July 2007 Archives

Low Cost Air Travel Opens New Second Home Markets

Zoe Dare Hall:

With new low-cost airline access - including a three-hour flight from Luton with Ryanair - and surging interest in Morocco's historic cities, Fez holds great appeal to foreign property buyers in search of the next Marrakech.

While wealthy Moroccans regard the old town as the ghetto and prefer to live in Fez's French-built new quarter, overseas investors are eyeing up the palaces, dars (houses set around courtyards) and riads (houses with gardens) in the Fes-El-Bali medina, the world's largest car-free urban zone. Among its back streets are about 3,000 houses in a ruined state. Those for sale cost from £20,000 - a fifth of the price of comparable properties in Marrakech.

"It's hard to find beautiful houses with original features and a lot of people are put off by stories of the endless paperwork and having to track down all the owners before you can buy," says Louis McIntosh, a former DJ from Norwich who recently moved to Fez and bought a six-storey house with octagonal ceilings in the medina for £24,000.

No Housing Turnaround for Two Years?

Maya Roney:

The NAR believes consumer psychology is to blame. "Homebuyers have been getting mixed signals about the housing market, which is causing some of them to hesitate," said NAR Senior Economist Lawrence Yun in a statement. Rising mortgage rates and tighter lending standards aren't helping, either, Yun said. According to Freddie Mac (FRE), the national average commitment rate for a 30-year fixed-rate mortgage rose to 6.66% in June, from 6.26% in May.

Two "bright spots" in June, Yun said, are the decline in housing inventory and the "modest gain" in home prices. Total housing inventory fell 4.2% in the month, to 4.2 million existing homes for sale, representing a supply of 8.8 months. In the same period, the national median existing-home price edged up 0.3% year-over-year, to $230,100. For single-family homes, the median price rose only 0.1%.

"This increase is an aberration," says Patrick Newport, an economist with Global Insight in Waltham, Mass. "Current inventory levels make it almost a sure thing that prices will continue to slide." On July 11 the NAR said existing-home prices would recover in 2008, rising 1.8%, to a median of $222,700 after a 1.4% decline this year. But Newport thinks otherwise. "Our view is that the downturn [in sales] will continue into 2008," he says. "Given the level of unsold homes, however, nominal home prices will probably not rebound until 2009."

Home Resales in U.S. Fall 3.8% to 5.75 Million Rate

Joe Richter:

esales were forecast to fall 2.1 percent to a 5.86 million annual rate from a previously reported 5.99 million in May, according to the median estimate of 73 economists in a Bloomberg News survey. Estimates ranged from 5.45 million to 6.12 million.

Sales last month were down 11.4 percent from a year earlier.

Homes for Sale

The supply of homes for sale fell 4.2 percent to 4.2 million, the first decline in inventories this year. At the current sales pace, that represented 8.8 months' worth, the same as at the end of the prior month.

``The inventory numbers are encouraging,'' O'Sullivan said. ``I wouldn't celebrate yet, though, because sales are still falling.''

Tesco Expands into Phoenix and Southern California

The Economist takes an interesting look at American culture vis a vis British retailer Tesco's analysis of American consumers. Tesco plans to open "Fresh & Easy" stores in Las Vegas, Phoenix and Southern California:

The company has spent years gathering detailed information on every aspect of American life. Most retailers would think they had done their homework after the usual focus groups and surveys, but Tesco went much further. Researchers, including a small cohort of top executives, spent two weeks living with 60 American families. They poked around in their kitchen cupboards, watched them cook and followed them as they shopped. “They'd been studying the city for about a year before they came to us,” says Scott Motley, who works for the city of Phoenix, which with the Greater Phoenix Economic Council helped Tesco find places to put stores.

Even the stores seem part of a grander plan to keep gathering data. Take the patchwork of districts where Tesco plans to build some of the first. In central Phoenix it has chosen some of the poorest parts of town. Families living within a mile of one store have a median annual income of just $37,500 (against about $44,000 for America as a whole). In nearby Chandler, a middle-class area, it will be building its stores within reach of the city's richest inhabitants. There, median incomes run to about $93,000. This torrent of comparative data is central to the plan: Tesco is setting out to change the way Americans shop and eat.

