In answer to yesterday's questions. There are three groups of stakeholders in a business. The employees, the investors and the customers. A corporation is responsible to make sure that each is taken care of. In today's corporate America, we have forgotten about two of them and focused on one.
A company is obligated to its employees. They are the ones who make it happen. The are the eyes, ears and mouth of the company. In my current research project I am finding out that employees are more likely to be unethical at work if the company forgets about taking care of them and puts profits first. According to one source, employees are 91% likely to behave ethically if they have a good work/home life balance. When we force the employees to spend more and more time at the office. When we put pressures on them to put profits ahead of people. When corporate leaders set a poor example for them, unethical behavior spreads throughout the organization. You have to take care of your people and they will take care of you. And they will behave themselves as well.
A company is obligated to their investors to make sure that these people received a fair return on their investment. Give them reasons to invest for the long term by making slow and steady growth the priority. If you are concerned about short-term profits, investors will bail at the first sign of trouble. When you loose money, you will loose it at a faster rate.
A company is also obligated to its customers. Look at the housing industry. How many newly weds are purchasing the house that they will be living in when they retire? Probably a very small percentage. Is it not better to take care of these people so that they will come to you when it is time to trade up? If a real-estate agent treats a customer fairly, will he not have a repeat customer? Even when you earn a lot of money on one sale, is it not better to get repeat business? The best customers are the ones that keep coming back. They will tell their friends about you. Your business will steam roll. The saying goes that it takes 20 positive experiences to make up for one negative one. On a scale of 1 to 10, this is statistically true. If you throw one zero, it takes 19 10s to bring the average close to 10.
If you ask me, the mortgage and real estate industry in this country has messed themselves up. Like I said yesterday, the average income in Silicon Valley is 85,000 per year. The average home price is 830,000. If both spouses are earning the average, then a family can afford 254,000 on a home. The question is, how did it get this way?
It is because the real estate industry uses practices that create artificial demand and the mortgage industry has supported the practice. When the dot com bubble burst, investors went into real estate to make money. With more and more and more people trying to flip houses for profit, the demand escalated. This pushed prices extremely high. Higher than the average home buyer could afford. Banks have to get creative to help people qualify for these king of mortgages. And when the bill came due, people could not pay. This equation was exacerbated by higher fuel costs.
Real Estate agents get their commissions right away. They rarely see the effects of a foreclosure. The mortgage industry profits from a foreclosure if there are not very many of them because they usually sell the house at a price that would make up for the loss...until now. It was a win/win until recently.
I do not think that this crisis will be over until the average price of a house is realistic for the average home buyer. We still have a lot of ground to make up in many of our largest cities in this area. Especially in some cities like the south bay area.
What can congress do? I don't know for sure. Perhaps end the tax credit for the interest on a second home? No...that would bring prices down at an even faster pace. Extend the existing credit for first time home buyers. That will help hold demand in the housing market. More guaranteed loans for first time home buyers and more programs to help first time home buyers make good down payments. Similar helps for dislocated and displaced workers. Perhaps now would be a good time to bring back Pell Grants for displaced workers...and even Pell Grants for such workers that already have a Bachelors degree. Programs that make it easier for experienced workers to get teaching certificates. I also think that there could be a law that pays real estate agents their commissions over time instead of all at once. There are a lot of things that will help...but our congress needs to act now before they go on recess.
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