PROPERTY is the oldest alternative asset of all. Indeed, it comfortably predates the supposedly mainstream assets of equities and bonds. But a lot of the chatter about the move into alternative assets has focused on hedge funds, private equity and commodities.
Is this because, or in spite of, property’s very strong run in recent years? The FTSE index* of global property has more than trebled since the end of 2001, easily outpacing the FTSE all-world equity index. A thousand dollars invested in American property in January 1990 would have grown to $9,580 by the end of 2005, almost double the rate of American small-cap stocks, property’s main competitor among the leading asset classes. European and Asian property trebled in value, a performance roughly in line with that of Treasury bonds.
Global property delivered a return of around 9% a year over this 15-year period, neatly sandwiched between the returns of equities and bonds, just as theory would suggest. Property has bond-like characteristics (a high income) but equity-like features as well (rental growth). Better still, according to Ibbotson Associates, global real-estate returns have only a modest correlation with American large-cap stocks and virtually zero correlation with Treasury bonds.
May 2007 Archives
hat happens when a person owns property? Aside from the well-established financial benefits of equity and potential access to credit, there is the equally strong pull of the American Dream and everything it suggests—the idea that through hard work and determination, it's possible to get ahead, own a home, and achieve some level of success, security, and happiness.
But how does this vision change in parts of the world where property rights, if they are present at all, are threatened by weak law enforcement, corruption, crime, and arbitrary government policy? In a recent paper published in the Quarterly Journal of Economics, HBS professor Rafael Di Tella, Sebastian Galiani of the University of Washington, St. Louis, and Ernesto Schargrodsky of the Universidad Torcuato Di Tella delve into this question by comparing the beliefs of two groups of squatters living in the Solano neighborhood on the outskirts of Buenos Aires, Argentina.
More and more customers would rather go to Web sites that aggregate product information than to the individual company pages that generate and present the raw data. That’s because aggregating information often adds value to it—especially when one type is mashed up with another, such as it is at real estate sites where crime data are mapped along with house listings or at travel sites that post each flight’s on-time record. But aggregation presents a quandary for senior executives who believe what pundits and consultants have been telling them for decades: Information is a vital organizational asset that must be tightly controlled.
Companies are often surprised to find that they benefit from having their information pooled. Setting data free broadens a firm’s presence in the marketplace and lowers the cost of providing information to users. It also gives customers a better experience (travel sites, for example, compete on the basis of how easy they make it for customers to reach a good decision) and allows a company to focus on its core competencies. Meanwhile, the aggregators drive business back to the source companies.
Standard & Poors 75K PDF File:
The chart above, depicting the annual returns of the U.S. National Home Price Index, the 10-City Composite, and the 20-City Composite shows all three yielding negative returns as of March 2007. The quarterly S&P/Case-Shiller® U.S. National Home Price Index - which covers all nine U.S. Census divisions - was down 0.7% from Q4 2006 and down 1.4% from Q1 2006. This is only the second time in the quarterly national index’s history that the annual growth rate has fallen into negative territory. The first time was in the period between 1990 and 1991, as depicted in the graph above.
“The fall of the National Index into negative territory, after more than 15 years of positive annual growth, is a reaffirmation of the pullback in the U.S. residential real estate market,” says Robert J. Shiller, Chief Economist at MacroMarkets LLC. “The National Index was yielding solid returns as recently as a year ago. Q1 2006 growth rates were up 11.5% vs. Q1 2005, a sharp contrast to the returns we are seeing today.”
CNN announced a deal this week with Internet Broadcasting that comes down to a massive information swap. CNN is investing in Internet Broadcasting, and will publish stories from the 70 locals affiliated with the web publisher. Internet Broadcasting's stations can, in turn, publish CNN stories on their sites.
From the Wall Street Journal:
"CNN... hopes that the content-swap arrangement will drive up user traffic both on CNN.com and the local sites, allowing all parties involved to charge higher advertising rates. That would theoretically pave the way for Internet Broadcasting affiliates to expand their national ad sales."
