As CEOs from a variety of industries seek to measure the state of the economy – to evaluate the robustness of the recovery or the persistence of the unemployment rate – they should look to the ultimate predictor of financial strength or weakness: The real estate market. Indeed, many analysts readily (and accurately) concede that the real estate market, both regionally and nationally, often foretells the vitality of the economy as a whole. In making this assertion, I heartily second the motion; the sale and purchase of homes is a good signifier of broader events, impacting everything from the manufacture of durable goods to the expansion or contraction (in revenues and services) of major cities.
My recommendation to CEOs, however, is that they consider the conclusions of veteran investors in this survey, too. For, to date, the narrative – the anecdotes and sound bites about the real estate market – seems to be more the province of economists and individual real estate brokers than people on the ground, so to speak. Each has their own perspective, one is theoretical while the other is more practical (albeit in a limited way), but neither has the experience and real-time intelligence – sometimes on a street-by-street, neighborhood-by-neighborhood level – that investors, particularly buyers of distressed properties, possess.
As a franchisee for HomeVestors and as the owner of Clear Key Property Solutions, I think CEOs should look to this realm – with all its signs of progress (in some areas) and caution (in other territories) – for guidance, preparation and evidence for policies, of their own initiative, which will influence the direction and length of any economic rebound. In my respective region, which encompasses the Greater Dallas Area, I can draw specific conclusions, which, in turn, may influence forthcoming events in the residential market, from which reporters and commentators will make certain assumptions. Those assumptions, which may be right and correspond to the data I evaluate well before it becomes a source of popular conversation, can have a huge influence – for good or ill – throughout the economy.
For example: One well-intentioned, though incorrect, study can send stock prices plummeting, wrongly influence consumer sentiment, deter CEOs from hiring new employees and sustain a sense of malaise – calculated by the infamous “misery index” – where the economy suddenly stalls. The fault does not rest with any one journalist, economist or power broker (for high-end residential clients), since there is no person – with the exception, perhaps, of the Chairman of the Federal Reserve or the President of the United States – whose words alone can transform the direction of the economy.
My advice, instead, is that because the recovery is so fragile – and because we need the input and expertise of professionals who have valuable information to convey – we must include investors, buyers of distressed properties, in this conversation. I offer these words not as a means to garner attention or bolster my credentials, but as a duty to report – honestly and comprehensively – about one of the greatest variables in the real estate market, which can (and will) determine whether residential prices in a city or state stabilize, steadily (but conservatively) rise or symbolize a decline worthy of more intense scrutiny.
On a practical level, I can see the direction of prices within a community, which may reverberate throughout a county or counties, affecting businesses, incomes, job creation and other related factors. If, on the other hand, I see rampant speculation – if I see inexperienced, out-of-town “flippers” driving distressed home prices too high – then I can raise an alarm, notifying realtors and reporters that we should view this market with caution. Simply stated, my comment is both an admonition and a plea: The former is a statement of fact, that investors have detailed criteria (based on price, location, renovation costs, potential rental income, resale appreciation and valuations of nearby properties), while the latter is a request – to CEOs and other executives – to add a layer of depth to their assessment of the economy.
Indeed, I have the opportunity to observe economic events from multiple perspectives. I see and sympathize with the plight of owners of distressed properties, individuals who may be unemployed, overcome with cost-of-living expenses or the depreciation in real estate values. At the same time, I can look at the same situation as an investor, with own personal network of colleagues of business owners, and have a more comprehensive, multifaceted understanding of the financial challenges people confront on a daily basis. I know the economic reality, which others only read or hear about as an abstraction. Having this broadened viewpoint produces a more balanced and collaborative approach to the most relevant issues, for homeowners and investors alike.
As a CEO myself, and as an investor, I have dual roles, which, in a sense, are the same. In my capacity as a CEO, my greatest resource is data and wisdom-from-experience: I can parse the numbers, identifying patterns or themes, because I have the longevity of experience of working in an environment I know both personally (since I live in the Dallas area) and professionally (from my many purchases of distressed properties). And, in my capacity as an investor, I can relay facts to CEOs well beyond a single industry. I can inform, counsel, encourage or dissuade (again, with an abundance of evidence) fellow CEOs about bigger, macroeconomic events.
The more consequential point, to CEOs, is simple: To know your market, go beyond your market. That is, gather the intelligence and expert analysis – in this case, from seasoned investors who focus on the purchase of distressed properties – to make the right decisions, for the right reasons, at the right moment. From there, success is far easier to achieve.