McMansions out for new generation of homebuyers

You’d think Walter J. Schneider would be at least a little tense right now.
Schneider serves as president of RE/MAX of New England Inc., RE/MAX North Central Inc., RE/MAX Indiana Ltd. Partnership and RE/MAX Ontario-Atlantic Canada Inc., among other things. He founded RE/MAX Europe. In short, Schneider is a heavyweight in the real estate industry in North America and beyond, an industry that continues to take its lumps as home sales and prices have sunk.
But Schneider recently told Providence Business News he’s anything but worried about the real estate market.

PBN: You just spoke to condo developers in Boston. Providence developers have had their share of difficulties with luxury condo projects here, with price cuts and a foreclosure. What has gone wrong in those cases and others like it?
SCHNEIDER: Somewhere along the way, things got out of hand. At the end of the day, you have to price it right. The developer and the Realtor do not set the price. The market sets the price. Some of the problems are brought on by secondary pressures. Perhaps it’s the lenders. Perhaps it’s the cost of building.
… But a luxury property is going to be fine, as long as it has a unique value proposition. If I was concerned down the road about anything, it’d be the very large homes that were built and just plopped on a lot. Those will probably have some challenges in the future. That same house built on the water, on the golf course, a highly desirable setting, I think will be less challenged. A lot of the stuff being built in the last decade was just being built for the sake of being big. It made no common sense.
PBN: What were some of the concerns that housing developers are expressing to you, in meetings such as the one in Boston? SCHNEIDER: Some are asking what they should put in their buildings. Should they be small units? I think the successful projects going forward are the ones that have a mix. You can’t just build 700- and 800-square-foot spaces. You do have to throw some two- and three-bedrooms in. … We have this young generation of buyers that is going to be buying differently. They’re more minimalist. They want things more trimmed down.
But they’re a generation that postpones everything. … Family formation is being pushed out; childbearing is being pushed out. In North America, 30 years ago, females made up about 25 percent of the work force. Today, they make up 50 percent of the work force. These different dynamics change the type of housing stock, where the housing stock is going to be; and what they’re looking for. Delaying these decisions will mean the needs for these products will change. … I believe there will be a minimalist period, then they’re going to acquire stuff and have children later.

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PBN: But what about the immediate future? Foreclosures are piling up. Many homeowners owe more on their houses than they’re worth.
SCHNEIDER: Yes, we’ve got issues in Rhode Island. And we’ve got issues in Buffalo. And we’ve got issues in Oklahoma City [and elsewhere]. But I’ve always said real estate is a marathon, not a sprint. As a general rule, humans have short memories. We quickly get caught up in what’s going on in the marketplace, and we think that’s normal. But we forget that it may not be normal. We had a … run from 1995 to 2006 where properties appreciated. And we had a whole generation of consumers who said, “Of course my property [value] should go up 15 percent a year. I’m entitled to that.” The truth is the historic average of real estate, in a 20-year cycle goes up 5 percent a year. So if you have a bunch of years where it’s going up 15 percent, there has to be a correction. The reasons for the circumstance we find ourselves in are a few things: [the market was] too overheated, [there was] too much easy money and a lack of accountability. If you’re disciplined and you’re responsible in the acquisition of real estate, you will be rewarded for it. If you’re speculative, you’re going to get spanked. … If you take a long-term perspective you’ll be fine.

PBN: What does the inventory picture look like?
SCHNEIDER: I can say about certain markets like Boston that if we had this conversation 18 months ago, I’d tell you we have 18 months of inventory out there. Today, we have seven or eight months of inventory.
The amount of inventory is shrinking. We will have some blips, but I believe right now, it is the best time to buy.

PBN: Of course, you’d say that. You are a real estate executive.
SCHNEIDER: Well, look at the dynamics. There’s great inventory to choose from in the marketplace. It’s affordable. Interest rates are as low as they’re going to be. How much lower can they go?
I don’t think that someone buying an entry-level house right now in Rhode Island, with tax [credits] in place, and low interest rates, is really putting themselves at a high level of risk. You’ve got to live somewhere. You can’t live in a mutual fund. •

INTERVIEW
Walter J. Schneider
POSITION: President of RE/MAX of New England Inc., RE/MAX North Central Inc., RE/MAX Indiana Ltd. Partnership and RE/MAX Ontario-Atlantic Canada Inc., PMSCS Real Estate Franchising Inc. (RE/MAX Europe)
BACKGROUND: Schneider is credited with expanding RE/MAX’s reach into Canada in 1980, when he and business partner Frank Polzler founded Ontario-Atlantic Canada Inc. They went on to oversee RE/MAX companies in nine U.S. states, and founded RE/MAX Europe.
EDUCATION: Bachelor’s degree, 1976, the University of Toronto
FIRST JOB: Worked in a lumberyard in Toronto, at age 16
RESIDENCE: Toronto
AGE: 56