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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 tells us to pound sand because someone IS making land in Solid Masonry. …Jonathan Miller

The old saying “they ain’t making any more of it,” as in land, is no longer true, at least not in Dubai. There are a series of massive projects underway in this small territory of the United Arab Emirates and many of these mega-projects include the creation of land, literally. Over the years most of the development, as in many other countries, has been most intense along the coastline and taken up much of the available land. So Dubai, no stranger to thinking big, came up with something huge. They are creating man made islands, by the hundreds. In a somewhat dated but informative write-up on MSNBC.com, you’ll find [Arab Island Resorts Are Reshaping Geography](http://www.msnbc.msn.com/id/7051051/), a pretty amazing story of this colossal undertaking in a small country capable of generating vast sums of wealth, without oil. For a nice collection of photos and artists’ renditions you might want to check out either [privateislandsonline.com](http://www.privateislandsonline.com/the-world-dubai-1.htm), [militaryphotos.net](http://www.militaryphotos.net/forums/showthread.php?t=84940) or [Google Earth](http://earth.google.com/) (which requires downloading the free or enhanced program).

The process involves dumping large boulders on the seabed floor until they pile up and crest the surf, topped by a layer of sand dredged off the sea floor, all wrapped in plastic stabilizers. No small feat, but to create even more drama is the fact that these hundreds of islands are positioned in the shape of several palm trees and a map of the world. Fittingly, they have been given names such as The Palm Jumeirah, The Palm Jebel Ali, The Palm Deira and The World. To give you some perspective, when completed these projects will increase Dubai’s beachfront tenfold. Each of the mega-projects ranges from 12 to 31 square miles of newly created land, with the palm fronds stretching almost a mile each. In total there will be some 20,000 homes and apartments, with 75% of the buyers from outside of the country. This destination hot spot for the rich and famous, or at least for those pretending to be, will offer over 100 world class hotels including one built completely under water.

While projects of this size are not without controversy (is anything these days), one has to admire the optimism and scope of such efforts. I personally get tired just thinking about raking my leaves. As for The World, the developers report that over 50% of the islands are sold, at prices up to 40 million dollars (US). At The Palm Jumeirah some individual lots and homes have been purchased and resold several times, despite none having been completed. Based on such figures one would have to believe that, so far, this is a successful venture. Throughout the ages, in good markets and in bad, real estate has always been about seeing limitations vs. opportunities. So while some of us believed they weren’t making any more of it, others say if you build it they will come.

Tags: Soapbox Blog, John Mason, Solid Masonry

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[Solid Masonry] If You Think A Few Little Boxes Can’t Cause Big Trouble Then You Don’t Know The Half Of It

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 tries to check off the box we got ourselves into in his Solid Masonry column. …Jonathan Miller

Almost everyone now acknowledges the world of real estate is in transition, nationally, regionally and locally. The debate has shifted from is the market cooling off or is it in decline, to how much or how far? I’m not talking about future predictions (I addressed that issue last week), but rather current and recent trends. Of course, a lot depends on who you talk to, how they measure market conditions (i.e. for some it’s no more than sticking a wet finger in the air to see which way the wind is blowing), and which markets we are referring to. These reports indicate everything from nearly flat market trends, all the way to those who say prices have dropped faster than a landslide. For most markets, however, there is little doubt reality lies somewhere in between.

So now that we have this general acceptance of a softer market, many would like to believe the worst has either past, or is not too much further into the future. There is just one little problem. Actually, it’s a problem of six simple questions, offering multiple choice answers of eighteen little boxes, and this set-up is found on the front page of nearly every residential appraisal form. These six questions help describe the neighborhood of the subject property and sound innocuous enough, until you understand how the secondary mortgage market works. Select a box from one of the first two columns, such as “property values” are increasing or stable, and all is well. But be one of the first appraisers to select almost any of the choices in the third column, or worse, several of the choices in the third column, and you’d better watch out. Suddenly you’re a popular guy, and it’s not because the paparazzi just spotted you canoodling with Brittney Spears. (I’ve told you all before this my post and I make the rules, so, if I say it’s me and Brittney canoodling, than so be it. So, where was I?) Oh yeahSuddenly the loan officer, underwriter and just about everyone over at the lending institution knows your name, and it’s mud, as in Mr. Mud.

