Inkwell: Authors and Artists

    
Hah!  You're absolutely correct about the "maximum use imperative."  I
have a friend who's always complaining about the horrible gas mileage
he gets with his 4WD vehicle, and every time I suggest he get something
still quite capable but 2WD, oh no, there's the one yearly trip he
makes on Christmas to visit his relatives in upstate NY.  I have
similar conversations with my wife, who is convinced she needs a full
sized station wagon because once every 3 months she needs to haul two
kids plus her garden tools at the same time.  She's always unamused by
my suggestion about tying the kids down on the roof rack.

And I'm a ringer -- I was an architectural historian for several
years.  I did town-wide domestic architecture surveys in a bunch of
different towns in New England, mostly in Connecticut.  These days I do
software testing and some other related stuff, but I still remember
architectural history fondly.
  

    
< Scott, I'm not sure if you've read HOUSE LUST yet>

It's on my to-buy list

<there's a chapter exploring why a half-million Americans became real
estate agents during the boom, and why so many people came to (wrongly)
assume this was an easy-money profession.>

Even more disturbing was how many (unqualified) people jumped into the
mortgage business at the same time.  In many states, these key players
in the real estate transaction had NO regulatory oversight and no
experience. This said, Real Estate licensing is an excellent moneymaker
for the States.  This, I believe, is why it is relatively easy to get
a real estate license.  The education process is heavily weighted
toward regulatory considerations, with appallingly little about what is
actually involved in the "business" of being a realtor.  We are more
heavily regulated than mortgage people with more licensing requirement,
more disclosure expectations, and an actual code of ethics, but it's
still too easy to become a Realtor, in my opinion. 

I have, in the last 11 years, found most Realtors to be honest, but
the fishing aphorism that 15% of the realtors get 85% of the deals
holds true.  Likewise, sometimes deals do fall in our lap (the easy
money), but the difficult deals can be incredibly nightmarish for all
involved. It takes a professional to keep such transactions from
falling apart. 

In R.E., the level of problem solving, erratic pay, ups and downs,
people who want to do all their own shopping by internet, buyers who
mislead us far more than Realtors ever mislead them, by no means make
this an easy business.  However, when you work with decent people and
help them through the often challenging process of finding AND
acquiring a home that they love, the intrinsic rewards can be great.   

<I wonder if you're seeing a lot of newbie Realtors flee the market> 

Yes, there are a lot of agents shaking out of the business now, but 
Washington state isn't being hit as hard as some areas of the country. 
The newbies who tend to do the best in my observation, are those who
have been in business for themselves before in some other arena.

Also, this shake-out is always occurring, even in hotter markets
because the threshold to become a Realtor is too low.  In Sweden, to
become a Realtor, someone must first apprentice with another licensed
Realtor for two years to gain direct experience in the business.  I
favor this approach, or something similar.  There are too many
unqualified agents in the U.S. who do their customers and this industry
a disservice.  Again, I blame greedy state governments for this.  Real
Estate schools that teach the minimums to pass the State tests are
also a thriving business enterprise (especially in boom markets) and,
consequently, part of this problem.  

<how you think public perception of your profession will change over
time?

First, the nature of the business HAS changed significantly in the
last decade because of the internet.  Prior to this, the public relied
on their Realtor to give them up-to-date information on the latest
property listings.  There is a misunderstanding, I think, that finding
the specific home is most of what being a Realtor is all about.  A good
realtor will certainly expedite this process, but there is so much
more to the process and the transaction.  I blame greedy real estate
brokerage firms, in the last decade, for allowing too much listing
information to be available to the general public through the internet.
In essence, these brokers have undermined the role of their own
Realtors, and, I think, made us seem less needed to the public.  I
doubt internet access of MLS listings can or will be reversed at this
point, but the onus will be on us as an industry to better educate the
public as to the role we play. For most people, selling and buying a
home is the largest single monetary transaction in their lives. They
deserve a certain level of professional service.  


< I think the big difference between the no-money-down VA loans and
the no-money-down subprime loans that are now causing so many problems
is the credit worthiness of the borrowers.>  

Military people also must have certain minimum credit requirements for
a VA loan.  Since, most are/were on such modest fixed incomes, it was
a way for the Government to reward them for services rendered to their
country.  However, in many R.E. markets a VA loan is difficult to do
because the SELLER is required to contribute about 3% toward closing
costs.  In a seller's market, the seller will simply accept a different
offer without giving up 3%. Also, in a falling market, the 3% can't be
tacked onto the purchase price because the home won't appraise. While
I've seen VA foreclosures, this is not part of the subprime collapse
problem.  When people who don't pay their bills and have poor credit
were allowed to buy a home with no out-of-pocket risk, a
disaster-in-the-making has become a problem.
  

