The Shifting Mood Of The Market

The mood on Wall Street is all over the place right now. The "Credit Crunch" or "Liquidity Crisis" now seems to be a little bit harsh of a label for what is going on. Much of that panic and fear seems to have settled down. There are still plenty of concerns, and quite a bit to get worked out in the credit marketplace, particularly in the residential mortgage market. But I like the re-classification of the whole state of affairs by Barry Ritholtz as a Credibility Crisis. There is enough underlying strength in the economy, and even the housing market to keep this from being too critical of an event.

He suggests that liquidity is not the problem. The issue is that nobody with cash is willing to take the leap into credit products because the whistle has been blown on the obfuscation of risk via derivitization. In other words, nobody can see what they are buying, and now that risk feels risky, the money has moved to the sidelines until credibility can be restored. This market stagnation has locked up a lot of the fluid movement in the market, and caused several companies to freeze up and die.

The un-levering process - where companies scale down their borrowing - has an affect of pushing prices (stocks, bonds, and other dollar-denominated assets) down further, as they sell assets to cover borrowed funds, but think of it as 'cutting to the chase'; the values clearly needed to correct back down to a more stable level. If we can find stability before selling everything too far, we get closer to that 'soft landing' type of adjustment.

The sentiment regarding the Federal Funds rate, and the role of the US Federal Reserve is also shifting. Whereas the markets immediately assumed that a cut in the Discount Rate suggested a near-term cut in the Fed Funds Rate, there is now more chatter covering the reasons why the Fed still will not rush to make these cuts. Inflation needs to prove itself a non-threat, or we start this cycle all over again without allowing investors to feel the painful results of poor judgement.

The market is eagerly awaiting the reports on PCE (August 31) and Unemployment (Sept 7) for insight into the Fed's mindset. Some say the Fed will not cut rates before Unemployment ticks up at least 0.2% (to 4.8). And the PCE reading needs to show a year-over-year of below 2.0% (currently at about 1.9, but close enough to the 2.0 to remain a concern).

Stay tuned... as I often say, there are a lot of moving targets involved, and the mood changes as the data rolls in...

How A Recession In Housing Affects The Rest Of The Economy

Watch CNBC for 5 minutes and 30 seconds and you can get a good sense of the attention being paid to the day-to-day developments in the housing and mortgage markets. At this point it is no secret (or real surprise) that the housing industry is in a recession. We have increasing inventory, slowing sales, and decreasing prices. The construction unemployment rates are rising. The mortgage industry is facing a fairly turbulent adjustment with several companies collapsing on short-notice, and leaving several consumers left waiting for the money to buy their homes.

But most agree that these adjustments are good for the industry's long-term benefit. This is typical of the market cycle. Its just that the other side of the cycle carried the industry so far for so long, that this side feels more intense.

Paul Kasriel of Northern Trust highlights some of the ways in which the housing industry's growing pains can spill over into the greater economy:

"The tentacles of the housing recession are reaching beyond consumer spending. Freight haulers, both truck and rail, are reporting weaker volume growth because of the decline in residential construction activity. With fewer housing developments popping up in suburbia, newspaper advertising revenues are being adversely affected. And the producers of construction equipment, such as Caterpillar, are experiencing softer domestic sales."

It will be interesting to watch this develop. And of particular interest will be to monitor the role of the Federal Reserve, who is attempting to tread a fine line between averting a significant economic recession and giving the market participants false confidence through bail-out gestures.

Fed Cuts Discount Rate

Jim Cramer got what he was looking for. This morning, the Fed lowered their Discount Rate by .500%, taking it from 6.250% down to 5.750%. The discount Rate is the rate at which the Fed lends money directly to commercial banks, credit unions and savings and loans, including large lenders like Countrywide and Bank of America. It is different than the Fed Funds Rate, which is the rate at which banks lend money to other banks. The Discount rate is usually held 1.000% above the Fed Funds Rate, which makes the Fed a last resort for lending institutions to borrow from. They would generally rather borrow from other banks at a lower rate, but with the current liquidity crisis making that difficult, this move will help provide some liquidity at more desirable rates in the short term.

This move has a direct benefit to banks and lenders more so than to consumers. The Fed is taking baby steps to help put some lubrication into the markets while being careful not to send the message that they will serve as a 'lender of last resort' to bail out institutions and individuals who face suffering loss as a result of poor decision making. This move softens things a little, but is not a bail-out move. They will let the markets second-guess recent behavior and correct themselves, but need to help guide so as to avoid a complete systemic breakdown. Its a fine line, and this is a baby step. The next few weeks will certainly be interesting, to see how much adjustment can be made, and how much stability can be built back

What Do Fed Rate Actions Do To Mortgage Rates?

