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‘We all have a part in re-establishing consumer confidence’

By Stephanie Andre

RISMEDIA, Jan. 2, 2009-The economic events that have transpired over the past five months-let alone the housing downturn of the past two years-are all too real. So how do we rise above and look ahead? For starters, each and every broker and agent needs to take control-and some responsibility-for where the market is now and where it’s going, says HomeServices of America Chairman and CEO Ron Peltier. As Peltier tells it, “We can’t continue to think that the market is going to go back to 7 million home sales per year; it’s not…It’s our job to recognize that and help people understand that real estate is still a great long-term investment. If we can do that, there will be buyers.”

Real Estate magazine: Has the changed market affected HomeServices’ thoughts on its integrated one-stop-shopping approach?

Ron Peltier: No, it hasn’t. When you look at the contraction in the market, having a one-stop-shopping business model is more important than ever before. A contraction in sales activity and a drop in average sales price both affect company dollars, which ultimately migrates down to margins. The notion of integrated offerings becomes even more critical now.

Great companies offer a menu of services and consumers don’t have to pay a premium for that. When we look at our expectations for going forward, we are seeing mortgage and title profitability, and right now, that combined total is more than our brokerage business. As we have witnessed a contraction in the mortgage business, those still in the business have a greater sense of business acumen and a good percentage of that is proper governing of your business.

RE: How will all the current changes in the U.S affect the housing market?

RP: We have a mindset across the U.S. of what I call, “Recession, Depression, Obsession.” With all the negative media, consumer confidence is at an all-time low. Business in general is controlled by the mindset of the consumer; 70% of the gross domestic product (GDP) is driven by the consumer. We are now faced with a negative consumer mindset-most of which is based on what they’ve heard and read.

We’re in for an extended recession. If people continue to obsess over that, they will hold tight. Hopefully, with a new Washington and new efforts put in place this year, perhaps we’ll see an uptick and begin the process of recovery and a return to optimism…but it’s going to be tough.

RE: It stands to reason that the U.S. economy will not be well for some time. What type of marketplace do you see for 2009?

RP: Going forward, the marketplace is clearly more realistic and more in line with a balanced market. A good barometer is the pre-boom existing-home sales of 5 million per year. In the boom years, that grew beyond a sustainable level to
7 million, largely driven by speculators-who represented about 25%. If you take the speculators out of the equation, you get to about the same numbers as what we saw in 2000.

RE: Buyers and sellers aside, what will be key to getting back on track?

RP: Granted, we now have a larger population base and more area, but I think we’re in a market of about 5 to 5.5 million transactions-and, if that’s the case, the industry should be able to work with that. That’s where we were in the early 2000s. We have to right-size our companies. We can’t continue to think that the market is going to go back to 7 million home sales per year; it’s not. In 2000, we could do quite well because we were sized correctly and our expenses were in line with our expected sales activity.

We are clearly in a recession. The more we delude ourselves about that and believe that we’re going to return to ’04-’06 levels, the harder a time we’re going to have, and the harder it’s going to be to see good margins.

That market was enabled by the credit standards, allowing mortgages by people who were speculators or bad credit risks. All that it did was create confusion, chaos and greed in the housing industry. It was significantly negative, and now we’re dealing with collateral damage. Foreclosure mitigation efforts by the Treasury Department and Congress, and hopefully lower interest rates, will go a long way toward correcting the balance.

RE: What are the most important drivers toward restoring consumer confidence?

RP: The two biggest drivers to our business are consumer confidence being favorable and the employment/unemployment ratios. We’re likely to see unemployment at 8-10% before it changes. Clearly, people don’t make housing decisions if they’re worried about their jobs and day-to-day living. At the end of 2008, we still saw continuing layoffs and unemployment at almost 6.5%. I believe that will continue through the first quarter. Hopefully, those levels won’t reach double digits. If they do, it will have a significant impact on the level of activity in the housing market.

RE: Some say it is the housing market that will lead to an economic resurgence. How do you see HomeServices fitting into this revival?

RP: As industry leaders, what we need to do is be a voice of reason to the necessary forces that impact our business. Interest rates are too high, relative to the cost of credit and standards-they overreacted from loose standards they had instituted before. We need more balance. The maximum loan limits for government-sponsored enterprises (GSEs) need to get back in line. They are scheduled to be reduced this year. We, as an industry, need to be a voice-and a loud one-to our congressmen to speak out for the housing industry and help housing get back on its feet.

RE: From a business standpoint, what will HomeServices be doing in 2009?

RP: On a core business level, we are truly focused on being more in line with bringing a higher level of customer service to people. Mortgages have reached new levels of complexity for home buyers. We need to provide clarity and understanding; having a focused, single point of contact helps achieve that. We are fully committed to expanding our footprint through key markets, but we prefer to grow in current markets through tuck-in acquisitions.

RE: What should the real estate industry be doing to get people back into buying and selling?

RP: We’re now in a buyer’s market, and today, based on a correction in prices and inventory, it is a great time to buy. It’s our job to make consumers understand this. We need to take initiatives in each market to get to the news media the very things we’re talking about-yes, the market corrected, and yes, values have dropped, but over a five-year horizon, housing is still a great investment and very safe.

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