Joanna Ossinger:

In today’s Journal, Henny Sender writes about Apollo Management’s preparation of “a double-barreled move to cash in and at the same time retain the advantages of being private.” She says Apollo will list its shares on a new Goldman Sachs exchange “available only to institutional and other sophisticated investors that promises to limit members’ exposure to the heavy scrutiny that comes with public markets.” Despite this unusual plan, private-equity offerings are starting to fall into a pattern, she points out. “A playbook of sorts is beginning to emerge in the private-equity arena, as each recent deal has built on previous transactions.”

A Look at Housing Prices Around the World

The Economist:

TEN years after the start of East Asia's financial crisis, some economists are fretting that the region is heading for another bust as abundant liquidity and low interest rates inflate bubbles in shares and housing. The bursting of property bubbles in 1997 played a big part in the region's economic and financial meltdown. Average house prices fell by 20-50% in real terms in most countries between 1997 and 2003. In Hong Kong, nominal prices slumped by as much as two-thirds.

China escaped relatively lightly in 1997-98. But today a collapse in house prices could have nasty consequences—more severe than a bursting of its stockmarket bubble. That is because 80% of China's urban households now own their home (in America, the national figure is 69%), compared with only around 10% owning shares. It is fortunate, therefore, that for all the talk about a housing bubble, by most measures it does not exist.

On Creating Software

Michael Miller discusses Scott Rosenberg's new book: Dreaming in Code: Two Dozen Programmers, Three Years, 4,732 Bugs, and One Quest for Transcendent Software:

Rather, Chandler is a rhetorical device with which Rosenberg takes on the big questions: How do software development teams work (or not)? Why does the reuse of software modules rarely work altogether correctly? Does open-source development by volunteers on the Internet lead to innovation or just insanely bifurcated chaos? Chandler helps his readers think more clearly about all of these issues; however, "answers" to these questions are, of course, not to be had, which is one of his points.

The problem with books about technical subjects that aspire to appeal to a general audience, particularly computers and software, is that such subjects are so far outside the realm of familiarity of most people that the prose bogs down in analogy and metaphor. Rosenberg manages to avoid too much of that and deliver a readable account of software development and culture. --David Wall

Most software projects fail. Success requires strong leadership, technical skills, great paying customers and luck.

John Cook:

Redfin has raised an additional $12 million in venture funding, money that the Seattle discount real estate broker will use to enhance its Web site and expand into new markets.

Redfin Chief Executive Glenn Kelman is pinpointing other markets in an effort to reach profitability, adding that the 75-person company should break even once it has established itself in 10 major cities. Redfin is already profitable in Seattle, with San Francisco, Boston and southern California also reaching the milestone during select months. Kelman estimates that it will take the company about six months to reach profitability in each new market.

"We don't think we are going to raise another round, unless we screw up," said Kelman. "This is the amount of money that we felt we needed to safely get to profitability without having to go back to the bank."

It will be interesting to see if the math ever works - financially; another $12M raises the "successful exit" bar quite a bit (they've raised a total of $20M in VC funds).

David Kaplan:

Weblo, a virtual world that has the aspects of Monopoly, has raised $3.3 million in second round funding from VantagePoint Venture Partners, VentureBeat reported. The site lets users buy virtual domain names for real places (e.g., “LosAngeles.com") with actual money. These users can then appoint themselves mayor of the virtual city and then sell off properties there to actual bidders.

Young Adults are Giving Newspapers Scant Attention

newst.jpg Tom Patterson: 230K PDF
Based on a national survey of 1800 randomly sampled teens, young adults, and older adults, this report examines the amount of daily news consumed by young people. The evidence shows that young Americans are estranged from the daily newspaper and rely more heavily on television than on the Internet for their news.

A few decades ago, there were not large differences in the news habits and daily information levels of younger and older Americans. Today, unlike most older Americans, many young people find a bit of news here and there and do not make it a routine part of their day.

Justin Jones:
The results were especially grim for newspapers. Only 16 percent of the young adults surveyed aged 18 to 30 said that they read a newspaper every day and 9 percent of teenagers said that they did. That compared with 35 percent of adults over 30. Furthermore, despite the popular belief that young people are flocking to the Internet, the survey found that teenagers and young adults were twice as likely to get daily news from television than from the Web.
Barry Ritholtz's related post offers some useful comments, including several whose only print subscription is the excellent Economist (I, too read the Economist).