As we all know (and for those who don’t), the primary purpose of an appraisal is to help lending institutions sell mortgages in the secondary market through Fannie Mae, Freddie Mac and many others. An appraisal can also be utilized to help some institutions meet banking or corporate guidelines for loans they wish to keep in house. Either way, the appraisal offers an independent opinion of the value of an asset, in the context of the market for which it is located, and meeting certain underwriting guidelines increases the marketability of these notes. The loans may then be sold at a profit, allowing the lender to replenish their cash on hand, which allows for more lending, and the cycle goes round and round.

So, here is the problem: almost no one in the secondary market wants to buy mortgages in communities with a large percentage of vacant land (i.e. rural or built up less than 25%), have declining property values, are over-supplied, or have marketing times over 6 months. Think about it. If you ran a mega-billion dollar bank, investment or pension fund, how would you explain your purchase of notes which were soon-to-be under-secured, with increasing risk, at a meager 6.5% rate of return? Suddenly, any such manager with half a brain is going to start turning away from these investment notes. The same can be said for little old ladies, foreign nations, and just about anyone else who thought of mortgage backed securities in American real estate as a safe bet. It may sound alarmist, but we’ve been there and it wasn’t pretty. It started in the residential sectors in the late 1980’s and before long had spilled over into every sector of the real estate market. Case in point, remember when Freddie Mac all but pulled out of the market some 15 years ago? It became a bloodbath for small investment property owners everywhere, especially for those stuck trying to refinance loans that came due.

The sad truth is we may not have seen the worst of it. That is, if appraisers have to start checking any of the “no-no” boxes, then all bets are off on a soft landing. And the way market trends are going, most of us appraisers have already held off too long. If the past downturn in the national real estate market is any indicator of what to expect (and I certainly hope it isn’t), then the problem becomes a trend that is very difficult to reverse. Especially since the federal government doesn’t like to interfere in free market enterprise. So, if you think a few little boxes can’t cause a lot of trouble, then you don’t know the half of it.

Tags: Soapbox Blog, John Mason, Solid Masonry, local market knowledge

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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 wonders why real estate and for that matter, pundits of all markets feel obligated to predict the future, in his Solid Masonry post. Of course, John is just itching to say: “the entry-level market is going to decline .013% this quarter” just kiddin’ John!…Jonathan Miller

They say a little bit of knowledge is dangerous. If so, then these are pretty dangerous times. Suddenly everyone, including the lady with the alligator purse, is a real estate expert and is charging to the forefront with all kinds of verbiage as to where the market is heading. It’s going up, down, sideways, coming in for a soft landing, heading for a crash, slowing up, slowing down, bottoming out, rebounding, taking a breather, collapsing, presents a buying opportunity, spells of economic disaster, and god knows what else.

Now there is no doubt market reports which present a snap-shot of past trends offer an insight as to where we are, historically speaking. It’s great to see how markets have evolved, developed, shifted and so forth, in concert with changes to the economy, demographics, needs and wants of market participants, etc. I personally have learned a great deal from the statistics, as well as the insights of others. Add to the fact that almost everyone, even those who don’t own real estate, follows the most popular market indicator of all time, the median price of homes, and you have some interesting reading.

While there is nothing wrong with throwing out some short-term predictions to where we “might” be headed in the next 1-2 quarters, some of us have gotten a little full of ourselves by projecting years into the future. In all fairness, sometimes we “experts” are prodded into coming up with something, anything, as so many folks are asking about the future and want answers. And yes, I’m sure I’ve done my share of contributing to the problem, both as the seeker and the seer. It’s kind of funny when you realize most of us have a hard time explaining the past trends, even well after the fact. I personally never would have predicted the New York metropolitan area would see steady price gains from 1994 through 2005 at the rates of appreciation we achieved. And I still can’t fully explain it all, as these trends far out-paced the regional economy.

It’s like the weatherperson giving us an accurate 7-10 day forecast, when their odds of getting the 3-day forecast right is about 50-50. Let’s be real here. Just tell what weather I’m bound to face in the morning when I leave my house, followed by a reasonable guestimate for the remainder of the day, and that’s it. When I get home tomorrow night, I promise, we can do the whole thing over again. This way, we can devote more news program time to the things we love: like news (unless someone is predicting the outcome of the elections), or sports, (assuming their not predicting who’s going to the super-bowl during the opening week of the season), or.

So is it a trick or a treat; why must everyone try to predict the future?

