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John Philip Mason is a residential appraiser with 20 years experience and covers the Hudson Valley region of New York. He’s a good friend and a true professional who believes that all appraisers need to have a macro-economic perspective in order to be effective. This week, he foregoes going to podiatry school to examine interest rates on Solid Masonry. …Jonathan Miller

There can be little doubt that mortgage rates rank as one of the greatest influences on the real estate market(s). As such, it seems reasonable we devote much effort in trying to understand where rates are headed and why. Human nature being what it is we tend to focus on and give greatest weight to the most recent history. Case in point, stub your toe and there is little else you can think about for the next few seconds, regardless of how happy, hungry or lost in thought you may have been (which may be why you stubbed your toe in the first place). Yet despite our tendency to insist the pain in our toe is most excruciating, it would do us well to remember we are actually in a “relatively” pain-free period; were we to think back to a time when we might have been exposed to something potentially more threatening.

That being said, the Federal Reserve has served us with 17 consecutive rate increases over the past two years. The result is 30-year mortgages are hovering around 6.74% for fixed rate loans and 5.74% for 1-year ARM, as per [Freddie Mac’s Weekly Mortgage Survey](http://www.freddiemac.com/dlink/html/PMMS/display/PMMSOutputYr.jsp). But, the rates are definitely a toe stub and nothing more, no matter how much it hurts. That is, if we look at the big picture. In reviewing [historical mortgage rate charts at Mortgage-X.com](http://mortgage-x.com/general/historical_rates.asp) we find more painful periods starting as recently as 4 years ago when 30-year fixed mortgages were slightly above current rates. Looking further back to the 10 years prior (1992 to 2002) rates wandered up and down from around 6.75% to over 9%. And, if you want to talk of life threatening, remember from that from 1978 to 1992 rates ran from around 9% to over 15% on average with some regions of the country experiencing mortgage rates of over 18%!

So, the issue of the day may not be mortgage rates but other more life threatening matters such as over-supply, too much investor speculation, relaxed lending requirements, and my personal favorite, overly-optimistic expectations for rates of return on real estate investing. Also, as Damon Darlin of the New York Times recently pointed out in his article, [Keep Eyes Fixed on Your Variable-Rate Mortgage](http://www.nytimes.com/2006/07/15/business/15money.html?_r=1&adxnnl=0&oref=slogin&adxnnlx=1153211891-YTdXxz1Pil5FFIZh1yXxJw&pagewanted=print), the increased popularity of adjustable rate mortgages may come back to haunt many as rates continue to rise.

We need to stop blaming the Feds, because so far their actions have caused us little pain, relatively speaking. There is myriad of reasons why the real estate market may need to re-adjust itself to the realities of the rest of the world (i.e. housing affordability in relation to job and income growth, realistic and sustainable rates of return in the context of other investment vehicles, and many more).

The fact of the matter is we’ll have to try and see our way through the pain, look at the big picture and ask ourselves, did we stub our toe or is the cause of our pain more threatening?

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[John Philip Mason is a residential appraiser with 20 years experience and covers the Hudson Valley region of New York. He’s a good friend and a true professional who believes that all appraisers need to have a macro-economic perspective in order to be effective. His post in this week’s Solid Masonry reflects his lack of interest in links, except those between housing and affordability.] …Jonathan Miller

Disclaimer: Please forgive me this week, I decided to write about the issue of affordability and forgo backing up my observations with links to well written articles. While I think most would agree that I’m simply stating obvious facts, I thought it would be interesting to compile a list of these items. All too often we’ve seen these issues discussed independently, but I think their full weight is to be realized in their collective impact on the greater issue of affordability.

We’ve all been told the three factors that most impact the value of real estate are location, location and location. But now it would seem affordability is under attack, and from just about every direction. Consider that during the past year or two we have seen:

• Home prices have remained at or near historically high levels, despite increasing inventory and a reduced number of sales. _Point of reference here, 5-10% off a gazillion dollars is still almost a gazillion dollars._
  
• Interest rates have climbed for all mortgage products.
  
