The future is data

RP Data’s chief executive officer Graham Mirabito, The First American Corporation’s executive vice president Jerry Hoerauf, and chief executive officer of The First American Corporation subsidiary Core Logic, George Livermore, spoke frankly with The Adviser on company partnership, data innovation and the outlook for the property market.

HOW HAVE THE EVENTS OF THE PAST THREE YEARS SHAPED YOUR RESPECTIVE BUSINESSES AND WHAT INNOVATIONS HAVE COME FROM THE GFC?

GEORGE LIVERMORE: The global financial crisis forced us to take a step back and reevaluate our business. We had to define what was important to our brokers and real estate agents and then go about sourcing that information more effectively.

Our immediate focus has been on developing products for the capital markets. In 2004, we acquired Loan Performance – a company that collected contributory data. Because we don’t have an invested interest in the property market, lenders trust us with their confidential data. Using this confidential data, we can provide accurate rest-of-market comparisons. We can help the banks be transparent, and detail to our broker database which bank excels and which bank lets down the side in terms of servicing times etc.

JERRY HOERAUF: I guess you could say it is the beginning of loan quality assessment.

GRAHAM MIRABITO: The GFC has forced us to look at the possibility of introducing positive reporting – we don’t have positive reporting in Australia. When we bought the Fraud Mark product from The First American Corporation, the banks were forced to share loan application data – it was the beginning of contributory data.

Similarly, we already have a product called Market Scorecard – which is currently used by our real estate franchise groups.

With 75 per cent market share [of real estate agents using our products], we see what real estate agents are up to. We know what properties they are searching for, how much they are marketing properties for, we also know the time-on-market for each suburb and the amount of discounting that takes place. We can accurately predict how many mortgages are going to come on the market in a certain number of days.

HOW WILL THE LOCAL PROPERTY MARKET PERFORM OVER THE NEXT FEW YEARS?

GRAHAM MIRABITO: [A lot of] people believe our property markets are going to go the way America did – where they slumped in pricing. However, there are some fundamental differences between us and our American counterparts.

We are in undersupply – when we had our boom in 2003 and 2004, the developers couldn’t get enough money out of the banks to develop the country. Consequently we are short on property. And if you add on the fact that we are currently enjoying record migration, Australia’s outlook for housing development is glum.

Some of the developers go on the high side and say Australia needs 200,000 properties to keep the market healthy. We, on the other hand, believe [that] we are 60,000 properties short. Either way, there is a huge lack of available properties.

Then you have got the fact that 55 per cent of our population live in Sydney and Melbourne – which will ultimately push more demand in these areas. The supply and demand is what is going to dictate property prices in the future.

The fundamentals for Australia point to the fact that there is not enough supply, so demand will push prices up. And it is getting to the point now where the government needs to step up and local councils need to stop the ridiculously high infrastructure charges. We need to have better urban planning.

WHAT CAN WE EXPECT FROM THE US PROPERTY MARKET OVER THE NEXT COUPLE OF YEARS IN LIGHT OF HOW THE AUSTRALIAN MARKET IS TRACKING?

GEORGE LIVERMORE: The US property market is still in the emergency room right now. We still have a lot of seriously delinquent loans that need to be dealt with and we still have prices that are in decline.

We think it is going to be a while before property prices and demand starts to pick up once again. [Current] historically low interest rates have helped demand to grow, just as government programs are helping things. But there is still $9 trillion in mortgage debt... the numbers are boggling.

We are going to take a few more years to heal properly. The banks have tightened their credit policy over the past few years and the balance sheets are looking better. So, perhaps they will start to open up a bit more, and lend to Americans that they have not been lending to over the last 36 months.

We think by the end of 2010, we will start to see fires coming into the market, because both interest rates and house prices are low but, as for the securitisation market, most of the experts are still unsure what will happen. We think probably 2011 will look a little bit better, but it is not going to be until 2012 that we have wind at our backs.

HOW HAVE ATTITUDES AND PERCEPTIONS CHANGED TOWARDS PROPERTY DATA AS A RESULT OF THE GFC?

GEORGE LIVERMORE: When times are great, people are only slightly interested in property data. But, when the market melts down, data becomes incredibly important.

To give you an example, the federal government has become a huge customer of ours. Similarly, Fanny and Freddy banks [US government-sponsored lenders] have also become interested in our data.

They need to know what their assets are looking like every single day – they are buying a lot of information to ask what the inventory looks like. In other words: how many properties are being listed, how long are they on the market – because that is a precursor for what those assets are going to look like a few weeks down the track. If time-on-market is increasing, listed properties are increasing and delinquencies are increasing; there is no question that prices are going to continue to collapse.

The banks can have a look and see if delinquencies are starting to reduce – that can give them a better sense of what is happening in the market. Before, banks weren’t looking at data collectively; they were looking at it once in a while. [Previously the] major banks were updating their portfolios as to what the median house prices are for a certain region once a quarter. Now, they do it once a month, at least.

ARE YOU AHEAD OF YOUR COMPETITORS IN TERMS OF DATA SUPPLY, DIAGNOSTIC TOOLS AND ONGOING INNOVATION?

JERRY HOERAUF: We have been historically way ahead of our competitors. It is an exciting time to be in the industry, because you have this confluence of data coming together. Better yet, consumers are realising they need this data – so they are adding their own data to this pool of information.

GEORGE LIVERMORE: We have a lot of competitors in America and they are looking to compete with us. In some respects, all it will take for them to be equal to us is to spend money and get the data. But some of the data is not in existence anymore [since] it is historical trend data.

We’ve been flattered that a lot of our competitors are jumping into the space in an attempt to compete with us. But we like to think of it as ‘we have been fighting and winning the data war before other companies even knew there was a war going on’.

We’ve [also] been pretty aggressive about protecting our IP and we already have over 50 patents in place. We patented [to tool] Fraud Mark, which gives us some leverage over our competitors.