[Editor’s Note: Since I write a lot of market studies, here’s the answer: because its a basic human instinct for survival. We want to know if the meteor is going to hit the planet or the hurricane is going to hit the coast. I am asked about the direction of the real estate market every single day. Of course I never predict the long term because its not possible and get flack in my [Three Cents Worth posts for Curbed](http://matrix.millersamuel.com/?page_id=184) for not doing so, but you can provide the tools to let people predict themselves because they want to. It provides a sense of control, of determining your own fate, accurate or not. The problem with real estate is that for years, so many real estate professionals have been predicting an up market (that was relatively easy), that the negativity of some pundits in the media seems like salt in the wounds to those who make their living in real estate. Well, you can’t have it both ways.]

Tags: Soapbox Blog, John Mason, Solid Masonry

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Sounding Bored is my semi-regular column on the state of the appraisal profession. This week I get annoyed as a client gets personal.

Over the last several weeks, I have been having a polite argument with a client of mine, a large national lender whom I have worked with for more than 20 years. As part of our annual renewal in which we provide our updated insurance and license information for their files, I was asked to provide my P & L.

We have never provided this information to anyone but the IRS and a lender that I set up my revolving credit line with. Its nobody’s business.

We have had a 20+ relationship with this client and I like all the people we deal with and get modest appraisal volume from them.

I have no idea how my P & L impacts whether I can do business with them. There is limited exposure on their part. If I was a national appraisal management company doing thousands of transactions a month for them and was publicly traded, then yes, I could see the need to understand their exposure.

At first they gave me a waiver but a higher up rescinded it and attributed it to company policy. Aren’t I protected to the same level of privacy that a customer for a lender is under Gramm-Leach-Bliley?

Its a matter of principle, and I want to opt out.

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 believes that all appraisers need to have a macro-economic perspective in order to be effective. This week, he thinks cosmically about the black hole between buyers and sellers in Solid Masonry. …Jonathan Miller

Source: Westchester/Putnam Multiple Listing Service

It’s no secret that sellers and buyers are from different planets, each having evolved to survive the world they live in. Hostile at times, while gentle at others. As the real estate market ebbs and flows, they take turns being the lion and the lamb. Often at odds with one another, but none the less locked in a co-dependant relationship of mutual survival. And then there are the more peaceful times when they lie down together.

Up until about a year ago, it was the sellers who had something to roar about, while buyers were required to pay ever increasing prices, or forced to sit out and watch others gladly take their place. But, by the second half of 2005 it became clear to buyers that the landscape had changed. Buyers began to notice increasing inventory, as less of their fellow comrades were jumping in front of them to snap the next deal, at any price. Thus began a cycle of falling demand combined with increasing inventory.

Sellers were slow to understand, much less react, having been in the driver seat for so many years. It was as though they had forgotten how to survive in a more balanced and competitive market. So while the market cooled, sellers continued to raise their asking prices, assuming buyers would come begging eventually. Sellers felt they had the goods and there would never be enough to satisfy the needs of all, but the offers didn’t come. When real estate agents suggested reducing their asking prices, the sellers replied with comments like “advertise and show my home more often” and “bring me some buyers.” One agent reportedly got so fed up with such repeated requests she brought her sister and some friends to a client’s house and had them pretend to be potential buyers, just to shut the seller up.

All this is to say that sellers are beginning to wake up and adjust to a new market. Or is it closer to the same market we had before the sellers got giddy? Since the third quarter just ended, I went into the Westchester/Putnam Multiple Listing Service and researched single family sales activity for the past year. I focused on Westchester County, which lies directly north of New York City, has a population of 950,000 and had (unofficially) 5,266 single family home sales during this time period.

While it’s been somewhat of a wild ride, the chart clearly demonstrates the gap between average and median asking price indicators are closing in on the average and median selling price indicators. More specifically, asking price indicators have dropped sharply, while selling price indicators are leveling off. And yes, the median asking and selling price indicators do invert in the latest quarter. I keep mentioning “indicators” as many sellers and agents realize values have actually dropped, evidenced by the fact that recent sales are not achieving the same price levels of similar nearby homes, which sold during the peak of the 2005 Spring-Summer market. At the same time, despite growing inventory and days on market, some markets or sub-markets (i.e. price levels within specific locations) have held up well and prices are not off at all. (FYI The reason indicators can rise while values decline is simply a matter of which sectors of the market are selling and are therefore most influencing the overall “indicators.” That is, if high prices force a larger portion of the buyer pool into the lower price levels, that increased demand pushes up the “bottom” of the market sharply, giving the “indicators” a disproportionate boost.)

