Tag Archives: kogod school of business

A Solid Foundation: Why has the housing market weathered the economic downturn so well?

My article for the Kogod School of Business

A wave of pandemic-induced uncertainty has thrown a pall over America’s economic performance, yet one sector remains a defiant shade of rose against a generally dark background. Why are home sales rebounding so quickly, with some locations reporting a return to the days of bidding wars? Is this a meaningful and lasting trend or simply a function of limited data from which to draw conclusions? “I think everyone in the industry is asking themselves what the new normal will be after such a cataclysmic event,” says Professor Steven Teitelbaum, who teaches Kogod’s Real Estate Development class and works in transit-oriented development and smart growth.

At the beginning of the pandemic in March, home sales fell by 8.5 percent as potential buyers lost their jobs, contended with economic uncertainty, or simply avoided moving due to health concerns. Existing home sales in April fell by almost 18 percent, but prices rose 7.4 percent compared to a year ago.

What could explain why basic supply-and-demand principles don’t seem to apply here? A huge drop in demand should put downward pressure on prices as the market sways in the buyers’ favor. But in this case, while demand dropped, so did supply. Sellers withdrew from the market for the same reasons that buyers did. New home listings fell dramatically after the stay-at-home orders, with estimates ranging from 29 percent to higher than 50 percent.

The drops in supply and demand were generally proportional to each other, but the lower number of transactions made it more difficult to analyze how prices moved in aggregate. “Data is so scarce that one blip sends things teetering toward one end or the other. It is hard to come by meaningful averages,” explains Teitelbaum.

Limited housing supply is likely to be a more prominent issue in certain areas. The pandemic has also affected new build construction. Professor Kim Luchtenberg, professor of finance and real estate, says, “The DC area will remain relatively sheltered from a real estate sector downturn because housing is in such limited supply. This will keep prices high, so buyers will not see much change.”

The number of homes listed for sale in the DC metro area dropped more than 37 percent compared to April 2019, resulting in the lowest inventory in the past 10 years.

A decrease in overall home sales has a number of effects. Home sales generate much spin-off economic activity. Local governments rely on revenue from deed transfer taxes to fund public services. Occupations like real estate agents, home inspectors, and other agents lose streams of income, as do support services like moving companies, furniture and appliance stores, landscapers, and maintenance technicians.

From a social perspective, people often buy homes when relocating for work, having children, getting married, or downsizing for retirement. An economic downtown that makes homeownership inaccessible may delay many of these milestones. For example, the Great Recession caused delayed household formation among young adults.

A much more grave concern is what will happen to the homeowners affected by the general economic downturn. “Foreclosures and mortgage defaults are sure to happen once the protection period ends,” says Luchtenberg. No one is sure how this will affect the real estate industry or the economy as a whole.

With so much turmoil in the stock markets and retail and hospitality real estate markets, plus general economic uncertainty, are investors attracted to the seemingly untouchable residential real estate sector? Luchtenberg and Teitelbaum concur that this trend is afoot, but in an unusual permutation—investment in single-family home rentals. This was the case immediately following the 2008 collapse, and currently, these kinds of rentals are one of the fastest-growing investment vehicles both for large corporations and individual investors. “The second-best option to owning a home is renting a single-family unit. Investors see that,” says Teitelbaum. Luchtenberg is currently writing a research paper on this phenomenon as well.

While understanding the “new normal” seems like an impossible proposition, in the DC area, at least, the old normal of a robust residential real estate market remains.

What Are the Odds? A computational neuroscientist and Kogod adjunct scores a career as a data scientist with the NBA.

So much of our everyday life involves making predictions—from picking the best route for our morning commute to bringing an umbrella to choosing a partner. “We predict all the time, so the process is natural,” says Grant Fiddyment, adjunct professor of predictive analytics at Kogod and data scientist for the NBA’s Philadelphia 76ers. “In a lot of ways, it’s the same way we interact with technology and the world. For instance, how can I phrase my web search so that the site will match what I’m looking for? How can I pronounce a word so that a virtual assistant will understand what I’m saying? Without knowing the technical details, we implicitly learn how these technologies work.”

What is predictive analytics, and how does it offer us a glimpse into the future?

At its most fundamental level, the discipline calculates the likelihood of future events by simply (although many would cry foul at this characterization) counting the possible outcomes. Its foundations were laid in a 1654 letter exchange between French mathematicians Pierre de Fermat and Blaise Pascal discussing how the winnings of a coin-flipping gambling game should be split. And while we all know that the house always wins in Vegas, few would know to credit Jacob Bernoulli’s Law of Large Numbers from 1713 as the reason why.

Despite predictive analytics’ old roots, it is responsible for many facets of modern-day life we give little thought to—things like credit card fraud detection, virtual chess partners, and, of most interest to Fiddyment, creating professional sports super teams.

Grant Fiddyment's headshot.

As a data scientist on the research and development team for the 76ers, Fiddyment helps frame and analyze the predictive questions that arise in sports—for example, how will signing a new player impact a team’s title odds, or how well will a tall lineup play against a smaller, quicker one?

Predictive analytics has long been used in sports, going back to the analog days of yore. Baseball has historically led the movement. One of the most famous success stories is told in the movie Moneyball, which follows 2002 Oakland Athletics general manager Billy Beane as he uses predictive analytics to hire under-valued players and send his team on a crowd-wowing 20-game winning streak. But the methods developed in Oakland have application across all sports.