• Energy costs have stabilized, but at price levels that were unimaginable just 2-3 years ago.
  
• Local real estate taxes have increased at a steady upward trend, often exceeding the rate of inflation. This comes from unfunded mandates at the federal and state level (a pet peeve of mine); increasing health care costs for government workers and school budgets that teach both the young and old the true meaning of “new math.”
  
• Americans are so poor at saving (cheap pun) (double pun); a recent study indicates our national savings rate is now in negative territory. _So can you still call it savings?_
  

Add to this some potential mine fields, such as:

• Fannie Mae was caught in a scandal that included cooking the books, which still might take another 2-3 years to get out from under.
  
• Some leading mortgage lenders are starting to sell off portions of their loan portfolios, in order to “reduce their risk.” _In other words, they see smoke and where there’s smoke._
  
• Various government agencies are attempting to address mortgage fraud (too little, too late). The inevitable changes are bound to impact mortgage availability, even for honest borrowers.
  

After considering all of the above, it becomes clear the cost to participate in the home ownership market has been forced upwards from many directions. In addition, the changing undercurrents in the mortgage industry may only compound the affordability issue. As such, it should come as no surprise that today’s market is a little over-inflated. Yes, I said it, over-inflated.

Because after all, isn’t it possible the three factors that most impact real estate today are affordability, affordability and affordability?

Tags: Soapbox Blog, John Mason, Solid Masonry

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John Philip Mason is a residential appraiser with 20 years experience and covers the Hudson Valley region of New York. He’s a good friend and a true professional who wants to understand the correlation between rate of ascent and rate of fall. This week, he gives new meaning to the phrase “rocket scientist” in Solid Masonry. …Jonathan Miller

The Harvard University’s Joint Center for Housing Studies recently released its annual [State of the Nation’s Housing Report [pdf]](http://www.jchs.harvard.edu/publications/markets/son2006/son2006.pdf). For those not wanting to read all 44 pages you can check out their summary [Fact Sheet [pdf]](http://www.jchs.harvard.edu/media/son2006_fact_sheet.pdf). That being said, I must confess the full report was compelling reading and I found myself delving into one section after another, as though it were revealing itself with all the intrigue of a good mystery novel. Okay, now I’ve completely embarrassed the geeky side of myself.

While the study had a mixed take on the national real estate picture, there were some items from the Fact Sheet that gave me reason to take a less balanced view:

• Among the 149 of the nation’s largest metropolitan areas, the number in which median house prices are at least 4 times median household incomes increased from 13 in 2001 to 49 in 2005 and at least 6 times from 4 to 14.
  
• After adjusting for inflation, house prices increased a record 9.4 percent nationally in 2005.
  
• Investor appetite for multifamily properties was undimmed last year, with institutional investors bidding up prices by 13.5 percent the first double-digit gain since 1984.
  
• Between 2001 and 2004, the number of households spending more than half their incomes on housing increased by nearly 2 million up 14 percent to 15.8 million.

I also found some additional facts and conclusions from the full report, which gave me an unsettling feeling:

• Until 2000, nationally weighted average home prices rose closely in line with median household incomes and general price inflation. _I’d like to add here that from 1996 to 2000 the national median price of a home rose 12.3%, but from 2001 to 2005 it jumped 29.7%, with 17.5 of that increase in the last two years._
  
• In the nation’s hottest housing markets, the erosion of housing affordability has been much more dramatic. In Phoenix, for example, the monthly payments on a median-priced home jumped from $930 in 2003 to $1,017 in 2004 and to $1,316 in 2005 even for homebuyers who were able to cover the increasingly large ten percent down payment.

So is the real estate market like a model rocket thrust into space? That is, if you point it so it climbs higher and faster, is the projection of the ascent any indication of the rate of the fall?