So are sellers from Venus and buyers from Mars; or are the planets simply realigning?

Tags: Soapbox Blog, John Mason, Solid Masonry

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John Philip Mason is a residential appraiser with more than 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. As a master of the rhetorical question, amazingly I might add, he zeroes in on the pervasive whining by sellers in Solid Masonry. …Jonathan Miller

I’ve about had it with property owners and would-be-sellers who keep complaining about the soft market. Sure inventory and days on market are up; while prices show signs of dropping off just a little. But, you’ve got to admit it’s been one hell of a ride. In just ten years single family homes in our Westchester County market (directly north of New York City) saw the median price indicator soar from $285,000 in 1996 to $675,000 in 2005. (I used 2005 as it is the last full year of market statistics available.) This represented a whopping 138% increase, at a time when many other economic indicators remained unimpressive at best.

Keep in mind that job growth was modest, while wages were flat. Furthermore, several studies indicate there had been a growing number of unreported unemployed and underemployed, and the gap between the “haves” and “have-nots” increased dramatically. These factors are important, as entry-level buyers are typically needed to fuel real estate market growth, by allowing existing homeowners to move up to newer and/or more expensive homes.

Energy prices have softened lately, but more than doubled over the same ten year period. Meanwhile, increases in real estate taxes became a sore point for many, with some school districts required to raise tax rates at 2-3 times the rate of inflation, due to a growing list of federal and state laws, increased student enrollment, and wage and benefit increases. All while the real estate frenzy pushed the price of construction materials and labor to unimaginable levels, as increasing demand for limited resources allowed suppliers and skilled tradesman to name their price. In other words, home prices rose despite downward pressure from increased costs in home ownership. And before you start shouting about interest rates on mortgages, keep in mind they dropped only about 20% during the same ten years.

As I’ve noted before on Soapbox, I don’t think of a home as an investment, but it’s worth noting that the equity market indicators have also lagged the nation’s real estate market. (However, the leading indicators have done far better than most might think.) From the close of 1996 to the end of 2005, the Dow Jones Industrial Average, the NASDAQ Composite Index and Standard and Poor’s 500 all climbed an average of about 90%.

And speaking of stocks, let’s say you bought a position at $25 per share, and over ten years it climbed 138% to $59.50, followed by a recent 5% decline to $56.50. Would you lament over the stock now having dropped 5% or would you celebrate your position still being up over 125%? This isn’t even a question of whether the glass is half full or half empty. It’s an over-flowing glass minus a couple of sips. So sellers and owners please stop whining. Because isn’t 95% of amazing still amazing?

Tags: Soapbox Blog, John Mason, Solid Masonry

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John Philip Mason is a residential appraiser with more than 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 blames us all (except me of course) in Solid Masonry. …Jonathan Miller

It seems almost everyone has an opinion as to why the real estate market isn’t doing well these days. Not unlike the stock market boom of the late 1990’s, many folks enjoy talking about the latest investment craze. Naturally, as people tend to focus more time and energy on a subject, many come to think of themselves as quasi-experts. Not that their opinions aren’t valid, but when I question the actions of say, the Federal Reserve, I must in all honesty admit that I’m full of myself. While many differ as to why the real estate market has cooled off, there seems to be a general consensus as to the source. Well, sort of. Someone is to blame for this mess. It’s as though a single person or group is the culprit. Never mind how mammoth the real estate industry is, if we are to believe the critics, it is apparently vulnerable to the actions of a few. Some of the favorite victims of the blame game include:

• The Federal Reserve Board A popular target, despite this institution being made up of some pretty impressive individuals (i.e. no mental midgets here). The truth is, when you listen to most of the arguments against the Fed, almost all appear to have a self-centered motive (i.e. how policy change impacts their own personal economy), rather than a genuine concern for the overall economic picture.
  
• The Media While the United States has enjoyed a free press for over 200 years, the perception of a biased media conspiracy still lives on. That is, the industry is controlled by a few individuals, or at least, a few who are politically slanted one way or the other. Another blame game that has survived the ages is the sport of “kill the messenger.” Many feel if the media would simply stop reporting bad news, it would all just go away. Yeah right!
  
