New face for a new economy

When David Lereah came aboard as NAR's chief economist in early July, he brought with him an intense focus on the opportunities presented by the new economy.

It was that focus that led this former chief economist for the Mortgage Bankers Association of America to launch MBA's first for-profit venture, Lender Technologies Inc. Lereah oversaw the company as its founding chief, carrying out the company's mandate to give lenders a platform from which to position themselves in an e-commerce environment.

As if being at the helm of a fast-moving company weren't enough, Lereah wrote a book on the new economy, which hit the stores on virtually the same day he joined NAR. The Rules for Growing Rich: Making Money in the New Information Economy (N.Y.: Crown Business, $25) is a primer on how to turn the ocean of information on the Web into investment knowledge.

Turning information into knowledge is not unlike the challenge facing real estate professionals in the new economy, he says. Practitioners must complete the transformation from information providers to knowledge providers they began when the Internet arrived. Otherwise, they'll be competing with the Internet rather than capitalizing on it, Lereah told REALTOR® Magazine in a recent interview. The good news is that real estate professionals have already shown themselves adept at providing knowledge.

Here's more of our conversation with Lereah.

REALTOR® Magazine: The Internet and other technologies are all we hear about today. What are their impact on our industry?

Lereah: Technology is beginning to dominate the homebuying process. Major investments in technology have been made by Fannie Mae and Freddie Mac, large lenders, homebuilders, and real estate practitioners, both at the company level and at the industry level with Homestore.com. This investment is bringing down the cost of homebuying, ultimately to the benefit of consumers.

RM: Won't this hurt practitioners?

Lereah: To the contrary. Of everyone in the homeownership industry, no one is better positioned to tap into the strengths of technology than real estate practitioners, because they remain at the point of contact with consumers.

And, much more than lenders, they've embraced technology. As loans become more of a commodity--and that's what's happening in the mortgage market today--loan origination and underwriting will become a simpler process, accelerating consolidation in the industry.

RM: On the economic front, we've come off a string of record years in home sales. This obviously can't go on, at least in the near term, can it?

Lereah: You would think that, but the economy has proved to be remarkably resilient. Even after the Federal Reserve's interest-rate hikes [on the short-term notes that banks charge one another], the economy continues to show signs of strength. Historically, real estate has been the most interest-rate-sensitive sector of the economy, so the Federal Reserve was counting on slower real estate activity to help cool the economy.

But although home sales have slipped 4 percent to 5 percent this year, the market is still relatively strong. Construction starts are still high, and other indicators are all strong. Even inflation, which posed a scare when gas and food prices increased this summer, is still tame. And because of a healthy employment picture and stock market, consumers still have the financial wherewithal to buy the big-ticket items such as homes and automobiles. I don't see why this good market can't continue.

RM: You mentioned real estate's historic sensitivity to interest rates. Is that changing, given the apparently limited impact the Fed rate increases have had on the economy in general and on real estate in particular?

Lereah: There's no doubt that several factors, including the globalized economy, the so-called wealth effect of the stock market, and product innovations in the mortgage industry such as adjustable-rate loans and their hybrids, are making the housing market less sensitive to rates than it once was. Twenty years ago, home sales would have slowed much more than they have this year after the Fed rate hikes.

It's scary to think what might happen if the Federal Reserve were to lose this key lever over the economy and couldn't navigate the country through the business cycle. Although it sometimes makes mistakes, the Fed gets very high marks for its role in sustaining this record economic expansion. It orchestrated a soft landing for the economy in 1994, which is why we're where we are today.

RM: What's the most important thing practitioners can do right now to keep on top of their game in this new market?

Lereah: Pay attention to demographic changes and to technology. Nothing is more critical than the growth of immigrant, minority, and low-income households as homebuying powers in this country. They're a much more important part of the market now because of their increasing numbers and the growth of mortgage products targeted to them.

As for technology, it's changing the way we do business, but we still don't know how it's ultimately going to play out, who the winners and losers will be.