Archive for March, 2007

We Have Nothing to Fear but Fear Itself

Lots of chatter about the crashing housing market. Time for some perspective.

Market booms and market panics are caused by the media. Left to themselves, most investors will do different things. There are market herds, and market trends, but there rarely will be panics or booms unless CNBC (or what have you) is fueling them. So it is with this.

Since most of the readership of this blog is resident in Utah, let’s talk Utah (feel free to ask in the comments or at about other states or situations).

The only thing that could cause a major housing downturn in Utah is panic over a 15% decline in markets where the average gain over the past 4 years is over 30%.

Stay with me here:

House starts at $100,000
30% increase in 2003 is $130,000
30% increase in 2004 is $169,000
50% increase in 2005 is $219,000
50% increase in 2006 is $286,000
15% decrease in 2007 is $243,000

Pardon me while I weep uncontrollably for investors in Phoenix. Or even St. George. All I see in the part of Utah where people actually live is a solid, if unspectacular, housing market where there are still an unholy number of buyers out there for houses where families actually live (as opposed to, say, Herriman). We never had 50% increases here, and we’re not going to have massive declines.

Please to remember a couple of things: one, the VALUE of your house is irrelevant unless you’re selling it, and two, the payment is not tied to the value of the house. If you could make the payment when you bought it, you still can. We’re not seeing falling wages anywhere.

The ARM thing is massively overblown. Most ARMs are fixed for longer than a year (and sub-prime ARMs are 2 years at a minimum), so the housing speculation that drove buying last year is not having any but a tiny impact on default rates today. Today’s defaults are the product of buying two years ago, and there is NO MARKET IN THE USA where default rates are high and home values are lower now than in spring 2005.

I’m struggling to figure out what the reason for panic is. And I do business with New Century. Or did.

An Early-Morning Ramble

Harry Rodas, Realtor extraordinaire, tells me he’s in blog withdrawal because it’s been three weeks since I posted. Harry, this one’s for you.

As most of you know, I have two blogs: The MortgageBlogger, which is mainly about (what else) mortgage and real-estate-related stuff, and The Chris Jones Group Blog, which is almost an online diary of what’s going on in my head. I leave it to you which is more interesting, but both blogs have about the same readership, which rises and falls with the frequency of my posts. It’s been some time since I was able to get to posting, so readership is understandably off quite a bit.

This makes me sad, because I know there are a fair number of regular readers, and I know how hard it is to acquire them in the first place, and how difficult it is to re-acquire them once they’re gone. The fact that this has been an incredibly hard month business-wise is not particularly relevant. It’s like I tell my appraisers: I’m sorry that your brother is in the hospital and that your car broke down and that your computer crashed. I have a client that needs the appraisal done right now – can you do it or not? I’m sure everyone is concerned about the business trying to purchase a building and hire three new staff and finish two investment projects and wrap up a major charity event, while restructuring internally and deciding whether to become a full-fledged brokerage (with all the licensing and regulation that entails), but the bottom line is, if I’m not posting, there’s nothing to read.

This morning, my 9-month-old has decided that he can’t go back to sleep at 5:30, so I’m up at the kitchen table and there’s not really anyone to call, even on the east coast, and I’m just not into reviewing the pipeline and checking the status of the loans there, especially since nothing’s going to have changed since I left the office at 10:10 last night, so why not blog?

I’ve discussed in the past several issues that have come back to the forefront recently, such as the need for an offseason in the rythym of life (read the post after that in September last year as well), and the one that most currently plagues me, the curse of the Big Idea. In short, that one is outlined neatly by the plot from Family Man and other movies of the same ilk. High-powered, relatively self-absorbed executive gets chance to see what he’s missing by being stranded either in a remote location or an alternate reality, and discovers that there’s more virtue in changing diapers than changing Wall Street.

On the surface, how could anyone disagree with that? I have seven children (one of whom is at this moment destroying the family computer), and I like doing things with them and am never happier than when I am. I do not and have not for a long time needed to be a high-powered executive of anything. I don’t drive a fancy car and I don’t have cheap women and yes-men following me about. I don’t live in a huge, sprawling mansion. We don’t have a lot of money and what we have we give away with both hands and a smile. So what’s the problem?