• The Lending Industry Despite this industry being comprised of a massive conglomerate of government agencies, corporations and investors, both here and abroad. If anything, there are too many competing interests here for these parties to jointly mastermind a series of uniform actions which would result in a market downturn. Just like any of us, when things are good we all want in and when things turn bad we all want out.
  
• Sellers First they were blamed for asking too much money for their properties (while buyers were all but killing each other for the chance to buy at any price). Now they are blamed for too many of them putting their properties on the market. “They’re flooding the market.”
  
• Buyers They are at fault because they are now sitting on the sidelines. If only they would do less looking and more buying, all would be well. But let’s face it, for this group there is no sense of urgency when inventories are rising, prices are dropping and interest rates on mortgages are projected to remain relatively flat into the foreseeable future. Could it also be that would-be-buyers simply can not or will not pay to enter the market at current price levels? The fact of the matter is if we homeowners were all asked to purchase our current homes at today’s prices, many of us would also not be able or willing to do so.
  
• Real Estate Agents/Brokers Why not? Some folks love to blame them for almost anything. Talk about a love/hate relationship. The tales of the Greek Gods pale in comparison to the dynamics of real estate agents and their clients.
  
• Speculators Once the envy of many and pursued by developers and real estate agents for their bravado, speculators are now spoken of as though they had converted to cannibalism. They are now seen as a scourge and are considered one of the largest threats to market stability today. In truth, they facilitated many projects that never would have been possible without them, but it was only a matter of time before market conditions would cast them in an unfavorable light.
  
• Politicians They probably belong near the top of the list, as they seem to be the default explanation when folks don’t know whom else to blame. This is especially true when people are looking to bash members of an opposing political party.
  

Certainly there is at least a little truth in many of the accusations thrown around. But the reality is, the status of today’s real estate market is a collaboration of the actions of many, individually and collectively, for better or worse. So is it okay to blame everyone? Because it seems we’re all to blame.

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 believes that all appraisers need to have a macro-economic perspective in order to be effective. This week, tries to try out some options for sellers in Solid Masonry. …Jonathan Miller

It been said many times before, when the going gets tough, the tough get going. The question is where do they go to? But before we go on to answer that question, let’s be clear about just who the “tough” are. These days it is undoubtedly the sellers who have it tough, from individual homeowners to large scale developers. As the inventory climbs and demand falls, many are trying anything and everything to make their properties more saleable. Their options fall into one of several categories and include:

• a) Do nothing and “wait it out,” hoping demand will pick up (a lot), supply will drop (a lot), or someone will fall in love with your home and pay your price (mucho a lot). Meanwhile, some would be sellers have decided to rent out their properties for a while, knowing the situation will improve, eventually.
  
• b) Assume the problem is not you or your property; it’s simply the real estate agent. So you fire them and hire another, but make no other changes (see the following three choices).
  
• c) Focus on the physical nature of the property and do things such as fix the place up, de-clutter, paint, “stage the home,” etc.
  
• d) Focus on financial incentives by offering bonuses to the selling agents, paying the buyer’s closing costs, providing decorating allowances, pre-paying the real estate taxes for a set period, buying down the purchaser’s mortgage rate, etc.
  
• e) Reduce the asking price to insure the property is properly priced, regardless of any ego or emotions, knowing the best priced properties sell in any market.
  

Options “a” and “b” appear to be the most popular choices, by far. These two choices allow for the least discomfort, as would be sellers don’t have to admit it’s their ego (or sense of greed) getting in the way. And for “flippers” they don’t have to acknowledge their timing was off and they over-paid. Should the market continue on a downward slide (yes, the market is in a downward slide), many of these folks are in for a brutal awakening.

Options “c” and “d” are also quite popular, as they represent a compromise of sorts, in that sellers feel like they are having their cake and eating it too. That is, they can concede a concession or two, but gain a sense of comfort by getting what they consider to be a good sale price. Call it what ever you wish, it’s still a market in a downward slide.

Option “e” is clearly the most painful of the choices. For some it represents a sense of missed opportunity (if only we had sold last year). For flippers new to the game or heavily leveraged it can mean an end their dreams (aka another get rich quick scheme shot to hell). But for a growing number, it is of great relief to get out while they still could sensing things might get worse before they get better.

While life is not fair, it is also not unfair. It is not out to get us and most of us will be here when the sun rises tomorrow. But are these trying times? Just ask those who are trying.

