Wisest of the crowds

The discussion of Social Media and whether the term is best continues, fueled by Doc Searls reaction to Brian Solis’s post, which Brian followed-up on a few days later. Doc does a nice job of reminding us of what this is all about:

The human need to increase what we know, and to help each other do the same, is what the Net at its best is all about. Yeah, it’s about other things. But it needs to be respected as an accessory to our humanity. And terms like “social media”, forgive me, don’t do that. (At least not for me.)

Very true! So perhaps the way to think of this, piecing together Doc’s words and combining it with what is core to what is happening, shall we call it “informed social authoring”? Again Doc opines:

I think of it as writing that will hopefully inform readers. Informing is not the same as delivering information. Inform is derived from the verb to form. When you inform me, you form me. You enlarge that which makes me most human: what I know. I am, to some degree, authored by you.

Okay what say you? If your thinking, ‘well, I am new to this so I don’t have a view”. My response is that you have an opportunity to bring your fresh perspective to author me and others. So, what are you waiting for?

There are a number of prominent people revisiting a definition that is central to what is happening on the internet. Stowe Boyd in “Scoble Asks what is Social Media” builds on what Robert Scoble writes in “What is Social Media” . These two guys are at the center of this “movement” (dare I call it that?) and so are worth listening too as well as engaging. Bottom line is, as Stowe Boyd writes:

it is the way that we are organizing ourselves to communicate, to learn, and to understand the world and our place in it. And we just won’t accept any models for that that aren’t intensely social: we won’t put up with large organizations telling us what is right, or true, or necessary. We will now have those conversations among ourselves, here, at the edge. Social Media has released us, freed us: and we won’t go back

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Okay so what is social media and why should you care? It is about using a bunch of tools, most of which reside within My-Currency, to give yourself a voice and the ability to engage with other people who also care about your issue. It is giving you the opportunity to tell the world what YOU think and having the world tell you what THEY think in return. Is it about having a conversation, a discussion, or collaborating. So these tools mirror what you do in the off-line world and expand your reach infinitely. You are no longer limited to your connections and to those of your friends. Your network can include nearly everyone. That’s good for you and good for business. But will you show up? Will you present yourself so that you can be counted and hence connected?
If so, the outcome is you may become an authority on something. Or that you may develop relations and friendships. Or that you drive clients to your business. Or that you alter the way others think and hence improve the world. Or all of the above! So what are you waiting for?

One of the nice things about creating something that forces people out of the intellectual cave is listening to massive justifications for crap.

For example, one thing that a few people in real estate industry are in love with is this idea that the value of a home is solely determined by the buyer and seller at a negotiation. Further, some are crass enough to suggest, essentially, that value is a nice concept - but that transaction prices are king. Okay, that is true in a vacuum. It is the equivalent of saying the cake is chocolate because the frosting is brown.  The cake can be anything and certainly no one would suggest that the frosting is the cake (except my three year old daughter).
Why do I say a vacuum? Because people enter a negotiation with information that they receive from all around - from every conceivable person they know. That information comes explicitly and implicitly. In economics its called “signalling“. The idea is that we receive information signaled from others during a transaction. I think you are not paying enough for my car, I shrug my shoulders and tell you as much. Do I really think your offer is low? If there were several people between you and me in the negotiation could the signal lose its strength or have its meaning altered?

So our actions are a function of this signaling effect. When you rely on signaling from someone, there are many problems, the largest being:

- How can you, the receiver (the principal, who is usually the buyer in the transaction), trust the signal to be an honest declaration of information?

The problem My-Currency’s CrowdValue technology solves is that we bring to the surface this information signaling that is happening underground. That is, we are putting you into the information loop so that you get all the information signals in an unbiased manner. We know there are people who have incentives to send you the wrong information signal. That is, people who use signaling to manipulate you. Markets (e.g., CrowdValue) come closest to solving this signalling problem because it is an open mechanism that serves as a battleground for opinions where information collides until we have reached a neutral and aggregated signal - the price. Furthermore, markets constantly adjust to new information - new signalling.
Bottom line is that markets enable transparency - transparency for all the information that is circulating and perhaps being manipulated before it gets to you.

Is this good for housing pro’s? Yes because people will have more faith in the system and hence transact more frequently. It also gives pro’s an opportunity to show the world that have information and know how to interpret it - by taking actions that are measureable against real outcomes.

So who determines housing prices? Everyone. Everyone connected to the buyer and seller and everyone connected to those connections. Negotiated transactions are final manifetations of the whole network - the whole process.  Are consumers getting all the information signals? Mostly no (hence the popularity of AVM’s). Is information passing through the hands of people who have opposite incentives and hence opening the question of whether it is an honest declaration of information? Come on, do I need to spell it out?