    
Scott, most VA loans went to veterans andnot to active duty military. In may
case, I got my VA financing about twelve years ater I left the service.  my
The GI Bill was intended to reward vets for their service, but it was also
a form of social engineering to get more families owning rather than
renting, and to create a demand for housing that would create jobs.

Remember that this was introduced right after WW II, when veterans were the
rule rather than the exception. The whole structure of VA loans changed
after about 1986.

That said, the point is probably correct -- that a young family in 1947
taking on a $10,000 mortgage is a very different transaction from the same
family borrowing $250,000 today.
.y
  

    
John, I've done deals with both, but, you're right about the program
being mostly for vets, and, frankly an excellently designed government
program for both the recipients and the larger societal benefit
accrued.

The sub-prime debacle was only well-designed as a short-term economic
stimulus, with a serious long-term downside.  As a Realtor (instead of
a social observer), probably a quarter of my business has been with
customers who had no money down and credit issues. My job isn't to
dissuade people from homeownership.  
  

    
The thing about maximum use thing is that it lets you feel RICH!  If you
don't have more than enough of everything, (space, horsepower, watts,
whatever) then you're just living close to the edge.  What IF you need a
guest bedroom?  What IF you want to host a Superbowl party?

The ironic thing is that many of the people who had that thinking a couple
of years ago now are truly living close to the edge, and not just in terms
of their potential entertainment capability.

I started out as a landscape architect, and every residential client I had
but one swore up and down that they loved to garden.  They had shelves of
gardening books, professional grade gardeninng tools and everything.

Drive by after a year, and they hadn't even bothered to water their newly
installed landscape, let alone pull any weeds.

But that isn't unique to entertaining or gardening.  It's just human nature
to think that getting just one more thing is going to fix whatever it you
haven't been able to fix yourself.  That's why most gym memberships go
unrenewed and why there are 388 Bowflex machines on eBay just now.

It's the same thing:  "My parties aren't like the ones I see in the movies,
but if I had a kitchen like the ones you see in the movies, my parties
would be like that, full of glamorous intelligent people.  If I had a pool
with a big patio it would be full of physically fit college-age girls and
boys every Saturday."

In case you think I'm being smug, I have bought better guitars and cameras
than I could ever realistically aspire to use well, and I admit it.  Lately
I only buy the good stuff after I've determined that I can actually fill
the envelope, but it took me a long time to learn that.
  

    
Daniel, where in Idaho is your property?
  

    
Alan, I've learned that too, but it took me a while.  There's
certainly not much in our culture that encourages people to think
realistically about material possessions.  After all, our greatest duty
as citizens is to "go shopping."
  

    
Daniel's property is in Pocatello; he has a great section on how he
came to buy that property and what happened after he did.

Alan, I love your description of why people buy stuff and get fancy
gardens they don't take care of and demand huge "great rooms" for
parties they never have. That hits the mark just perfectly! And it
makes me feel a little less guilty about the loads of crap I've bought
over the years that I never quite got around to using.

Now to check out those Bowflexes on Ebay...
  

    
Daniel,

I found your book to be a very interesting set of views about how the
preoccupation with real estate manifests itself and your personal
stories really resonated because they were about a real person I could
identify with rather than some faceless name picked to illustrate a
point.

As i've had more time to sort of digest all you've written I keep
coming back to the "So what caused it?" question.  You talk about
different factors but none of them seem like they're big enough to
cause the kind of large scale change that we've seen in a fairly short
time.

Is that something you can expand on?
  

    
My apologies to all for not logging on yesterday. As you may have seen
in the headlines, both the National Association of Realtors and S&P
released February real estate data yesterday, and I got a lot of calls
to do TV and radio (the highlight was being on public radio's
"Marketplace" last night; that, combined with a Newsweek deadline, kept
me a little preoccupied.

I'm thrilled to see how well the conversation progresses even in my
absence, however. I'm learning a lot from reading all of your
discussion, and I'm really enjoying it.

Philippe, in answer to your "Okay, what really drove this?" question,
I do keep coming back to the factors I mentioned in the book. There
were 5 of them I came up with there:

1) What I call the "high five effect" as homeowners in fast-rising
markets became eurphoric about the rising value of their own homes, and
the topic became such cocktail party fodder. It's not that different
than the celebratory mood that arises when a city's sports team is on a
run. (I'm in Boston, so I know something about this...)

2) What I call the "our house is our retirement plan" effect, which
points to how the overall US savings rate dipped so sharply during the
early 2000s. Without much regular savings going on, people began to
look toward their house as more of a savings vehicle, hence an
obsession with its value and how to maximize it, whether by renovating,
trading up, etc.

3) Easy refinancing, which made the rising equity in our homes much
more liquid. Our parents' homes may have risen in value, but back when
refinancing was less common, it didn't really effect their lives until
they sold it. During the boom some people were refinancing every years,
and in effect people began "playing" their houses the same way they
play the stock market.