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 believes that all appraisers need to have a macro-economic perspective in order to be effective. This week, his lecture gets us comfortable in the doghouse in Solid Masonry. …Jonathan Miller

I’m not sure when it started or who said it first, but it’s been driving me crazy for years. And now that real estate prices appear to be declining, maybe I can finally get some respect for a pet peeve of mine. It’s a concept that’s been thrown at us so many times and from so many directions, people have come to believe it’s true. It’s been spouted by well regarded financial analysts, high ranking government officials, the media, almost every real estate agent on the planet, and even our own parents. It’s even been cited by some pretty smart people. Not that any of the fore-mentioned are dumb (I love you, Mom).

Countless Americans would shout me down and, surely, I am in the minority. But my faith and conviction keep me strong and I know that I am not alone. Although, if the truth be told, I personally don’t know anyone who agrees with me. None the less, this is my post, damn it, and what matters most is I believe.

And here it is: A house is a home. It is not an investment.

There, I said it. With those few simple words, I can sense the displeasure of the masses (there’s no ego here is there?), feel their passions rising to a boiling point and anticipate the hate mail that is formulating in the minds of all those “non-believers.” (Or perhaps they refer to me as the non-believer.) Before you start throwing darts, please consider the following:

• If a house were an investment, it would earn money for you, not require that you spend lavishly on it. While home prices do trend upwards in the long run, so does the cost of health care, higher education, taxes and the overall cost of living.
• If a house were an investment, it would serve you, not enslave you. Either we spend many weekends painting, raking leaves, etc., or we pay vast sums of money for others to do our work.
• If a house were an investment, people wouldn’t add over-improvements. We all have a neighbor who doesn’t seem to be able to stop themselves.
• If a house were an investment, they would all be “well” maintained. Conversely, we also have neighbors who haven’t done anything since the day they moved in and nothing will be done until the day they move out.
• If a house were an investment, it would never be the biggest on the block. We all accept the fact that the best house on the block is rarely the one that does the best in the market place (in terms of rate of return).
• If a house were an investment, it wouldn’t need to be personalized. It would serve a function and the rate of return would be in direct proportion to its functionality, not personality.

This is not to say that one can’t buy a house and rent it out as an investment. I just think we are kidding ourselves if we continue to think of our primary residence as an investment. So while I enjoy our home, despite any work it needs, it is simply that, our home. We can’t eat it. It doesn’t work for us. It is simply our little piece of the world.

And at the end of the day, no matter what kind of a day it was, we can go home. Because a house is a home, it is not an investment.

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 believes that all appraisers need to have a macro-economic perspective in order to be effective. This week, he gets cerebral about hot topics in Solid Masonry. …Jonathan Miller

Many of us dedicate ourselves to a regular regiment of reading in the hopes we will gain more knowledge about the various factors that impact our lives. We educate ourselves in an ongoing effort to understand and get more out of our careers, relationships, personal health, hobbies, etc. But of all the subjects we crave to fully understand, it would seem that money is near the top of the list for most of us. Now I know we are fond of saying “money is not everything,” but just look out there at the countless books, articles and shows devoted to satisfying our obsession with money and all its facets: making it, saving it, investing it and, of course, spending it.

When it comes to investing it, I find it interesting how the “information band” related to money is constantly shifting its focus from one “hot topic” to the next. Jumping every so often between a myriad of commodities, equities, real estate, and a number of other investment vehicles. Like a magnifying glass which helps us see things more clearly, it simultaneously makes objects appear larger and out of proportion with everything else around them. Likewise, in the investment world a pattern evolves into a self-fulfilling prophecy where the latest financial trend gains in popularity, only to get more attention, to be followed by even greater popularity You know the old herd mentality where it becomes impossible to tell apart the leaders from the followers? The intensity builds to the point where even level headed folks (some quite prominent) start to speak once again of a “new economy.” Where suddenly the old rules of economics no longer apply, there are no bounds to prosperity and we can all live happily ever after. No Ying and Yang. No give and take. No opposite and equal reaction to every action.