The problem is this: someone has to make the diapers. That’s it. Family Man gets stranded in an alternate reality and has to change diapers and drop kids off at school, then go to his job at the tire store instead of going from boardroom to boardroom putting together a multibillion-dollar merger. Perhaps this is a noble calling. But the question remains: who, then, is making the diapers? Not changing them. Making them. Who is it that put together the giant conglomerate that makes the diapers so cheap that a guy who sells tires can afford them? And why is it that his work is less noble than the fellow’s that profits from it?

I’ve gone back and forth on this stuff until I’m raw from thinking about it. I once desired to be a multi-millionaire and have fast cars and expensive penthouse office space. Jets, that sort of thing. I grew out of that after child number three. But I also spent month after bleak month out on the campaign trail away from my family trying to get a good man elected President. The compensation was on the thin side of fair, but it was important work and someone had to do it. Meantime, my kids started exhibiting psychological problems and I saw my wife once in five months. So should I have bagged it and gone home? But who would have replaced me? Who would have done what needed to be done so that hundreds and thousands of other men could stay home with their kids instead of having to be out working?

When I last started a business, I did it for the purpose of helping my brother, mainly. It was, at its peak, a relatively growing concern. It looked for a while like it might make it. It didn’t. Honestly, I didn’t work hard enough at it. I should have done more of the crap work that protects businesses from the government – the threat that kills more businesses than any other. But I didn’t. I stayed home. I piddled. I did the important work of changing diapers. In consequence several dozen people ended up out of a job when the doors closed.

Swearing that I would never do that again, I took up being a loan officer full time, working for other people. First it was a large company, then a smaller one, and finally a company that essentially allowed me to be a Company of One. That suited me. Of course, within a short period, I had to hire some staff, because I really am good at this, and the more loans you have, the harder it is to do them all yourself. If I work, I get loans. I worked.

So the Group swelled to three, and stayed there for two years, until one particularly rough patch last February when it seemed to me that the Group needed to restructure to accomodate the growing side-businesses of the members, and that essentially made the Group a one-man band again. There’s a freedom in that, knowing that the only person, the only family depending on me to do my job is my own. Nobody else’s kids need me to get out of bed in the morning, or to stay at work instead of taking my kids fishing.

I got to do more fishing. That was good.

It was too good to last. Problem is that there’s no “off” switch, and the volume knob is really more like a directional switch – it’s either rising all the way to infinity or it’s falling to nothing. It’s pretty hard to figure out how to get just a couple of loans. Do what you have to to get a couple of loans and if you are good at it, you’ll get seven instead, with more coming. This is a good problem to have, but it’s a problem, make no mistake. The hours get longer, the fishing trips shorter and then they stop altogether. And if I do flip the “off” switch, I better have pleanty saved up to prime the pump again until I can get more loans in – it takes at least 60 days from the first expression of interest to the check in the bank.

The way out, of course, is to grow. Hire staff. Change locations. Become a player. Run, in fact, a business. Despite being burned over 80% of my body last time, I felt compelled to do it. I like creation. The prospect of building something that lasts and that is excellent excites me. I feel that the Group can really become something like that. With grave reservations, I decided last December to start looking at becoming a full brokerage, buying a building, and hiring the people necessary to build a company that was the best in the world at something.

Those reservations were not unfounded. My father and I scheduled four times to go ice fishing this winter, and never went. There were lots of reasons, not all of them work-related, but work always factored. Last night my wife pried me out of the office at 10, where I’d been since 7am (metaphorically, since some of my work takes me out and about). I ate dinner with the family and went right back to work. Spent no time with the kids. That’s been the pattern for more than a month. Why would I do this?

For many reasons, some of them selfish, some of them not. But in essence, I’d do this so that 19 (currently) families will have someone they can trust and count on to watch over their money and get it to them when they need it so they can keep their houses. I’d do this so that five other families besides my own will have a job that allows them flexibility to take care of their families and enough money to make that possible. SOMEONE has to do this. Is there no nobility in it, whatever the Hollywonks say?

I wonder. Maybe it’s the fatigue talking.