4) Media and the Internet played a role, whether it's all those
home-makeover, home-flipping shows on HGTV (which I think have had an
underappreciate effect on how Americans view their homes) or websites
like Zillow, which cater to our nosier impulses about each others
homes.

5) Finally, I argue that while homes have always been a status symbol,
their role as one ticked upward in the last decades. Things that were
previously a marker of status (luxury cars, designer clothing, jewelry)
became easier for less affluent people to afford due to innovations
like auto leases, outlet shopping, the growth of credit cards, etc. I
also argue that jobs have become slightly less of a status symbol
because so many people nowadays work in jobs that laypeople don't
really understand, and because what were once high-status jobs
(doctors, lawyers) have lost at least a little status. In the book I
say that we may have no idea what our neighbor who's a "network systems
IT enabler" actually /does/, so our ability to size up his house helps
fill the gap in assessing status.

What do you think, Philippe, or others? Am I missing big factors here,
or do you think that any of these five aren't really all that
important?
  

    
Hi Sharon, thanks for joining us. Yes as Cilantro says, my property is
in Pocatello, ID. I've never seen it--if it weren't for the Internet,
which allowed easy exchange of email photos, negotiating the offer,
dealing with property manager--I probably wouldn't have done a
transaction like this. It's a duplex built in the 1930s, about 1,000
s.f. altogether. I bought it for around $63,000, and have two tenants
who pay combined rent of $675 a month (though yesterday my local
property manager and I decided to raise the rent a little in July).
I've owned it about 15 months, and as I describe in the book, it's
definitely been an adventure--I had a tenant go to jail, a property
manager disappeared with a couple of months rent. On paper, however, it
hasn't been the worst investment--the tax deductions have been great,
I have slight positive cash flow most months, and it's gained about 10
percent in value since I've owned it. I did it mostly to understand why
and how so many people did this during the boom, and it's been a trip.

And Sharon, since you sound really nice, if you're interested in
purchasing it, no reasonable offer will be refused....
  

    
Scott, I really appreciated you sharing your insights about real
estate as a profession. Your comments about the low licensing
requirements were particularly interesting. While reporting the book I
decided to get my license in Massachusetts, just to see how easy it
was. I did all the coursework in one weekend and took the test a few
days later. There si definitely a wide gap between the theoretical
knowledge required for licensure and the practical knowledge necessary
to actually practice, which probably isn't that different from, say,
getting licensed to drive a car (but not /really/ knowing how to drive.

I had never thought of the state's revenue interest in keeping these
barriers low, however, nor had I heard about how other countries
utilize an apprenticeship system. Quite interesting!

My hope is that realtors in particular read and enjoy HOUSE LUST, and
the ones I've heard from so far who've read it have considered it time
well spent. I hope you do too.
  

    
Okay, many of you may have seen the housing data that came out the
last few days. Basically sales of existing homes has begun to tick
upward, but the prices being paid for them has dropped quite
sharply--about 8 or 10 percent in the last year, depending on whom you
believe. The median price of a US home is now below $200,000 for the
first time in a while.

While doing interviews about this the last couple of days, one of the
biggest questions I've been hit with is whether this is the start of a
turnaround, or a sign that the housing market has bottomed out.

What do all of you think?
  

    <scribbled>
  

    
My money's on housing prices dropping at least 50% (and probably 60 -
70%) from their peak in the super bubble areas. In Silicon Valley we
have massive overbuilding of everything from apartments to McMansions
(one person dubbed them "giraffe barns," a phrase I really love), and
the houses are still going up. 

I have a question for Philippe about your question, "...I keep
coming back to the "So what caused it?" question.  You talk about
different factors but none of them seem like they're big enough to
cause the kind of large scale change that we've seen in a fairly short
time." Are you referring to the "house lust" phenomenon or the tanking
of the real estate market?
  

    
I think the places where prices are really going to crater is in the
overbuilt fringes of suburbia -- the places that only made sense to
move to because everything more convenient had housing that became
insanely overpriced.  As housing closer to cities and core suburbs
declines somewhat, it's going to suck the life out of the 3-hour
commute places.  OTOH, great for a bargain giraffe barn, if you don't
mind living surrounded by foreclosed houses and driving 3 hours to
work.
  

    
A lot of people are thinking along those same lines. Books, articles,
all contending these bedroom communities could be the next slums.

<http://www.theatlantic.com/doc/200803/subprime>
<http://www.sfgate.com/cgi-bin/article.cgi?f=/g/a/2008/03/14/carollloyd.DTL&hw=
slums&sn=004&sc=203>

Daniel, I'm so enjoying your book! Not finished yet, so perhaps you do
cover this:  I've been thinking about the phenomenon of "house lust"
as one might frame it in the "conservation of energy" theory. That some
other attraction or thing used to scratch the same itch, but that's
faded somehow, and the energy's been displaced into house lust. What
used to serve the same purpose, scratch the same itch, as this
obsession with houses and home improvement does now? Or is it the itch
that's new?
  

