: Well the average income of our agents has probably gone down 35 or 40 percent. If you kind of look at prices dropping dramatically, we've been through that in the oil states back in the oil crisis, we've been through it in California a couple times. We've just never seen it worldwide the way that it has this time.

Ilyce: Do you feel like we're going to have a bounce back, a second go at the recession?

Dave: No. I'm not an expert on economics, but I do read everything I can from The Wall Street Journal to Kipplinger to whatever it might be and I really believe that the consensus is: no double dip recession. The government is trying to stimulate, only ten percent of the stimulus money was spent, so far. Better days are coming because they just didn't catch on fast enough.

Ilyce: How long until we see the home prices that we saw back in 2004, 2005?

Dave: It will depend, very dramatically, on different regions. If you look at places like California with a 45 percent decline or a 40 percent decline it could take them 8 to 10 years to get back. If you look at normal markets that onlywent up at a gradual rate, I think probably three to four years would be normal.

Ilyce: So it's gonna be a little bit of a while.

Dave: It will be a little bit of a while for sure.

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