Thanks to this chart from HSH, you can see that the answer is "not much", at least not for mortgages based on long-term rates. The Fed changes the short-term or "overnight" rates to affect the costs of borrowing so that institutions and individuals will be more or less inclined to borrow to fund growth or expenditures. Higher rates means less spending, and the Fed has recently raised rates 17 times to try and slow down our hot economy to a more sustainable pace.

Mortgage rates are determined by the trade value of mortgage backed securities (RMBS), which are bond-type securities whose cashflow is generated by mortgage debt. The liquid value of these bonds reflect longer-term expectations of economic performance, and do not always move with the Fed Funds rate.

Back when the Fed was still raising rates (the incline on the tan line), there was a lot of expectation that this would pressure up the other longer-term rates. But it didn't, and we wound up with a flat and inverted yield curve. Then we heard an ongoing debate between economists who felt the inverted yield curve indicated the foretelling of a recession, and those who felt that this was a poor predictive tool. Now there are more folks on the recession bandwagon...

A higher Fed Funds rate does affect homeowners with significant home equity lines of credit however. HELOCs are based on the Prime rate, which moves in lock-step with the Fed Funds rate. If you have a sizable HELOC, you've probably already noticed your financing get a little top-heavy over the last few years. You will see some relief if the Fed starts to cut rates soon.

Contagion Visualized

Take a look at the interactive map of the credit crunch from Financial Times...

Fed Steps In To Calm Nerves?

Markets sure can be moody. Yesterday and today, the US Federal Reserve 'injected liquidity' into the markets to the tune of $38 billion in an effort to try and calm things down. Expectations of Federal Funds rate cuts have quickly changed, with 33% chance of a cut before the next Fed meeting in September. Last time the Fed changed rates off the scheduled meetings was in the wake of 9-11.

So the stock markets around the globe have been in a roil over all of this credit crunching. Shouldn't they be happy to see the Fed taking action? Or does the fact that they are reacting on the fly suggest to the markets that the Fed is officially acknowledging a problem? Security vs. Uncertainty. Markets hate uncertainty, and there will be a negative tone out there until it has evaporated.

While the Fed was raising rates in this last cycle - 17 consecutive 0.250% hikes over a two year period - mortgage rates often went down at each interval. This is often counter-intuitive, but if you can read between the lines it makes sense. Even though Fed rate hikes meant that the environment for interest rates was rising, the fact that the Fed was doing battle with inflation by raising over-night rates made bond investors happy, so they bought more bonds and brought long term rates lower. Security vs. Uncertainty again.

Meanwhile, check out Mr. Mad Money flipping his lid while talking about the current market conditions. Just another measurement of our current state of markets in 'panic mode'. If you are (or are not) familiar with Jim Cramer, here's a great chance to get a glimpse of the guy.

So Much For The Soft Landing Theory?

Holy smokes! The market is changing quickly, as the 'other side' of the cycle has arrived with a thud. Rates and products in the mortgage market are changing rapidly, and many homeowners are going to get caught up in the crossfire. Last week at American Home Mortgage, 800 Million dollars of would-be loan funds piled up in just 3 days as the company announced that it would not fund deals that had already signed. Forget those in underwriting, application, etc. 800 Million dollars - that's a lot of homes! Think of the domino effect of broken purchase contracts, failed credit payments, etc. This kind of spiral is what causes the market to buckle, and why a quick change in liquidity is referred to as a "crunch" or "crisis". Read more about it here, or here, or here.

As for today specifically, Mortgage Bonds are trading higher on unexpected news from Europe connected to US sub-prime mortgage investing problems, as well as Stocks trading lower off the same news. French Bank BNP Paribas, second largest bank in Europe, announced it has temporarily halted withdrawals in three of its mutual funds that have exposure to US subprime credit. As you can imagine, investors like you and I, who are told that their own funds are not available for withdrawal, would be quite worried. In the day's only economic news, Initial Jobless Claims edged higher by 7,000 claims to 316,000, the highest weekly total since June 30 - a positive factor for the Bond market.