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John Philip Mason is a residential appraiser with 20 years experience and covers the Hudson Valley region of New York. He’s a good friend and a true professional who believes that all appraisers need to have a macro-economic perspective in order to be effective. This week, he gives new meaning to the word “indebted” in Solid Masonry. …Jonathan Miller

I have a confession to make. I can’t float. As a kid I remember swimming lessons at camp and there was this lovely young instructor (and yes, I had a bit of a crush on her). She would hold me up as I lay on my back; assure me with words of encouragement (just relax, I’ve got you, etc.) and suddenly her smile would disappear from view as I sank like a stone towards the bottom of the lake. Now many years later my wife (and yes, I have a bit of a crush on her, too) insists it’s just a state of mind and all I need do is “think light thoughts.” Now I’m not 100% sure if this is why, but to any parents out there with very skinny kids, just trust them if they tell you they can’t float.

Which brings me to a question regarding debt in America, If we stay relaxed and we think light thoughts, will that alone assure us we’ll be able to float? Well not according to Niall Furguson of the New York Times. In his recent article [Reasons To Worry](http://www.nytimes.com/2006/06/11/magazine/11national.html?pagewanted=print), Mr. Furguson indicates why we as a nation may lose sight of the reassuring smile as we sink towards our own murky bottom. I highly recommend reading his piece, for it left me with the sense that even if his facts and conclusions are only partially correct, we may be faced with a very dark economic future in this country. In it he touches on the various aspects of debt in America, including:

• Consumer credit in the 1960’s and 1970’s averaged less than 13 percent of G.D.P. In the past 10 years it has climbed to around 18 percent.
• Foreign ownership of the U.S. federal debt passed the halfway mark in June 2004. About a third of corporate bonds are now in foreign hands, as is more than 13 percent of the U.S. stock market.
• According to calculations published by Barron’s in February, over the next two years the monthly payments on about $600 billion of mortgages taken out by borrowers in the so-called subprime market (those with checkered or nonexistent credit histories) will increase by as much as 50 percent.
• The most important lesson to be drawn from the history of debt is this: It’s not the absolute size of your borrowings that matters. It’s not even the relative size in relation to your income. The crux is whether the interest payments you have to make are more or less than you can afford to pay. And that, in turn, is a function of whether or not the rate can move, whether or not your income can change and whether or not inflation can help you or hurt you. On this basis, both subprime American mortgage-holders and a distinctly subprime administration may find the months ahead more painful than they anticipated.

And since none of this can be good for real estate markets, I have to ask, is the U.S. economy floating or sinking in debt?

Tags: Soapbox Blog, John Mason, Solid Masonry

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John Philip Mason is a residential appraiser with 20 years experience and covers the Hudson Valley region of New York. He’s a good friend and a true professional who provides unique insight to appraisal issues of the day. This week, he postulates that an idle economy is the devil’s workshop on Solid Masonry. Jonathan Miller

Today Hollywood is presenting us with a remake of [The Omen](http://www.apple.com/trailers/fox/theomen/index.html), on this the purported birthday of the devil, 6-6-06. The original and the remake are being released 30 years apart, 1976 and 2006, and during both these periods we see some other similarities such as:

• Increasing energy prices as tracked at WTRG Economics [Oil Price History and Analysis](http://www.wtrg.com/prices.htm)
  
• Inflation on the rise as demonstrated at [InflationData.com](http://inflationdata.com/Inflation/Inflation_Rate/HistoricalInflation.aspx). While current inflation rates are historically low, they have doubled in less than four years. All this despite the Feds heaving a steady stream of rate increases at the beastly demon of inflation and promising plenty more if needed. Let’s not forget that the CPI is not a true cost of living index, which typically runs higher for those of us living in the real world.
  
• Higher mortgage rates as stated at [FreddieMac.com](http://www.freddiemac.com/pmms/pmms30.htm), with even higher rates ahead, should the Feds (undoubtedly) continue on their current path.
  