But if you have a finite amount of information and you spread it across two sites, how does that increase the traffic at both? The trouble with the deal is that it still thinks in terms of pageviews. You've read Terry and me on this topic before: trying to aggregate giant numbers of pageviews is a 1.0 approach and a dying tactic. It's a hard sell, too.
I don't go to CNN.com for local news. And I don't go to local news sites for international news. The marvelous thing about getting information from the web is how I gather it from hundreds of sources. My "homepage" is my RSS reader. I'm not likely to subscribe to WXXX's RSS feed of CNN's national news.
Real estate search engine Trulia joins an elite Silicon Valley Club today with the announcement of $10m Series C funding in a round headed by Sequoia Capital.
Trulia moved out of beta earlier this month and launched a number of new features.
Sequoia is joined in the funding round by previous investors Accel and Fayez Sarofim & Co. The $10m takes Trulia’s total funding to $17.7million. The new money is being used for additional staff, product development and a new marketing push.
This is an survey discussion asking about various apsects Builder's Businesses. Its bad enough that the Index (HMI) in May dropped 3 points to 30. It was bad across the board -- but the real ugliness was in traffic of potential buyers -- that's a leading indicator to Builders as to how much product they will be moving -- It dropped to 23. In the heart of the selling season (survey data was done in May).
"We've refunded over $3 million in commissions to our customers," Kelman says. "When we’re the buyer’s agent, we take our commission, which is usually three percent. We keep one-third of it. And we give two-thirds of it back to the buyer. So, on a $1 million house, we would get $30,000 normally. But we only keep $10,000 and give $20,000 back to the buyer."
How is he making money?
"The average agent processes eight deals a year. We have an agent that can do that every week," Kelman explains.
"Are you spinning me?" Stahl asks.
"I mean, seriously," Kelman replies.
There's no way to independently check the number of deals his agents close in a week, but it is clear that they do make it easy for their customers who can sit home at night in their pajamas and click on the Redfin webpage to read critiques of houses in their price range, see what comparable homes in a given neighborhood have sold for and to even tour a house they might be interested in.
Q: I have no problem with people being well-compensated, but there has to be some relationship between effort and reward. Does a real-estate broker in San Francisco really work that much harder than a broker in a lower-priced market, such as Kansas City? Why should their compensation be directly related to the price of the goods sold?
A: I have received many similar queries in recent weeks. There seems to be growing support in the Bay Area for a flat-fee commission structure in real estate.
This can be attributed largely to the recent bubble in home prices. There is considerable resentment toward agents who continued to skim off 6 percent of soaring sales prices even when houses were practically selling themselves.
My own approach has been to recommend a drastic reduction in the standard commission percentage -- from 6 percent to something like 1 percent. But a flat-fee structure seems to make good sense, for the reason the questioner points out, and could produce about the same outcome.
Marketing, I think, can be divided into two eras.
The first, the biggest, the baddest and the most impressive was the era in which marketers were able to reach the unreachable. Ads could be used to interrupt people who weren't intending to hear from you. PR could be used to get a story to show up on Oprah or in the paper, reaching people who weren't seeking you out.
Sure, there were exceptions to this model (the Yellow Pages and the classifieds, for example), but generally speaking, the biggest wins for a marketer happened in this arena.
We're watching it die.
You may have missed a fascinating article last week in the WSJ on a new breed of indice: Those based on luxury goods.
We have noted the bifurcated economy many times in the past. These new measures show exactly how much more freely spending the higher income demographics are versus the masses.
A 2005 Citigroup research note quantifies it rather precisely: The top 20% of American earners now account for between 37% and 70% of total consumption. That's quite a broad range, and like asset ownership, it is very disproportionate in numbers. You can clearly see the difference in spending patterns in the chart at right, showing the Merrill Lynch Lifestyle Index versus the Morgan Stanley Consumer Discretionary Index.
The higher end goods are selling much more briskly than the non-luxe brands.