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09-25-2007

Bloomberg National Station Network - Bloomberg Now

SUSAN LI, host: Well a chief of a real estate investment firm says it could take years before the housing industry recovers from its slump. Anna Paul spoke with Hugh Bromma, The Entrust Group, about the crisis and asked him why this one is different.

Mr. HUGH BROMMA (The Entrust Group, CEO): The level of absorption probably puts us out at about five years to absorb all of the current real estate at current prices. So what you're gonna see over the next 10 months is the inventory being reduced, but, again, we're talking about price relationships here.

CATHY YANG reporting: And you said that you saw it coming for quite a while. I mean, how much visibility did you have before all the subprimes started to fall?

Mr. BROMMA: It started about a year ago. We started things really speaking out, and we've noticed that--in our clients--that they're looking into cash more, and they were kind of waiting, seeing, to see what was going to happen. And then the subprime happened and it pretty much tightened up the market, as far as our clients are concerned.

YANG: And you've been through several of these cycles. You've been in the market since the '80s, and you've seen, what, three cycles of this?

Mr. BROMMA: Three cycles now.

YANG: But you say that this one is much more difficult to overcome.

Mr. BROMMA: Yes, the subprime situation has actually created an extra challenge for everyone. And prices have gotten bid up on residentials, particularly. And it's gonna be tighter to get out of this particular one, simply because of this confluence of events that we have going on with the subprimes.

YANG: It's harder to get out of this one, but what about for your clients? I mean, you said that prior to the subprime fallout, everybody got "cashed up." I mean, everybody just started holding more cash.

Mr. BROMMA: That's right. And they are continuing to be in cash.  We're seeing that we were at around 15 percent cash, our clients are now rising to around 25 percent cash.

Although there are some buyers that are getting bargains now, many are gonna be waiting over the next several months to be able to pick up bargains.

(Graphic on Screen) The Entrust Group Retirement Plan Services

$3 Billion Invested

60 Percent in Real Estate

50,000 Clients Nationwide

YANG: Did the half-point cut make a difference? Did people start buying after the half-point cut?

Mr. BROMMA: Not yet--not yet. It's gonna take probably a couple of months to see what kind of fallout effect there is going to be on that. Most of our clients buy property for cash, they tend not to leverage. So it's not necessarily going to impact the largest part of our client pool.

YANG: What do you think? Did the Fed come too late, or do we need more rate cuts? Especially, if you're in the housing industry?

Mr. BROMMA: Well, it depends on whether you're a contrarian or not.  I think it's a matter of how you look at the situation. Some people in the market--and the real estate market, are looking at the smaller cuts to balance out the market effect. Others are happy with a half a percent, but they are the contrarians.

So it's just a matter of the point of view, but the reality is, is that people are in cash and they're going to stay that way, and we'll see over the next several months what's going to happen and see if there are any more rate cuts. And if there is gonna be an effect on the real estate market, which, right now there's--it's too new to rate, let's put it that way.

YANG: So, if you were to have a choice, you would rather have the Fed cut rates some more before the year is out?

Mr. BROMMA: From an economist's perspective, yes. From a real estate market rate, perhaps. It's a function of what's going to happen with the lenders in this marketplace.

LI:  And that was Cathy speaking with Hugh Bromma; The Entrust Group in San Francisco.