I often talk about the book "Manias, Panics and Crashes". About a year ago I started reading this book again, and everyone looked at me like I was a doomsayer. But there is so much historical information in this book that can be applied to the current situation. It gives a detailed look at the anatomy of an asset cycle, and when and where systemic breakdown can occur. Rather than stick your head in the sand, take a look at it and consult with a professional about your finances, so that you can be sure you are prepared to weather this storm in housing and the mortgage market. Are you liquid enough to get through this?? It promises to get at least a little uglier before the dust settles. But this correction will be healthy for the long run.

If You Pay Somebody Else's Mortgage, Can You Deduct Interest?

In another good bit from the Kiplinger Tax Letter, according to the IRS, the answer is no. Even if you actually paid any of it yourself. You have to be liable on the loan and an equitable owner to be eligible.

But Kiplinger's points to a limited exception based on a ruling back in 1997. It says that a couple could deduct interest that they paid on a home loan, that their relatives signed for. The reason was that the couple had poor credit, and the relatives stepped in to help. But the occupants of the home made the payments, lived in the house, and made all repairs and improvements. They experienced all benefits and burdens of ownership.

I guess the IRS does not concern themselves with risk of foreclosure as one of the 'burdens' of ownership. The charitable relatives took on this burden, but Uncle Sam doesn't seem to mind.

San Francisco Real Estate Professionals And The IRS

When it comes to defining a Real Estate Professional for tax purposes - which comes in handy if you are a high income earner and have passive losses on rental property - the IRS essentially says that you need to have an active role in managing the property, and spend at least 750 hours a year in doing so (That's about 1/3 of your 40 hour work week). Then your losses are not 'passive', and there is no limit to the detectability. Otherwise, your cap is $25k per year. Oh, but if your income is over a certain limit, you lose the write-off...

...still with me? One more step, and its key. If you cannot deduct losses based on income being too high, you can defer these losses until the sale of the property, and reduce your gain by the exact amount of losses racked up over the years.

In San Francisco, and California in general, this is a big deal. Incomes here are on the high end, and rental losses are as well, as the rental cost vs ownership costs for property are at a historical gap. Gaining access to the 'Real Estate Professional' treatment has potentially significant implications.

According to the Kiplinger Tax Letter a recent IRS ruling has clarified a deeper-level detail of this test, which helps tax payers gain the 'Real Estate Professional' status. It allowed a couple to have extra time to elect to treat multiple properties as a single entity, thereby working around the time test for each property individually.

More info on the IRS Real Estate Professional test can be found here. Please also consult with your tax planner if you think you need to navigate this test or have any landlord or passive loss issues related to real estate.

Foreclosure Chart, The Return Of The Investor?

RealEstateJournal posted this chart courtesy of Realtytrac showing the foreclosure data monthly in a quick article with tips for buying foreclosure homes. You can note a slight drop from May to June, but I don't think many are expecting that the housing market has 'bottomed-out' just yet. Today's release of New Home Sales data was a disappointment, and showed that we are still not eating away at the inventory.

I see continued optimism from real estate insiders, one notable exception would be Angelo Mozilo, CEO of Countrywide, who has made a few comments over the last 6 months relating this housing recession to the Great Depression, that this is the worst market he has seen, and enacted layoffs and cost-cutting measures. He has also been under the microscope for selling $118 million of his company's stock - a clear sign of lowered expectations... what are you gonna do...

I posted here back in May of 06 that the caliber of real estate investor had significantly changed, and that the pros had vanished. Soon after, the amateurs disappeared as well, and the only investor activity we have seen recently has been folks looking to capture a good gain on an inflated property, and 1031-Exchange it into something different.

In the last few weeks however, I have seen quite a bit more investor interest. Folks who are not afraid and who know that a market like this has "deals". They embrace the Warren Buffett's mantra of "We simply attempt to be fearful when others are greedy and to be greedy only when others are fearful." But I wonder if they are premature and if the market is going to deteriorate significantly further before things settle down. I know those builders do not want to hold inventory into a declining market, so I expect to see further cuts in prices, and increased incentives. I'm not buying into the media's doom & gloom rhetoric, but I do not think there is any reason to be anxious just yet... Deals are certainly out there...

John C. Glynn, CMPS
Real Estate Finance & Mortgage Planning
San Francisco Bay Area

Has Been Stein Seen the Light?

Somebody forwarded to me an article by Ben Stein recently, and I noticed a stark contrast to the tone of the last Ben Stein article I recall reading back in January. I remember thinking when I read the first article that he was missing a key component of understanding housing as an investment. I assumed that he was not ignorant, but rather opted to deliver a streamlined and simplified message to his audience.