Yesterdays New York Times had an article by David Leonhard (quoted above) entitled “Odds are they’ll know the ‘08 winner” that talks about prediction markets impact on the elections, the economy, and a host of other areas. The point is that markets are making things better. Better for business and better for people. It’s doing this because, as N. Gregory Mankiw is quoted saying

“Everybody has information from their own little corner of the universe, and they’d like to know the information from every other corner of the universe. What these markets do is provide a vehicle that reflects all that information.”

What is missing from this article, is nothing more that the fact that predicition markets are part of a broader movement towards using tools to capture distributed information, enable coordination, and enable collaboration. Examples? Wiki’s are markets. It is a location where participants buy and sell words and ideas that best capture knowledge, information, and opinions. Blogs? Same thing really. I write something, someone else reads it and they create a comment. That comment begets other comments internal and external to my blog that inserts all participants into a virtual conversation that has no border. Another example? What about open source development of software. Software developed by anyone and anywhere. Much of My-Currency is built upon open source software.

So My-Currency is just joining a broad movement to empower people and to use tools that don’t presume to know where information resides or who has that information. Markets and social media tools (blogs, wiki’s, answers, etc) enable solutions in a way that is cheaper and better.

Reports today that Shanghai housing prices are down 3.2%. Is this possible? Well according to governement officials, they tightened bank lending to developers to deter continue price speculation.

What does this mean for China as a whole? Apparently nothing as the price growth was exported to other Chinese cities. Does it means anything for global prices? Doubt it. So why am I talking about? To demonstrate that markets are local and that if we need to worry about Shanghai prices affecting our little piece of earth then we have bigger problems to sort out!
This is also a test of our newly installed RSS system. Is it working?

In today’s Sunday Real Estate pull-out in the San Francisco Chronicle, Carol Lloyd discusses the various things that agents are, or can do, to market themselves in an article entitled “Surreal estate: Real estate seminars aim to give agents the edge in a competitive field”.
An interesting article that certainly offers a number of valuable points but perhaps the core perspective is that Agents must create personal brands - brands based upon specialized niche expertise. Don Hobbs opines “…Once Century 21 had 80,000 agents, how was an agent supposed to distinguish themselves from the crowd?” Hobbs’s company offer’s a host of marketing and coaching programs.

The most obvious thing missing in this whole article is discussion of the internet. Interesting! Let’s see, 80% of people start their housing search on the internet yet 2/3’s of internet leads have a conversion rate of ZERO percent (NAR data 2005). Consumers expect the immediacy and transparency of the internet to be delivered to real estate services. Yet as an agent, you are just a name and a face. The internet changes everything and makes the playing field much more fair. Gone are the days where networks of people are limited. The network of all humanity is up for grabs but dare you engage with it? The internet is an opportunity to expand your reach by showing people what you know - that YOU ARE THE EXPERT.

It helps you engage with your current and future clients in a meaningful way that elicits trust. It enables you to incubate ALL your clients at the same time and creates a history of your expertise for future clients to reference. In other words, it makes it cheaper, easier, and more effective to keep your pipeline fertile and growing. Welcome to the SHOW ME economy.

But if requires you to do new things. The simplest is to start writing things that demonstrate your knowledge base (blogging). Free systems include Wordpress and My-Currency that offer a blog free just by registering (30 seconds). My-Currency gives you the opportunity really differentiate yourself by taking things much further. We give you the opportunity to answer questions through our “answer” section, to participate in “wiki’s”, and to make valuation predictions on housing indexes (median values of a square foot by zip code) and homes. This all helps to answer consumers SHOW ME sensibilities.

My-Currency also enables you to create a very robust profile with all your contact information. And it is free!

Engagement with clients using social tools is a foregone conclusion in other industries. The real estate industry has begun to embrace it but there is a lot of adoption ahead. As the “rookie agent” at Coldwell Banker noted in Lloyd’s article, “You never know if that deal could be your last”, adding “… do people really choose their agents based on a postcard they get in the mail?”

Last night I had the great privilege to meet Glenn Kelman and the Redfin gang at the Socketsite drinks in San Francisco. There was a big mix of people including housing consumers, real estate professionals, notable bloggers, and entrepreneurs. What was most interesting was to hear the optimism from various people about the state of housing this year. Everyone acknowledged that the last quarter or two were hard but that 2007 is looking hot.

