Inkwell: Authors and Artists
Mark McDonough (mcdee) Sun 23 Mar 08 16:08
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 MacFarlane (s-macfarlane) Sun 23 Mar 08 19:01
< 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.
John Ross (johnross) Sun 23 Mar 08 19:27
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
Scott MacFarlane (s-macfarlane) Sun 23 Mar 08 19:58
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.
Alan Turner (arturner) Mon 24 Mar 08 18:29
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.
Sharon Lynne Fisher (slf) Mon 24 Mar 08 22:55
Daniel, where in Idaho is your property?
Mark McDonough (mcdee) Tue 25 Mar 08 06:11
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."
a plague of cilantro (cjp) Tue 25 Mar 08 12:01
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...
Philippe Habib (phabib) Tue 25 Mar 08 12:06
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?
Daniel McGinn (danielmcginn) Wed 26 Mar 08 02:44
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?
Daniel McGinn (danielmcginn) Wed 26 Mar 08 02:49
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....
Daniel McGinn (danielmcginn) Wed 26 Mar 08 03:00
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.
Daniel McGinn (danielmcginn) Wed 26 Mar 08 03:04
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?
Scott MacFarlane (s-macfarlane) Wed 26 Mar 08 08:33
a plague of cilantro (cjp) Wed 26 Mar 08 09:56
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?
Mark McDonough (mcdee) Wed 26 Mar 08 10:50
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.
Angie (coiro) Wed 26 Mar 08 11:03
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?
Philippe Habib (phabib) Wed 26 Mar 08 16:17
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.
a plague of cilantro (cjp) Wed 26 Mar 08 18:11
Heh. I agree.
Philippe Habib (phabib) Wed 26 Mar 08 18:36
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.
Sharon Lynne Fisher (slf) Wed 26 Mar 08 19:08
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? :)
Scott MacFarlane (s-macfarlane) Wed 26 Mar 08 20:13
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.
Daniel McGinn (danielmcginn) Thu 27 Mar 08 03:38
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.
Daniel McGinn (danielmcginn) Thu 27 Mar 08 03:57
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?
Sharon Lynne Fisher (slf) Thu 27 Mar 08 06:12
no, near Boise. Opposite side. Bonner's Ferry is opposite end. :)
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