In the first article, Stein misses the concept of leverage when discussing return on housing. With leverage, you have to shift the focus to return on investment, not return on asset. I know he knows this, but now you can get an idea of why I had not - until the other day - read another of his articles.

So in the recent article, his tune changes a bit. He isn't as suggestively sour on the financial aspects of house-as-investment, and focuses on pre-paying mortgage debt. But comparing the two pieces provides a great example of the fact that the decision to 'buy the house' and the decision to 'pay off the mortgage' need to be looked at as wholly separate investment decisions. They are totally unrelated. Stein seems ho-hum about buying a house for financial reasons (again, ignores the leverage component), but once you own the home, he suggests liquidity is more important than retiring debt.

I like the direction he is heading in...

John C. Glynn, CMPS

Real Estate Finance & Mortgage Planning

San Francisco Bay Area

Dead Fish Don't Have A Mortgage Plan

I knew this kid in High School who was about as anti-establishment as they come. Pretty interesting guy, but somewhat difficult to get to know or get a good read on. When the senior year yearbooks came out, the quote beneath his name read: "Only dead fish follow the stream". It captured what I perceived to be at the core of his personality. And the message was clear. What's a worse thing to be than a dead fish? And what could be more true an image?

... 14 years later, it remains one of the more memorable from that sea of inside jokes, cliche inspiration, failed attempts at humor, and so on. It popped into my head again recently when I read a headline about a mortgage survey administered by Re/MAX in the Detroit area. It made the case that some 2/3 homeowners with a 'nontraditional' mortgage were planning to refinance. This was yet another media criticism of the mortgage industry, and the 'nontraditional' loan type. The media has made the terms 'exotic' and 'nontraditional' synonymous with 'dangerous' and 'rip-off' in the context of the mortgage industry.

This got me thinking, as the 2/3 number seemed extreme to me. I can't imagine that 2/3 of the people with 'nontraditional' loans need to refinance into a market that is close to its 5 year high water mark. Generally, the media refers to anything that isn't a 15 or 30 year fixed loan as 'nontraditional', but it would help to have clarification.

Refinancing always involves a cost/benefit analysis and can be viewed as a snapshot of one's financial and credit profile as well as of the marketplace for money at any given point in time. "Based on where I am today, does the market offer me something better?" Something has to improve. It is unlikely that loans originated in the last few years are eligible for lower rates today - credit is at/near its tightest and most expensive levels in the last 5 years (though there are some cases). So this statistic has to refer to people who are looking for more protection in the form of longer fixed rate periods. They are likely rolling into a higher rate, higher payment or both.

Of people who need to refinance, there are a few possible motivations: they were misguided when they took out their current loan, they are misguided about what they need going forward, or more innocently, things have just simply changed.

Among those who intend to refinance based on changes in life, those who are not taking out cash are going to be refinancing specifically to change the terms of their loan. And if this specific sector is equal to 2/3 of those with 'nontraditional' mortgages, then this would indeed be worthy of a news headline with a story about how 'nontraditional mortgages' are bad for your financial health.

But I doubt this is the case. Cash-out refinancers would be re-financing regardless of the current loan (to a degree). The misguided folks are not adequately understanding how to evaluate the cost/benefit proposition, or they didn't when they took out that last loan.

The key takeaway here is that life does in fact change. Among this 2/3 figure, there are likely those who knew life would be changing around this time, and took out a mortgage that fit the timeline of expected change, and saved a bundle in the process. They are the guided ones. The 'dead fish' are the folks who are letting the current push them around.

Living fish also follow the stream for the most part, but they navigate. They know when to resist the current, move to the side, etc, as opposed to banging into rocks and driftwood - and washing up on shore.

Let's face it. Resistance can get you in trouble. Defiance can get you hurt. But if there is a stampede headed for a narrow escape, sometimes you'll be better off figuring out a different way out rather than trying to squeeze through that door with the rest of them - or better yet - knowing how to avoid being stuck in the first place. Don't be a dead fish. Get a plan in place.

John C. Glynn, CMPS
Real Estate Finance & Mortgage Planning
San Francisco

CDC National Health Interview Survey Has Some Interesting Data

For example, it found that adults in wireless-only households were more likely than adults in households with landlines to report binge-drinking, smoking, uncovered health insurance, and limited access to health care.