It is also interesting to note that both periods faced stagnant and/or declining real estate markets, uncertain economic futures, polarized political environments and presidents with low popularity ratings. By many accounts, the years following 1976 were even worse and there is nothing to say we are not in for more of the same following 2006.

Now I’m not predicting the end of the world. For that we only need to go see Al Gore’s newest ambition, [An Inconvenient Truth](http://www.apple.com/trailers/paramount_classics/aninconvenienttruth/trailer/). All kidding aside, the former Vice-President has put together a compelling set of facts that hopefully will help us face the serious prospect of global warming and all its side effects. But alas my real estate mind kicks in and I tell myself it might not be all bad. You see I live some 30 miles inland from the Atlantic Ocean. So, all that rising water might some day put me in a coastal community I could never afford to buy into, without my ever having to move!

As for the similarities between 1976 and 2006, and all that followed 1976, I’m left wondering is the devil in the details, or is this an omen?

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[John Philip Mason is a residential appraiser with 20 years experience and covers the Hudson Valley region of New York. He’s a good friend and a true professional who provides unique insight to appraisal-related issues of the day. This week, he addresses the 50-year mortgage in his Solid Masonry post.] Jonathan Miller

There has been quite a bit of talk lately about the arrival of the 50 year mortgage but much of it has been quite superficial. Then along comes a recent post on MortgageNewsDaily.com, entitled [The 50 Year Mortgage Is Introduced In California.](http://www.mortgagenewsdaily.com/5162006_50_Year_Mortgage.asp) The article provides an in depth look at the real nuts and bolts facing purchasers looking to stretch their dollars in an attempt to snag a piece of the real estate pie. Naturally this baby was born in California, home to some of the highest priced real estate markets of the nation.

Now before you tell yourself this seems like an idea with nowhere to go, consider that the article states “last year Fannie Mae announced a pilot program to test-market a 40 year product throughout the country. Today approximately 5 percent of new mortgages in the country are written for a 40 year term.” And “According to Bankrate.com about 25 percent of new mortgages in California are 40 year loans so the 50 year home loan ‘is the next step.’ One banker says he has taken over 200 applications already for the new product.” Let me also add that California was the birthplace of the [Pet Rock](http://en.wikipedia.org/wiki/Pet_rock), and while that may seem like a put-down, millions were sold in just a few months, at $3.95 each.

The writer compares (with minimal assumptions) 15, 30, 40, and 50 year mortgages and provides us with the various monthly mortgage payments, balances due five years into the loans, and total interest paid over the life of the loans. In short, the risks and total dollar payments are far greater than shorter term loans. This analysis might leave many of us, (okay, many of us older folks) wondering why those who seem least able to afford such risks are willing to take them. But for some the desire to own a home may be too powerful a force to deny and the temptation, at any price, to great to resist. While some could downsize their idea of “home sweet home”, the fact is there are fewer housing options for those at the bottom of the housing markets.

However, should the real estate market turn sour it seems likely the most leveraged loans could set off an avalanche taking all of us with it. Those of us who plopped down significant down payments could sustain the greatest losses in terms of “real” equity. While this would be humbling for many, it could also be financially disastrous for some. This would be especially true for anyone counting on the equity in their home to finance the college education of a loved one or their own retirement. You know those tens of millions of us without significant savings, a diverse portfolio and a lifetime of employment for a never downsizing employer with a well balanced pension fund.

So while you may feel sorry for those with limited options, keep in mind that if this market goes down too far, many more of us may be working a few more years before retiring and some others may be saying, “just 599 more payments and it’s all mine.”