Interestingly, a couple of headlines this morning have highlighted the generalized and backward nature of news reporting versus the localized and forward looking of people on the ground. For example:

- Toll’s Orders Plunge, Forecasts Larger Land Writedown - largest U.S. luxury home builder, reported a 33 percent plunge in first- quarter orders

- HSBC shares fall after it ups bad loans provisions - “Foreclosures have shown a higher severity” than expected, Chief Executive Michael Geoghegan said on a conference call. “The major impact was taking into account adjustable mortgage resets.”

Please note that housing stocks are down approximately 3.00% this morning on the combined news.

So here we are again juxtaposing the headlines versus the word on the street. What HAS happened versus what IS happening and WILL happen. The global versus the local. Notable blogger and realtor, Kevin Boer in Palo Alto notes that properties are back in multiple offer situations. John Harper of Danville and Andrew Maury of San Francisco are also reporting mutliple offers and a very bright outlook for housing in their areas.
Stay close to your market and look at what is happening on the ground and what is likely to happen and don’t worry about the headlines. My-Currency is committed to help you gather hyper-local information that is forward looking.

Today’s lead headline in the SF Chronicle: “Home buyers going deeper into debt”. The article sites some harrowing stats:

- 21 percent of buyers last year took out mortgages with no down payment, soaring from just 4.5 percent in 2000

- The number of homes sold in the Bay Area dropped 19 percent last year compared with 2005

- median down payment fell 8.8 percent to $73,000 last year from $80,000 in 2005…the first annual drop in median down payments since 1995.

- 43 percent of people who purchased a house last year relied on a second mortgage

- number of California homeowners who fell behind on mortgage payments more than doubled during the last three months of 2006.

Okay so where is the good news? In short, there isn’t much except to say this is all backward looking stuff. Remember that what HAS happened is less important that what WILL happen. People are resilient and highly motivated to survive.

Clearly some will get caught having stretched too far but the issue really is about the broader impact on your local real estate economy. If you are living in a neighborhood where $3 million dollar houses regularly trade, this is irrelevant stuff. If you are living in an area where a missed paycheck is a real possibility, then the impact on the local housing economy (and hence prices) can be real.

So in examining the potential impact of these stats on your current situation, remember that markets are hyper local (assuming there isnt an exogenous shock) and that the past is not necessarily an indicator of the future. At My-Currency, we are delivering both hyper local intelligence and FORWARD looking data.

Yesterday I did a roundup of the doom & gloom from around the world yet the Philadelphia Housing Index has marched back from its lows in late summer. Take a look at this chart from Yahoo:

I think this says it all. The index has retraced nearly ALL its declines. So what is the market signaling? Is there a relationship between the fortunes of housing builders and housing values?

In time we hope to highlight these relationships between the financial markets and housing but we would love to hear your thoughts.

My First review of headlines around the world this morning brings the following:

• - Canada via the Globe and Mail: “Housing starts off at last” The first line reads “Housing starts are expected to moderate this year and next because a lot of pent-up demand has already been met and carrying costs are rising”
• - USA via Reuters “U.S. housing vacancy suggest further pain - analysts “ First line read: “A glut of vacant homes suggests that the U.S. housing market has not yet stabilized and may be poised for another downturn, Merrill Lynch said in a research note”
• - Europe via Forbes “European housing market set to cool in 2007 after a strong 2006 -RICS”. Interestingly this headline spins positive but six paragraphs in gets justified with the following: “the Bank of America is anticipating price corrections in the UK, Spain and to a lesser extent France. …research by BoA shows these European markets are overstretched and prices are approaching 1991 levels, just prior to the last house price correction, in terms of housing affordability.”
• - Australia via The Australian “Rate rises blames for housing squeeze”. David Uren opens: “The Reserve Bank is being blamed for a dive in housing construction”. The first line read “A glut of vacant homes suggests that the U.S. housing market has not yet stabilized and may be poised for another downturn, Merrill Lynch said in a research note”

These are the just the English language headlines!

So what is going on here? Is housing imploding or is everyone in the media bitter because they are trying to buy a house? Perhaps it is Wall Street, The City (London), and other influential people in the markets and the economy just talking to talk and/or advancing some agenda.

The Truth is housing is a market in a very loose sense. We are all affected by interest rates and the economy but in reality, we don’t buy markets. We buy houses. What is true globally may not be true in your city, your zip code, your neighborhood, or your street. Furthermore, if a lot of people want to buy a house, does it matter what’s happening elsewhere?

In considering your situation, remember to take a hard look at the micro variables and question whether the macro variables are relevant and if so, to what extent they may impact your decision.

My-Currency has embarked upon revealing values and information at micro levels to help you make a better decision, get a better deal and ultimately be confident that your decision was a good one.