    
CJ, what I was wondering about was the lust, not the tanking.  I agree
that we've gotten obsessed with houses.  I just don't know how many of
the 5 points Daniel mentioned are drivers versus effects.

A lot of the causes make me ask the chicken and egg question.
  

    
Heh. I agree. 
  

    
I do agree that the old real estate maxim of location location
location is being proven in a big way.

In the bay area, the way far out burbs are way down in value, and one
of them has a foreclosure rate of about 30%!  In contrast, some of the
more desirable areas are actually up.

Part of it may be because the way out burbs are probably where those
who had the riskiest loan situation could afford to go, but I'm sure
its also driven by why drive 3 hours to work if I don't have to.
  

    
Pokey's on the opposite side of the state from me, but thanks.:)

So you're one of those damn Californians who bought property sight
unseen as an investment and didn't even bother to move here, hmm? :)
  

    
Are you in Bonner's Ferry, Sharon?


As for that Pocatello property, $63K for a duplex generating
$1250/month is a very decent investment.  Here, 70 miles from Seattle,
I just looked at a duplex selling for $325k generating $1500/month. 
There are no multifamily units that pencil out here.  While yours is a
good Real Estate investment, your problem is a business one; you're a
true absentee landlord relying on property management in another state.
This is an example of how you gave up any physical control and didn't
have any economies of scale (enough rental units to withstand
vacancies, efficient ways to handle repairs, etc). 

In 11 years, I've never ever sold a property to a client sight unseen.
 This, too, in your Pocatello example, is highly atypical. Where I
think it's a telling example of our current predicament rests in how,
during this latest boom market, real estate investors were able to
scour distant markets for what they felt were undervalued inventories. 
When I was in PHX during the hot boom, I'd get out-of-state investors
calling all the time.  I had to tell them that unless they trusted me
enough to put in an offer on their behalf the first hours that the
property hit the market, then we'd be wasting each other's time.  Even
with the access to the MLS through the internet, real estate is still,
fundamentally, built on relationships.
  

    
Scott, I must have slightly miscommunicated the math on my rental. My
gross monthly rental is 675 for the whole shebang (which includes BOTH
units), not 675 PER unit. However, with a 10 percent downpayment the
property does manage to eek out a slight monthly cash flow (usually).
But if I'm able to make money on this, it will only be because of
appreciation.

And you're certainly right that by doing this at such a distance, I
was at the mercy of the Realtor when buying, and I'm at the mercy of
the property manager as a landlord. It was definitely a risky gambit,
but it's definitely made for a good "talking point" when doing
interviews about the book (the WSJ review of HOUSE LUST, which was
quite strong, focused quite a bit on my Pocatello adventure). So far,
so good.
  

    
Angie, I appreciate your kind remark about my book, and your
interesting question. Not sure I have the perfect answer. One thing I
have thought about, though, is the generational relationship between
automobiles and houses. I don't have the stats or formal history
available, but my recollection (I spent 3 years in Detroit covering
autos) is that automobile ownership really took off in America in the
1920s, and in those early years people were really happy with owning a
basic car, which was itself still a novelty. It was really a generation
later, in the '50s and '60s, that "car culture" began to take off and
people began to obsess over their cars with customization, hot rods,
cars as status symobols, etc. While the first generation was happy with
no frills, the second generation car owners turned them into objects
that, in some people, are an object of desire.

I've noticed a similar trendline with houses. Homeownership in America
didn't become really widespread (more than 50 percent of the
population) until the 1950s, and in that first generation people were
very happy with basic, Levittown houses. A generation later, people's
attitudes began to change. This generation had been brought up in owned
homes, so homeownership wasn't a novelty to them, and they began to
desire more elaborate, status-conscious dwellings, and some people
began to obsess over this piece of life, just like some people do over
cars. I think the fact that prices jumped sharply (driven by inflation)
in the 1970s also contributed to this. It was during the 1980s that we
began seeing McMansions and when a lot of the seeds of what I call
HOUSE LUST began to take root in the most real-estate obsessed places
(though I don't think it became truly widespread national phenomenon
until the late '90s and early '00s, when most of the country began
booming).

It's a bit of a crutch to compare people's houses and cars (I've heard
architects to it frequently), mostly because cars are typically the
second largest of our expenses. But I do wonder whether some of the
energy people once devoted to cars didn't transfer to houses somewhere
along the line.

What do you think?
  

    
no, near Boise. Opposite side. Bonner's Ferry is opposite end. :)