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John Philip Mason is a residential appraiser with 20 years experience and covers the Hudson Valley region of New York. He’s a good friend and a true professional who provides unique insight to appraisal issues of the day. This week, John breaks out the “R” word in his weekly Solid Masonry post. …Jonathan Miller

In an article just published by Les Christie of CNNMoney, [Real Estate Cools Down](http://money.cnn.com/2006/05/15/real_estate/NAR_firstQ2005_home_prices/?cnn=yes), we find a summary of the latest figures just released by NAR. Mr. Christie states “from the fourth quarter of 2005 to the first quarter of 2006, median prices nationwide fell from $225,300 to $217,900, a drop of 3.3 percent. It’s the second consecutive quarter that prices showed a sequential decline; in the fourth quarter of 2005, prices fell 1 percent from the third quarter.”

The fact that there is an unending stream of articles citing the national real estate market has cooled down comes as little surprise to those in the real estate industry. Real estate agents, attorneys, mortgage brokers and various other professionals who are out in the trenches have seen and talked (quietly) about the slow down that has developed during the past several months. But here is the surprise The boom may now be officially over (it’s my post so I’m the official here) and the real estate market is now in a recession.

Now mind you, no one else is calling it a recession and you can be certain NAR won’t be going there any time soon. But, I don’t know what else to call it.

In the world of economics, two consecutive down quarters is the official standard for declaring an economic recession. So why not do the same in real estate? I understand this may be too literal a translation, as real estate markets have seasonal fluctuations, but the talk in many real estate circles is the second quarter numbers are looking worse than the first quarter. In short, we have more inventory and less buyers.

As one agent recently reported to her fellow agents,

“The good news is I have 56 active listings on the market and the bad news is I have 56 active listings on the market.”

We are awash in inventory in most market sectors and there is a significant volume of inventory under construction. Rest assured this is not the end of the world, just another phase of the market cycle. Granted, this is one of the more painful phases as we are reminded, once again, that the fundamentals of market cycles remain the same and there is no “new economy.” But let’s not sit in the dark waiting for monthly and quarterly numbers to be released.

The market has changed, because R is for real estate, R is for robust and R is for recession.

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John Philip Mason is a residential appraiser with 20 years experience and covers the Hudson Valley region of New York. He’s a good friend and a true professional who provides unique insight to appraisal issues of the day. This week he discusses the New Orleans real estate market in his Solid Masonry post. Jonathan Miller

Is the market up or down? Well that depends on where you are. For most of us, nationally speaking, the real estate market has either gone down slightly or is giving us signals that it might be ready to go down soon. Some folks may find that hard to believe, only because the market’s been so up, for so long. But what if your market hasn’t been up? What if it’s been down? Way down! Like down by the bayou down. Maybe when you’ve been down so far, anything looks like up. Hey wait a minute, New Orleans is actually up. Way up! ABCNews.com has posted an Associated Press article by Rukmini Callimachi, [New Orleans Real Estate Market Booming.](http://abcnews.go.com/Business/print?id=1936763)

Now I’m not about to tell you all is well, because it isn’t. There is much to do and those people still need our prayers, dollars and help. Ms. Callimachi writes, “To be sure, the real estate picture is far from even: Areas like St. Bernard Parish, which took the brunt of last summer’s storm, are lying fallow. Not a single house sold in the first three months after the storm; only one sold in the fourth month, fetching just $11,000 in an area where the average home once sold for $109,000, the New Orleans Realtors Association said.” That being said, there are signs of hope. In fact, it would seem some real estate numbers coming out of the Big Easy are up, big time. Ms. Callimachi goes on to say, “For the first quarter of the year, sales of single-family homes in the greater New Orleans area zoomed to $826 million, a jump of 60 percent over the first quarter of 2005, when sales totaled $517 million, according to New Orleans Metropolitan Association of Realtors; 3,829 residential units were sold, 960 more than the same period in 2005.”

While nobody wants to trade places with New Orleans, those are numbers any real estate professional would love to see in their respective markets. Instead many are seeing a sluggish market, at a time of year when things should be robust. In fact, I don’t know of any other market going through such a surge. I also don’t know of any other market that’s been so down. Been down so long, it looks like up to me.

