The real estate industry veteran and housing slump disputer talks about why national numbers don't tell the whole story
Amid the deluge of reports on falling home sales and rising foreclosures, one man refuses to give up. As president and chief executive officer of Century 21 Real Estate—a subsidiary of Realogy and one of the world's largest residential sales organizations, with more than 8,300 offices in 52 countries—Tom Kunz can't afford to.
Kunz's take on the state of the U.S. housing market is a radical one these days. Many real estate professionals, though, are conditioned to take a positive view even when the data seem to be going the other way. Kunz remains optimistic even in the wake of the National Association of Realtors' report last week on existing-home sales (down 3.8% in June) and the Commerce Dept.'s subsequent new-home-sales announcement (down 6.6% in June). Kunz maintains his bright outlook even though, according to Irvine (Calif.)-based Web site RealtyTrac, one out of every 134 U.S. households filed for foreclosure in the first half of 2007, a rate more than 55% higher than last year's.
Kunz has been in the industry for more than 30 years, the last 25 of them with Century 21. The straight-talking Vietnam vet from Ogden, Utah, recently spoke with Maya Roney about his unrelenting confidence in the market and why he refuses to join what he calls the "pity party":
The NAR just released figures that show existing-home sales dropped by 3.8% in June, to a five-year low. Do you really mean to tell me that you are still positive about the market?
Yeah, I really do. You have to remember we're just a year and a half or two years off the greatest real estate market we've ever seen. There's no question that there are declines in the marketplace on a national basis, but real estate is a really localized market. And if you have to sell your home for less [than you could have two years ago] that doesn't mean you are going to lose money.
What do you mean you're not going to lose money?
The value on your $300,000 home may have declined 10%, but if you want to upgrade to [what was once] a $600,000 home in your area or in another neighborhood, that value may have also declined 10%. Just because there's a decline doesn't mean it's a bad decision to buy or sell in the marketplace. Let's look at all the money people made in '04 and '05 in terms of home equity and see how that can be used in this market. I invested $100,000 [in my home] and I could sell that home today and walk out and put $700,000 in my pocket. What kind of return is that? And what could I do with that in this market?
Do you think the reason for the national decline in home buying has to do with buyers waiting for a more stable picture?
I think a lot of it is that a lot of people are hearing the numbers that NAR/Fannie Mae (FNM)/Census is putting out and saying, "I shouldn't be making this decision now."
Instead they should be sitting down and saying to someone, "Show me the facts, show me the numbers." Now is the time to take advantage.
Do the media play any part in the continued decline in home sales?
I don't blame it on the media. The NAR came out with numbers, you're just reporting what they gave to you. What I would like to see is a media outlet that would say, "Yeah, these are the numbers but let's look at some of the things you might do in this marketplace to buy or sell a home."
What makes this a strong housing market?
If you look at past cycles and you look at declines we've had over the last 20 to 50 years, you'll see that we had high unemployment, no job increases and double-digit interest rates. This situation's a lot different. The economy is almost at full employment: Everybody who wants a job has a job. And we have single-digit, midrange interest rates.
What are some of the best buyers' markets right now?
To me—and believe me I'm acting on this—I've got a property in California I'm looking to sell because I know I can sell that property. I'm going to take advantage of this marketplace and get something I never thought I could afford in California. I think you can also get some great values in Florida right now.
Countrywide Financial (CFC) last week released some pretty revealing numbers about subprime loans. What do you think about the subprime situation?
There is a definitely a place for subprime lenders in a normal real estate market place. There are those folks that have a job and want to get a home, and their credit may not be that good, but they pay for that, they pay a higher interest rate.
RealtyTrac, a Web site that tracks foreclosure fillings, said today that foreclosure activity is up over 55% so far in 2007. Does this worry you?
You're always going to have repossessions; I mean you just do. People lose their jobs. You look at those percentages and you have to go back and look at when those homes were bought and you're probably going to find that their mortgage rates increased. In the frenzy that we had in '04 and '05 people were just doing whatever they could to get into a home, and people may have overextended themselves. My advice to people to avoid this in the future is you better make sure that if [the rate] maxed out, [ask yourself] "Could I make that house payment?" I think there's even more responsibility on the shoulders of the real estate professionals and loan officers.
How long can we expect to see this downturn?
If I knew that answer we probably would not be having this conversation right now! But when you look at the fact that inventory was down 4.2% [in June] to 8.8 months' supply of homes for sale, and the median home price increased [0.3%], that looks pretty good. Still, NAR's talking about numbers on a national level, and we still need to bring real estate down to a localized level.