Shocking! How many "adults" do you know who don't have a landline phone? Its a youtube generation thing folks, or at least a more youthful one. My guess is that if we controlled this study for age distribution, we would conclude that:

"younger people are more likely to use cell phones in favor of having a landline phone"

As opposed to:

"people in households with no landline tend to be binge-drinkers"

No knock against the youthful cell phone sector here - my mother is brilliant, but teaching her to use a computer was maddening because she learned how to type on a typewriter. Word Processing felt weird and strange. Just took her longer to adopt the idea, but now she's working on a PHD and setting the curve academically. Try doing that today without a computer.

To all you cell-phone only kids out there, there once was a time when we had to plug the phone into the wall, and dial with our fingers. I know, crazy, right?

Who wants a drink?

John C. Glynn, CMPS
Real Estate Finance & Mortgage Planning
San Francisco

Family & Estate Planning Basics

A good checklist found in a recent article in Money Magazine is below. These are items that you should discuss with your parents - at any age. You don't need all the info now, but you should know how to find it:

-Will
-Life Insurance Policies
-Long-Term-Care Policies
-Banking & Brokerage Accounts
-Social Security Cards
-Medicare & Insurance Cards
-Doctor's Names & Numbers
-List of Medications
-Lawyer & Accountant Numbers

Seems pretty basic, but helpful to review. I mention it here because of the frequency with which I work with people who have lost their parents, and are facing major financial implications that we are coordinating through strategic mortgage planning. Its not a fun topic to discuss, but help yourself by cutting out some of the chaos that ensues when you cannot find the items listed above.

John C. Glynn, CMPS
Real Estate Finance & Mortgage Planning
San Francisco

If You're Like Me, Refurber Might Be For You

I grew up the son of a proficient handy-man. When I was a kid living with my parents, my dad made a living in the courtroom, but somehow knew everything possible about how to take care of the home. Gardening, fix-ups, painting, moving, storing, and especially anything requiring a 'gnarly set of tools' - he could do it. As a kid, I assumed it was a rite of man, and that it would someday translate to me... somehow.

Then I eventually moved out into a flat in San Francisco. My roommates and I didn't have time for home improvement projects, with all the work and happy hours. But more importantly, we didn't have space for tools. Therefore, we ignored basic property maintenance and called the landlord when necessary (remind me to post later on how to find tenants for your precious home who were NOT like us...). Eventually I realized I had some challenges. Seriously. At one point I tried to hack up a dried Christmas tree with a pocket knife so we could use it for indoor fires. The butcher knife didn't work. The end of that story has to do with a call to the fire department (see parenthetical comment above), but let's keep me on point here...

I moved again, and now I have space for tools. I also have a bigger house, that I care more about, and no landlord to do the dirty work. It is my domain. And I still feel like I know nothing. I am trying to accumulate a good set of tools, and a good set of experiences with these tools, but every little project always turns out bigger than expected, in physical and intellectual scope. It gets overwhelming, and can be demoralizing at times. I have dreams that I am walking through Home Depot in my underwear (no, not really).

So where do I turn for help? I buy books and manuals for specific projects. I call my dad to come over and help when he's up for it (almost always is). I hired a gardener when I realized I couldn't keep up with the yard. And I go online. A luxury that was not available in my dad's time, and until recently, one that usually did not live up to its potential with all the message boarding and googling and waiting and waiting when I want to screw in my light bulb right now, darn it!

Enter Refurber. This site centralizes the effort. Its a social network (web 2.0 for 'community') of people all built around handy-manning, refurbishing, repairing, and remodeling. Its a fantastic resource. Forget the random message boards and obscure sites. This is a place where people who have as big of a tool shed as my dad - and know how to use it - come to boast about their work, get excited about sharing tips, and find value in helping their virtual neighbors. Check it out.

John C. Glynn, CMPS
Real Estate Finance & Mortgage Planning
San Francisco

Trabajadores Escondidos - Why Construction Industry Contraction and Unemployment Data Do Not Correlate

With the slow-down in the housing market comes a slow-down in the housing industry. This is why economists fear that a drastic correction in housing prices will have the kind of ripple effect that could send the US Economy into a recession. If the appetite for housing slows, fewer construction workers (and Realtors, mortgage brokers, appraisers, title/escrow... etc) can find employment. We are seeing pretty big drops in some of the housing construction data now - fewer homes being built, fewer permits applied for - and expectations have been that we would see a rise in unemployment related to this. The housing industry is assuredly large enough to influence that number.