But then one day “it” changes. The clarity and distortion of our excesses becomes all too apparent. It’s as though we’ve fallen asleep with the TV on, only to be awakened in the middle of the night by the shrieking participants of the latest infomercial, “Investments Gone Wild!” Where innocent looking investments suddenly go crazy, bare their newly discovered assets for all to see and commit acts of foolery (or so I’ve been told). In an awkward instant we realize this has taken us in a direction we had not intended. What started out as a slightly indulgent act of staying up to watch a late night “B” movie suddenly becomes a frantic search for the remote. We realize the charade unfolding before our eyes has to be turned off before someone (like our wives), sees what “excessive exuberance” we’ve gotten ourselves in to.

By now you may be thinking I’ve lost my mind.

But this is how “it” happens. “It” builds up slowly. “It” gains momentum and credibility. And then “it” develops into something out of proportion with the rest of life. The “it” is the psychology of a trend. The force that makes us (or keeps us from making) decisions that go beyond the facts. Case in point, on any given day you see large, well run companies release a “positive” earnings report, only to have investors push the price of the stock in a direction that defies the facts. More confusing is that some days the psychology factor is a bantam weight, while at other times it’s more like a Sumo wrestler.

Consequently, you couldn’t give real estate away when it was cheap in the early 90’s, but by last year when price levels had increased several times over, there wasn’t enough of it to go around. Now once again it would seem that we have awoken to find the latest trend was nothing more than that, a trend. There is no new economy. Ying and Yang still have to keep their day jobs. As do most of us. (Please tell me you did keep your day job.) But fear not, for in this latest investment craze gone soft we are reminded that on average, our homes will appreciate a respectable several percent per year and even manage to stay ahead of inflation.

So in analyzing a market, yes, it’s part economics. But how much do you figure for psychology?

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 believes that all appraisers need to have a macro-economic perspective in order to be effective. This week, he frets over diversification and wonders if he can still walk a tightrope in Solid Masonry. …Jonathan Miller

I recently spoke with a few different friends in an effort to compare notes on our various investments strategies. In other words, how was I doing compared to them? This was not intended to be a game of one-upmanship, but simply a means of separating the hype from the truth.

Undoubtedly there are a myriad of publications trying to sell themselves by either giving advice or providing us with success stories of those who followed the good advice of others. But those stories tend to overwhelm me with too much information or make me feel as though I failed to do enough (or at least enough of the right things). So every once in a while I need to talk to my friends (fellow investors) for a reality check to be sure I’m not missing something. Especially since my stock portfolio has been “missing something” these past couple years; a decent rate of return.

Although we discussed the pros and cons of various vehicles (stocks, bonds, T-bills, managed funds, index funds, etc.), two of the more common themes that came up were diversification and asset allocation. So, I Googled those key words and found the [Beginners’ Guide to Asset Allocation, Diversification, and Rebalancing](http://www.sec.gov/investor/pubs/assetallocation.htm), an online publication posted by the Securities and Exchange Commission. While these investment strategies weren’t new to me, I ran through the article to refresh myself with the concepts.

Next I sat down with pencil and paper and tallied up my assets. And there it was staring me in the face. My diversification stinks! My asset allocation stinks! The fact is, I’m real estate rich and, well, not so rich in other areas. Which led me back to Google for a search on “net worth”, where I discovered [Net Worth and Asset Ownership of Households; 1998 and 2000 [pdf]](http://www.census.gov/prod/2003pubs/p70-88.pdf). This report by Shawna Orzechowski and Peter Sepielli of the U.S. Census Bureau was written in 2003 and utilized data from a few years earlier still. None the less, their chart below demonstrates what my pencil and paper showed me, and that there are many others like me.

Here we clearly see that many of us have benefited from significant increases in real estate prices. And it doesn’t take a genius to figure out that “own home, rental property and other real estate” categories have no doubt outperformed many of our remaining assets during the past several years. Both homeowners and real estate investors have the choice of downsizing or cashing out some equity and reinvesting it elsewhere.

In addition, homeowners could choose to sell and rent for a while, with the idea of jumping back in after the dust has settled. The option of selling when a market is high and reallocating those funds is a real prospect, maybe even a prudent one. Yes, there might be taxes due, but many of us sell stocks or other equities when we deem their price is too high to be sustainable. In those cases the fear of loss outweighs the pain of taxes due. All these strategies have their risks, but they also offer real options and potential rewards. Especially if the real estate market goes sour, other investment vehicles outperform real estate, or better yet, both.

So I sit here and ask myself, have I taken this diversification thing too far? Or is it time to rebalance our portfolios?

