Realogy CEO: ‘Tea Leaves’ Say Real Estate on Path to Sustainable Recovery

CEO_Group_ShotTaking a research-packed deep dive into the real estate recovery, Realogy Franchise Group President & CEO Alex Perriello kicked off RISMedia’s 2013 Real Estate CEO Exchange with a State of the Industry Address: “The Road to Recovery: How Far We’ve Come, What Has Changed, and What Lies Ahead.”

As Perriello explained to the audience of approximately 150 of the industry’s top brokers and visionaries, telling market indicators, from decreasing unemployment and fewer underwater homeowners, to rising home values and increasing consumer confidence, serve as important “tea leaves” for determining the path of the nascent real estate recovery.

“From a national level, I believe that we are in the second year of a long-term, sustainable recover,” he said. “If you told me we’d be dealing with multiple offers and people over-bidding on properties, I never would’ve believed it. But this is demonstrating a tremendous amount of pent-up demand. If you look at the tea leaves long term, this demand will sustain the recovery.”

Taking place on September 17, the opening day of RISMedia’s invitation-only CEO Exchange held at New York City’s prestigious Yale Club, Perriello’s address took an in-depth look into the current state of the real estate recovery, analyzing where we’ve been, where we currently stand, and what it will take to succeed in the months ahead.

Perriello_Alex_CEO_ExchangeAmong the main indicators of the real estate recovery are home prices, inventory levels and unemployment figures. “Average home sale prices are trending up,” said Perriello. “There was a 4.3-month supply of homes at the beginning of the year—that is now starting to improve. The unemployment rate is trailing down and moving in the right direction.”

According to Perriello, in 2009, 6 million jobs were lost; in 2010, 8 million jobs were lost. “We’ve added back close to 6 million,” he explained. “By the end of 2014, we should be back to where we were before the recession.”

Perriello cautioned, however, that jobs need to “season for a while before they have an impact on housing. If I get a job today, the lender will want to wait and make sure I stay in that job.”

Rising interest rates also serve as important tea leaves for the recovery’s path, and are actually a positive indicator. “We’re starting to see treasuries and interest rates rising,” said Perriello. “But in an improving economy, we expect to see this. The rates have been artificially low in the past couple of years.”

One of Perriello’s most interesting tea-leaf reads involved the sale of pick-up trucks. “The sales of pick-up trucks in 2005 were about 900,000 units; in 2009, they reached a low of 250,000 units. Pick-up truck sales are now trending up again. People tend to buy new pick-up trucks when they get a new construction job, so increasing sales tell you that construction is starting to ‘pick up’.”

However, while Perriello is seeing this increase in new construction, he believes that the pace of new-home building is not fast enough to solve the current inventory shortage in many markets. “A lot of people would like to move up, but they can’t find something to move up to.”

More good news exists in the areas of distressed properties—foreclosure and REO properties are down by 1 million units—and underwater mortgages dropped to 15 percent from 22 percent in the last quarterly report from CoreLogic.

“This is exciting as this was a drain on the market,” Perriello explained. “People with mortgages with negative equity were driving a lot of delinquencies and foreclosures. If you’re underwater and making payments, you’re just renting; but once you have equity in your home, you’re more likely to make the payments. As soon as you get equity, you start behaving like an owner.”

During the keynote address, Perriello recommended that brokers focus on the demographic he refers to as “shadow buyers.”

“As you run your local companies, you should know who these people are,” he explained. “Shadow buyers are the people who did short sales in ’09, ’10, ’11 and ’12, whose credit was damaged for a period of time. These people were homeowners and they’re now renting and paying on time in the hopes of becoming a homeowner again. If you add up the numbers from these four years, it equates to 2 million new buyers coming into the market.”

Perriello also expects household formation to increase due to would-be homeowners who “put their lives on hold” because of economic hardship. “Moving into 2014, household formation is going to increase back into the 1.2 – 1.3 million range.”

Also driving household formation are millennials and immigrants, added Perriello. “People don’t immigrate to this country with the dream of renting a house.”

When asked if the overheated nature of today’s market may be leading us toward another bubble, Perriello said, not likely. “What has alarmed some people is the velocity with which the market has improved,” he explained, but this is simply a reflection of a better economic situation, an increase in consumer confidence in homeownership and a pent-up demand.

This year’s Real Estate CEO Exchange, entitled “An Industry at Risk? Securing our Success on Real Estate’s New Playing Field” assembled top brokerage leaders and sought-after industry experts to discuss the current state of the industry, how we have and must further evolve, and what steps we must take to remain sustainable and profitable.

The event was held on Sept. 17 and 18, and featured approximately 35 expert speakers hailing from the nation’s top brokerages and partner firms.

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