Terry Heaton:

At the LATimes, second quarter revenue was down 10% and cash flow down 27%. In his call for front page ads, Publisher David Hiller noted it was one of the worst “ever experienced” by the paper.
Bloomberg on Realogy's plans to reduce their newspaper advertising:
Richard A. Smith knows something anyone considering buying a newspaper company needs to know. He's taking his advertising dollars somewhere else.

Smith, president of Realogy Corp., the largest residential real estate broker in the U.S., said the portion of his Coldwell Banker and Century 21 branding budget devoted to newspapers will shrink by as much as two-thirds next year from 2006 as spending moves online. Newspapers will receive 70 percent of Realogy's home-sale advertising by 2010, down from 84 percent this year.

The shift, echoed by executives at Berkshire Hathaway Inc.'s HomeServices of America Inc., the second-largest broker, is a sign that real estate advertising won't recover fully from its slump when the housing market rebounds. Newspaper officials such as McClatchy Co.'s Gary Pruitt are mistaken in predicting a comeback, Smith said.

It's interesting that Realogy will continue to spend at least 70% of their ad dollars on newspapers.

Best Places to Live in the US: Top 100

Money Magazine:

For this year's list we focused on smaller places that offered the best combination of economic opportunity, good schools, safe streets, things to do and a real sense of community.

Avoiding the Traps That Can Cause Your Company to Self-Destruct

Jagdish Sheth:

When Exceptional Achievement in the Past Warps Your Perception of Present Reality

Like several of the other self-destructive habits, arrogance can arise from exceptional achievement. One situation especially predictive of arrogance is when a company, through unexpected or stunning accomplishment, catapults to the position of industry leader and then goes on to successfully defend itself against wave after wave of competitive, regulatory, and even public opinion assault. Quite naturally, such a company comes to believe it is immune to external forces -- a belief bolstered by the media and its stakeholders (suppliers, dealers, and so on) --and its reputation is blown out of proportion. To me, this is the real meaning of "good to great": The company doesn't change, but its accomplishments are exaggerated by a media overly fond of big words and big stories. Gradually, the arrogance-prone company comes to believe its own press clippings. Then we have the familiar story: Success courts its own demise. For a particularly good illustration, let's look again at...

House Priced Too Low?

David Leonhardt:

Given that the real estate market is supposed to be in free fall, some strange things have been happening recently in Mill Valley.

It is one of the expensive suburbs of San Francisco just over the Golden Gate Bridge, and much of the housing market there seems to be doing just fine. One three-bedroom house sold for $1.4 million last month without ever being officially put on the market. The seller accepted a pre-emptive bid — $20,000 above the asking price — from somebody who had heard that the house was about to be listed for sale.

“The homes that are having a hard time selling are the average-priced homes,” said Vanessa Justice, a real estate agent with Pacific Union GMAC in the Bay Area, where the median house price is about $750,000. For upper-end homes, she said, “it’s actually pretty crazy right now.”

It has been a while since real estate agents used the word “crazy” in a positive way, but Ms. Justice is onto something here: the high end of the market is surviving the slump much better than any other segment. Even as foreclosures keep rising and overall sales continue to plummet, more expensive homes have staged a bit of a comeback in recent months. They’re spending less time languishing on the market than others, and their prices appear to be holding up better.

Unconventional Wisdom About Management

An interview with Jeffrey Pfeffer, author of What Were They Thinking?: Unconventional Wisdom About Management:

Question: What do companies do stupid things?
Answer: First, they ignore feedback effects. There has recently been a lot of interest, and apparent surprise, that programmers in India now cost a lot and their wages have been rising rapidly. Did people forget supply and demand? If everyone moves work to India, what did companies think would happen? Or, to take another example, when companies cut their retirement benefits, and people can not afford to retire, guess what, they won’t.

Second, companies often ignore the interdependence or connections between actions in one part and those in another. So, even as some departments are trying to cut the costs of benefits, others are worried about recruiting and retaining enough qualified people. Maybe the parts should work together.

Third, many companies presume that incentives are the answer to everything, and have a very mechanistic model of human behavior. That is also incorrect.

A Short Video on Client / Customer Relationships

David Maister:

What We Hate About Those People, the 15th episode in my live video and podcast series, deals with the interpersonal relations between professionals and their clients. Often the professional, being the expert, overlooks the emotional needs of their clients. We will demonstrate a simple exercise that will help you better understand and fulfill your clients’ wants and needs.

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