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 believes that all appraisers need to have a macro-economic perspective in order to be effective. This week, he expresses his distaste for being made the scapegoat in Solid Masonry. …Jonathan Miller

It’s been said by many that if you’ve been around long enough “you’ve seen it all.” I say, if you’ve been around “longer than enough” you get to see it all over again. You know how history repeats itself again and again? Well, I’ve been in the appraisal business since 1985, and now it’s longer than enough. Or, so it might seem based on a number of recent articles including one in the Wall Street Journal. In the WSJ front page article by James R. Hagerty and Ruth Simon, [New Headache For Homeowners; Inflated Appraisals](http://online.wsj.com/article/SB115353434533614420.html), the writers state:

“Most homeowners have enough equity in their homes so they don’t need to worry much about whether past appraisals were realistic. But dubious appraisals are a risk for the hundreds of thousands of people who in the past few years have bought homes with little or no down payment, or used almost all of their home equity to finance home improvements or other types of spending. That has left these people with little financial cushion to deal with rising interest rates.”

While the article doesn’t put full blame on appraisers, I have my suspicions. I seem to remember similar commentary offered in 1988, when the real estate market last showed signs of fatigue (soon followed by worse). At that time appraisers were lumped together with the mortgage industry, as “we” collectively contributed to the real estate market becoming over-inflated and over-leveraged. But the “we” quickly unraveled as the various participants of the industry began pointing fingers at each other. Lending industry lobbyists claimed that none of this would have been possible had the appraisers minded the store. And since we appraisers had few friends in Washington (we are not good at banding together and buying politicians), we were saddled with more than our fair share of the blame. In the end, [FIRREA](http://thomas.loc.gov/cgi-bin/query/z?c101:H.R.1278.ENR:), [USPAP](http://www.appraisalfoundation.org/s_appraisal/sec.asp?CID=3&DID=3) and federally mandated licensing laws were created to keep us in line, and all was well again.

But wait, here we are some 16-17 years later and some how we appraisers have done it again! While they haven’t pinned the whole damn mess on us yet, there will be few other options come Judgment Day. Like last time, there will come a day when those who freely gave PAC money and all-expense-paid trips to lands of paradise will look to the power brokers of Capitol Hill to find a solution. A solution that lays blame on the under-represented (yours truly). A solution that casts the borrowers, lenders, investors as “unknowing” participants, or better yet, as innocent victims. A solution to a problem that is uncovered and fixed in a matter of weeks, while none could be had during the past 16+ years.

Yes, there are undoubtedly some true victims of the latest lending binge. And yes, there is predatory lending with a cast of characters who respect no man or fear no god. But, many of the “unfortunate souls” have only themselves to blame. Like junkies begging for the next fix, homeowners pleaded for one more advance on the equity of their homes. Like kids in a toy store, renters threw a fit hoping someone would find a way to show them how to buy a house, any house, at any priceeven if they had little or no money. And, like junkies and kids, in moments of clarity, they’ll tell you they can’t be held responsible for their actions. The lenders and investors will say they were simply filling a need and providing a service. They did no more than rely on the appraiser’s estimates of value to base their decisions. In the end, they’ll all want to blame someone for making that happen, for letting it go too far. You did this to them, Mr. Appraiser. You!

Well, not this appraiser. And not most of the appraisers I associate with. We’ve swapped countless stories of our latest brush with the dark side of the business. While others gladly took the work, we refused to sell our souls for a few shekels. When the loan representatives said, “make this deal happen and I’ll get you lots more work,” we said “no thanks.” When would be borrowers or real estate agents boasted of unfounded claims of hidden value in their properties or neighborhoods, we said, “no thanks.” And when the day comes that Congress claims to have found “a solution,” we appraisers should all say, “no thanks.” Not that they’ll be asking us, but we should say it anyway. “No, thanks.”

While I don’t believe Hagerty and Simon intended to cast any dispersions against appraisers, I’ve live long enough to see what’s coming. I’ve seen the past, so I’ve seen the future. And, I sit here and wait for “the day” to come to us, which it undoubtedly will. And I ask myself, are we damned if we do or damned if we don’t? Cause it seems like [deja vu all over again](http://www.yogiberra.com/yogi-isms.html).

[No Smoking Gun: Appraisal Inflation Is More Widespread Than You Think [Matrix]](http://matrix.millersamuel.com/?p=757)

Tags: Soapbox Blog, John Mason, Solid Masonry

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