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John Philip Mason is a residential appraiser with 20 years experience and covers the Hudson Valley region of New York. He’s a good friend and a true professional who provides unique insight to appraisal issues of the day. This week, he skirts around the issue of _New Urbansim and sees discussion of more adjustments on the horizon in his weekly Solid Masonry post. Jonathan Miller [my apologies – he submitted this on time – your faithful editor was late posting it.]

When it comes to real estate development, we’ve heard the good, the bad and the ugly, with suburban sprawl being near the top (or bottom) of each of these lists. Suburban sprawl has been blamed for its impact on the environment, its lack of character and diversity, its endless monotonous landscape, its dysfunctional layout which alienates community members from one another and much more. Despite all its drawbacks, the suburbs became the option of choice for many parents looking to give their kids a piece of Americana. Now this plague of progress may finally get trumped by its first cousin, urban sprawl. In the recent New York Times article [Suburbs Want Downtowns Of Their Own](http://www.nytimes.com/2006/04/30/realestate/30nati.html?_r=1&pagewanted=print), Kevin Maler tells of the trend of newly developed complexes centered around an urban type setting.

No longer are buyers seeking a patch of grass so enormous as to require a rider-mower capable of compensating for any man’s lack of manliness. It would seem folks now want to live in an urban jungle, be it a tame jungle at that. They seek the look and feel of city life, without too much city. They desire for their senses to be stimulated, without being overwhelmed. And they have found it in a new form of development one young man called “instant urbanism.”

These new quasi-bohemians are looking for low scale downtown center with sidewalks, small stores, restaurants and movie theaters, all within walking distance of their homes. They are shunning the super malls and big box stores. They have tired of the endless miles of six-lane roadways flanked by a sea of parking lots and ugly strip malls. Big is out and small is in. Road rage is now passé and being replaced with a friendly “hello” as you stroll past your neighbors.

As an appraiser I can hear it now. Homeowners and real estate agents spouting a list of reasons why their nouveau urban community is superior to the one down the road, or any other within 50 miles for that matter. Can I make an adjustment for one having a butcher, another having a baker and still another having a candle-stick maker? And how much is that adjustment? It would seem Disney World is coming to a neighborhood near you, as suburban sprawl goes urban. And you can almost hear Mr. Rogers singing “It’s a beautiful day in the neighborhood, it’s a beautiful day for a neighbor, would you be mine.

[Editor’s note: Welcome to the world of [New Urbanism](http://matrix.millersamuel.com/?p=425)]

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John Philip Mason is a residential appraiser with 20 years experience and covers the Hudson Valley region of New York. He’s a good friend and a true professional who provides unique insight to appraisal issues of the day. This week, he addresses the appraiser’s role in forecasting the future in his weekly Solid Masonry. Jonathan Miller

Writer’s Note: This week I decided to write about an issue important to me, despite not being able to find any timely news links regarding the matter.

I’ve recently done a series of appraisals in rural markets located approximately two hours drive north of New York City (and yes I said rural). These are areas where you still find stretches of farmland, woodlands and population densities of less than 100 people per square mile. Where self-serve farm stands (you simply take what you want and put money in the jar) are common enough not to raise an eyebrow and Starbucks is nowhere to be found. These locales were the last to be touched by the latest real estate trends and they may be the first to give us insight as to where we are headed.

Upon recently completing one of these assignments, I notified the client, an out of town bank, that recently the subject’s market became grossly over-supplied. I went on to say that barring changes from outside forces, i.e. mortgage rates declining, etc., this market could be set for a major price correction. My report supplied various market stats such as number of units sold, average and median sale prices, days on market, number of listings going unsold, etc.; so I felt confident in my analysis and conclusions. I received a short reply that stated “we are not required to make forecasts” and “as appraisers we are not held accountable for the value of the subject property prior to or after the effective date of value.”

And I said to myself #&@%!