“Most teams were asking, ‘How often does a batter get a hit when they go to bat?’ Instead, the A’s asked, ‘How many bases does a player get when they go to bat?’ Looking at total bases turns out to be more predictive of how many runs a team will score,” explains Fiddyment. “Similarly, in the NBA, teams used to ask how often a player will make a shot. But this overlooks the fact that all shots are not equal. So now teams are asking, ‘How many points will a player get when they take a shot?’”

In the past decade the number of three-point shots in the NBA has increased. Is the rise just due to random luck or is it part of a well-crafted strategy? Fiddyment and other fellow data scientists employed full-time by sports teams work to answer new questions like these. He credits the invention of video tracking as the proverbial game changer. “Chip or camera-based systems will follow players as they actively play a sport, and the data we get is much more nuanced than a single-number summary,” says Fiddyment. “For example, we can answer how many pick-and-rolls the team ran last game or how open were the shots they generated. We can analyze the individual and team as a whole.”

At the moment, this kind of data collection is limited to professional teams, making it difficult to spot up-and-coming superstars. “College and international teams typically don’t have the same camera systems, so projecting which players will become successful remains a very challenging problem,” Fiddyment says.

Despite rapid advancements in technology, however, not all data is created equal—or, perhaps, equally useful. The limitations of data translate to limitations in predictive accuracy (as meteorologists can confirm). “We need to be aware of computers’ strengths and weaknesses,” Fiddyment advises. “Computers can process vast amounts of data much more quickly than humans ever could. But they are restricted to the data they have and operate very literally, so we should never expect them to behave exactly like a human, even if they can match our performance at a given task.”

From the glitz of Vegas to the life-saving powers of storm forecasts to the way opinion polls affect voters, predictive analytics is ever-present in our lives. Advances in machine learning and big data models are improving our ability to look into the future, but they are also raising some thorny issues, one of the most notable being the boundaries of data privacy. For now, however, Fiddyment has scored a slam dunk for the NBA.

From Veteran to Venture: Kogod alum-turned-professor helps veteran entrepreneurs launch their businesses

My story for Kogod School of Business

Each year, roughly 200,000 US service members transition from the military to the private sector. Although veterans are twice as likely as non-veterans to be self-employed, their rate of business ownership has dropped precipitously from the entrepreneurial high of their predecessors in the last century.

Half of World War II veterans went on to own or operate a business—a similar rate to the 40% of Korean War vets who did the same almost a decade later. Of the more than 3.6 million people who have served in the military since September 11, 2001, only 4.5% have started a business. What has led to such an enormous gap in veteran entrepreneurship?

In short, more challenges—and fewer resources to overcome them.

Although 25% of veterans say they want to start their own businesses, they face more obstacles securing the capital needed to get their ideas off the ground than in the past. Unlike the GI Bill of 1944, the updated 2008 version does not include access to low-interest loans to start a business. The financing needs of veteran and non-veteran businesses are similar, research shows, but even though would-be veteran business owners submitted more loan applications and reached out to a wider variety of lenders, they typically obtained less financing and got lower approval rates.

Because of frequent travel and work abroad, some veterans are also struggling with building a credit history and amassing collateral. And while previous military drafts drew from all segments of society, this century’s all-volunteer armed forces are more likely to come from military families, making them increasingly isolated from the non-military community and the networks that facilitate business success.

Seda Goff—a Kogod adjunct professor and MBA alumna—is helping veteran entrepreneurs overcome these challenges in her role as the director of veteran entrepreneurship at the PenFed Foundation. Through the foundation’s Veteran Entrepreneur Investment Program (VEIP), veterans can get the seed capital and mentorship they need to build and grow their ventures.

“Veterans have given a lot to serve and protect us, and the skill sets that they gained in the process lend themselves perfectly to entrepreneurship,” Goff says. “This new generation of entrepreneurs feel that same desire to serve and to make a difference and be bigger than themselves.”

After graduating from Kogod, Goff worked for the US Department of Veterans Affairs before moving to PenFed, where she was able to build the nonprofit investment program from the ground up. Her passion for helping veterans stems from growing up in close contact with service members.

“My father was in the Turkish Navy. He worked for the navy for almost 30 years after we came to the US,” Goff recalls. “I loved being around service members and their families. Everybody is very mission- and service-oriented.”

Since launching in March 2018, the Veteran Entrepreneur Investment Program has invested in and offered resources to veteran entrepreneurs. And because veterans are 30% more likely to hire other veterans, the program’s benefits extend to the entire veteran community.

VEIP is funded by outside donors, with PenFed Credit Union matching up to $1 million in contributions. Returns on all investments go back into the program to support future veteran-owned ventures. “The success of veteran entrepreneurs allows the program to exist,” Goff explains. “The dividends go right back into investing in more entrepreneurs. The multiplier effect translates to growth for businesses that are ready to launch, established businesses that want to grow, and those that are still in the exploratory stages.”

In the future, the PenFed Foundation aims to develop new resources for veteran entrepreneurs in all stages of the business cycle, with a focus on women veteran entrepreneurs—who have grown from owning 2.5% of veteran-owned businesses in 2008 to 4.4% in 2012.

Goff, who works with the American University Entrepreneurship Incubator, hopes to one day launch an incubator for veteran entrepreneurs at Kogod, too.

“I feel like the majority of entrepreneurs are just problem solvers. And if you point them in a direction, they’re going to solve problems,” Goff says. “In my work, I have seen how a military career is not something that you need to transition away from to be successful. Serving already has given vets the tools for success.”