Commentary: Uneasy homeowners return to the hearth when investing

Long Island Business News, Dec 13, 2002 by LIBN STAFF

It's happening again. The record shows that in times of turmoil, wars or conflict Americans seek economic comfort in the basics - real estate. And while the threat of new clashes hovers over the national landscape, this region is seeing a resurgence of real estate activity that is stunning in its volume and breathtaking in its strength.

Home sales continue to generate record purchase prices, and brokers report the market very much remains a sellers' domain. But the really overwhelming activity is in the refinancing of homes by existing owners. Part of this activity reflects low interest rates designed to spur the economy, but another part can be traced to America's economic instinct of investing in safe harbors when times are troubled.

The timeline for this model becomes truly valid only after World War II. The post-war era saw returning veterans creating neighborhoods out of potato fields. Home ownership increased exponentially as low cost financing programs were made available. Still, from the creation of the post-war Baby Boom through the 1991 Gulf War, residential interest rates show a consistent trend. Home mortgage rates either slide down or stabilize at a lower number, encouraging the sale or refinancing of homes.

The Gulf War particularly demonstrated a "return to the hearth" strategy by the investing homeowner. Mortgage rates dropped like a rock, sparking a refinancing cycle that helped prime the economic pump while providing recession weary homeowners of that era enormous value.

The current refinancing boom comes at the confluence of several pressing issues. The Federal Reserve Board and its chairman Alan Greenspan are carefully keeping interest rates in check. The nation's strategic economic policy is encouraging lower mortgage rates. Geopolitical turmoil, coupled with fractured blue chip investments, is driving small investors to look for rock solid alternatives.

Ironically this mortgage refinancing cycle is reaching such high levels that the system is beginning to show structural inequities. Some consumers complain that it is taking them weeks to get on the schedule of attorneys, appraisers and the whole host of consultants who sit at the table during closing. Ironically, the throttle on this process is the industry itself.

It is the maturing of the Information Age that may actually begin to address this consumer backlog, as software and electronic systems begin to emerge. The foundation for this synergy is coming from the interaction between law firms and title companies intent on harnessing this technology. What had been formerly static and paper- driven has become interactive and electronic, providing information in real time from specially designed Web sites. This 21st Century partnership has the unique potential to allow the industry to finally meet consumer demand when the consumer demands a closing.

However, this new leveraging of electrons for the purpose of speeding the traditional real estate paper trail comes with several caveats. The attacks of Sept. 11 taught us that off-site backup is no longer a luxury but an imperative. In the wake of those assaults we are also discovering that the ability of taking "lost" data and presenting it within hours on a CD-ROM is actually creating a level of secure redundancy that paper can't match.

Attorneys are also finding that placing the casework of a real estate deal on a secure Web site can allow them to easily shift assignments and workload to other associates for the purpose of scheduling closings faster and more efficiently.

All of these advances using information technology come at a time after the so-called Internet bubble burst and dot-com stock certificates are as curious as Confederate currency.

What a paradox that a millennium old practice of buying and selling real estate should now provide proof positive that the 21st century Internet is, in fact, a vibrant, relevant and crucial part of how our society can buy, sell and exchange land. And we are now capable of doing it at speeds that meet the tempo of our economy.

The real estate industry cannot afford to be left out of the Information Age. Its passage through this portal will have a substantive change not just for those seeking to buy and sell real estate, but also for those companies and law firms who understand how to harness its power to hone their competitive edge.

William A. Purschke is executive vice president, Titleserv Inc. in Plainview.