Now mind you, I have great respect for this client (and I’m not just saying that in case he reads this). He and I have exchanged ideas on appraisal theory and I believe we are both the better for it. While in theory he is absolutely right, the cruel reality is he is absolutely wrong. Want proof? How many decades will it take before we appraisers are no longer blamed, single handedly I might add, for the S & L collapse? The truth is we have always been expected to understand where the market has been and to have a sense of where it is going. We are constantly asked “where do you see the market going?” by friends, clients, the media, and so forth.

So while my client is right in theory, the perception out there is appraisers know, or should know where the market is going. Like it or not, reality is where we live. For those appraisers who haven’t been paying attention, the tide has clearly turned in many markets. So if you are not in the habit of supplying market data within each and every one of your reports, now would be a great time to start. Those statistics could foretell of possible changes coming in the market place.

While we are not required to be forecasters, we are expected to pay attention.

[What is market value? A component of it is an expectation of the future by the sellers and potential buyers. It seems to me that a future forecast, is part of the assignment. Otherwise, how can you explain current market conditions? They typically indicate some sort of trend. -Jonathan Miller]

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John Philip Mason is a residential appraiser with 20 years experience and covers the Hudson Valley region of New York. He’s a good friend and a true professional who provides unique insight to appraisal issues of the day. Here is his weekly post called Solid Masonry. This week, appraiser John Mason ponders the housing market strengths and weaknesses in Technicolor. Jonathan Miller

I was thinking about the various factors that drive the housing market and wondered how these might compare to a year ago. So I formed a partial list of some likely factors to impact home prices, along with my assessment of how they compare to a year ago. This is by no means all inclusive, as there are too many factors to consider them all. I also didn’t put them in any particular order, as their priority varies from one time period to another. As an example, in a strong market would-be-buyers are less deterred by rising mortgage rates than would be true in a stagnant or declining market. All that (disclaimer stuff) being said, here is the list, along with my assessments:

Red = Less Favorable Black = Neutral Green = More Favorable

• Mortgage Rates We don’t really need a link for this one. For those who have been in a coma, mortgage rates are up, still rising and expected to rise some more.
  
• Employment & Wages While private job sector growth is back in the black with [recent gains](http://data.bls.gov/PDQ/servlet/SurveyOutputServlet?data_tool=latest_numbers&series_id=BDS0000000000000000110001LQ5) now [exceeding losses](http://data.bls.gov/PDQ/servlet/SurveyOutputServlet?data_tool=latest_numbers&series_id=BDS0000000000000000110004LQ5) and [unemployment has sunk below 5%](http://data.bls.gov/PDQ/servlet/SurveyOutputServlet?data_tool=latest_numbers&series_id=LNS14000000), [“real wages” have remained relatively flat during the past ten years](http://data.bls.gov/PDQ/servlet/SurveyOutputServlet).
  
• Taxes Despite the magical theatrics of giving with one hand and taking with the other, the fact remains the average American is paying more (in dollars and percentage of income) in total taxes. Many of the tax reforms at the national level result in expenses being passed down to the state and local governments, which is why property tax increases are running as high as two to three times the rate of inflation. But to be sure, there are many other factors contributing to rising taxes, including increasing energy costs, the nation being at war, the ever expanding government (no matter who is in power), increased deficit spending.
  
• Inflation Inflation has clearly been threatening, but the Federal Reserve’s aggressive tactics have [kept it in check](http://data.bls.gov/PDQ/servlet/SurveyOutputServlet) and it still remains historically modest.
  
• Affordability (Home Prices vs. Wages) Mortgage rates have increased, but they remain historically modest or low (depending on how old you are). While there are many links debating the “affordability” issue, the fact remains that more first-time buyers are financing larger percentages of the purchase price while [allocating increasing portions of their monthly income to housing [pdf]](http://www.realtor.org/Research.nsf/files/Rel05Q4F.pdf/$FILE/Rel05Q4F.pdf). If you think they aren’t over-stretched, ask yourself this question, could you afford to buy your home today?
  
• Energy Costs There is no doubt about which way energy prices have gone, with all energy users paying exceedingly more in [each of the past three years](http://www.eia.doe.gov/emeu/steo/pub/contents.html). To add insult to injury, [oil and gas futures shows no signs of abating](http://www.bloomberg.com/markets/commodities/energyprices.html). High energy prices are like an unavoidable tax and sooner or later these costs can no longer be “absorbed” and must be passed on.
  
• Construction Costs Here we see some of the [rising costs builders are faced with](http://www.tennessean.com/apps/pbcs.dll/article?AID=/20060327/BUSINESS01/603270334). (Please forgive me, as I did include this link in one of my posts from a couple weeks ago.)
  
• Tax Laws Just a few months ago there was serious talk of capping home owner’s mortgage interest and property tax deductions, along with some reasonable arguments to support the move. Lately it seems Washington has been too preoccupied to even remember they spoke of such reform and I could not find current links regarding the matter. Keep your eye on this one though, for many believe the Tax Reform Act of 1986 had devastating consequences on the real estate market.

No doubt there can be a significant lag between these factors and how they impact the housing market, but most of these trends are well over a year old. Considering how many of these factors have trended unfavorably (red), the housing market is more resilient than some might expect. So if anyone is keeping score, the “home” team is hanging in there.

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John Philip Mason is a residential appraiser with 20 years experience and covers the Hudson Valley region of New York. He’s a good friend and a true professional who provides unique insight to appraisal issues of the day. Here is his weekly post called Solid Masonry. This week John addresses how real estate location does not necessarily adhere to the tried and tested rules of thumb anymore. Jonathan Miller

It would seem the old adage of defining the value of real estate by “location, location, location”, has been turned on its ear. Whether by efficiency or through over competition, the airline industry seems to be a factor contributing to higher real estate values in “second home” markets. In a recent article by Les Christie of CNNMoney.com, [Real Estate: The JetBlue Effect [CNN/Money]](http://money.cnn.com/2006/04/03/real_estate/cheap_fares_second_homes/), we find that those cheap air fares are finally good for something as more and more people are now flying off to their second homes.

Now I believe I speak for many of us who have a hate love relationship with the cheap fares. They’re great when you want to get away from it all or to go someplace special. But, we’ve also been hounded by distant relatives (we’d like to keep distant), who kept reminding us they are only two hours and a $59 plane ride away!

In the article Mr. Christie states, “You don’t have to be affluent to fly off to your weekend getaway anymore — with the rise of discount flyers like JetBlue and Southwest Air, second-home buyers have expanded their target areas outward.” He goes on to say, “In a survey last year, [Escapehomes.com](http://www.escapehomes.com) found that 60 percent of respondents planning to buy a second home were looking more than 500 miles away from their primary residence.”

So it would seem many people are no longer content with a simple country home just minutes from the highway or with a beachfront house within a few minutes walk from the ferry. The idea of a nearby place to get away from everyday life has a whole new twist. Neither the high cost of fuel nor post 9/11 security concerns seem to be putting a dent into this trend.

While Americans like to think they are always at the head of the pack, Europe is leading the way in terms of airfare pricing. Mr. Christie points out, “Although some of the fare deals sound pretty great, American carriers are still way behind the Europeans. In Europe, low air fares are transforming the vacation-home market. It’s now possible to fly from one European country to another for less than the cost of riding the bus to the airport.” The writer indicates the results are equally evident, as he goes on to say, “The UK’s Abbey National Bank estimates that some 1.2 million Brits now own second homes in France and on the Iberian Peninsula. Germans own some 300,000 homes in Spain. The French are even buying homes in Britain, to the tune of about 20,000.”

So now the term “location” is hardly a thought for anyone with access to airlines providing cheap fares. And being able to tell everyone you’re flying off to your “weekend place” is bound to impress, well, everyone! So what about location, location, location?

Forgetaboutit!

[about a month ago, I flew Jet Blue and there was a lot of turbulence and I promptly turned green. I now dub them: Jet Green -ed]

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