But the unemployment rate has remained stubbornly low, keeping pressure on the Federal Reserve to watch out for 'wage-based' inflation, aka too many workers making too much money. So where are all the laid-off construction people now, if not unemployed?

A few months ago I read a fascinating piece forwarded by a favorite economist and author, John Mauldin, which explored not only the concept that much of the construction labor is undocumented workers, and therefore not showing up in official unemployment records, but also the impact this might have on the global economy. Much of the money earned by undocumented workers is sent back across borders to Latin American family back home. The central banks of these countries literally count on this cash in their economy, and it affects their own policy decisions and economic steering. The essay's question: do these countries know as much about this housing slow-down as we do? If not, there is risk of a ripple-effect well beyond our borders. And in today's global economy, those ripples bounce back and forth across borders. Interesting stuff.

Last month at the Pacific Coast Builders Conference in San Francisco, there was a panel titled Immigration, Labor and the Future of the American Workforce which focused on the importance of immigrant laborers to the home-building industry. And Jerry Nickelsburg with the Anderson Forecast group at UCLA recently published a report about a study on these "Hidden Workers".

With the immigration debate and legislation proposals, keep an eye on this topic in the coming months...

John C. Glynn, CMPS
Real Estate Finance & Mortgage Planning
San Francisco

The Yield Curve Is Sloping Upwards

With the current sell-off in the bond market, we have finally returned to an upward sloping yield curve in the 2yr - 10yr chart. It's still pretty flat, and bonds have started to retrace some of the steps they took during that little three-week selling frenzy, but we have not had an upward slope for a long time. Check out this site for a great illustration of the yield curve over the last 9 years or so (make sure to hit the 'animate' button). If it didn't make a lot of sense before, this will help. Pay close attention to the last few years where we see the Federal Reserve's steady 0.250% rate hikes (on the left) and the corresponding long term rates (on the right). This stubborn long-term rate has stayed relatively calm in the face of all those Fed tightening moves.

John C. Glynn, CMPS
Real Estate Finance & Mortgage Planning
San Francisco

Warren Buffett On Opportunity Cost

Its no breaking news that you can learn a lot about investment and prosperity from a guy like Warren Bufett. I saw a blurb recently about the Berkshire Hathaway annual shareholder's meeting, and clicked my way into this 5 page document he wrote in 1996 titled "An Owner's Manual", where he outlines his basic economic principles of business operation. There is some great insight here, particularly on the last page where he describes the difference between intrinsic value vs. book value.

This passage uses a well-constructed example of the opportunity costs of college education to illustrate the difference between "Book Value" and "Intrinsic Value", two important business valuation metrics. This same exact principle applies to debt and wealth management when we talk about the use of the marginal dollar.

Most people can clearly evaluate the cost of not paying off a dollar's worth of mortgage principle - we call it interest. But we see most people mistakenly value the actual cost of paying the mortgage principle back, measured in foregone return on investment and foregone liquidity, as well as increased risk and tax exposure.

Its tough to set your financial priorities in order when you don't know what they all cost. With the mortgage being the largest 'bank account' most people have, it is critical that the mortgage plan is congruent with these priorities - adequately valued. Take a look at this for evidence of how 'most people' are missing opportunities to build a better bottom line. Good mortgage planning can take this concept even farther in the right direction.

John C. Glynn, CMPS
Real Estate Finance & Mortgage Planning
San Francisco

Measuring Affordability In Real Estate

There was an interesting article today in Realty Times discussing the currently escalating energy costs, and the implications for home sizes and housing decisions. One might think that with gas prices rising so quickly, the average consumer might alter their behavior reflecting sensitivity to these costs.

The author makes the case that it would take a true energy crisis to change the current course of larger average home sizes (20% are 4 or more bedrooms, nationwide!). One interesting detail is the fact that garage doors are being built with larger dimensions to accommodate the larger, gas-guzzling SUV cars that so many Americans love to drive.

I don't think the average home builder can respond to the weekly changes in gas prices, and expect to see some of the energy-conscious construction trends become more wide-spread. There has been a lot of buzz for months about "green construction" in my area (San Francisco Bay Area), but the building industry has to deliver based on some amount of lag time.

A little over a year ago, the Brookings Institute issued an insightful report about "The Housing Affordability Index, A New Tool for Measuring the True Affordability of a Housing Choice". One of the key issues that hit home for me was the discussion on a consumers tendency to mis-appropriate values of things like commuting, environment, time, road-rage, etc.

We have seen a huge growth of housing in the areas to the East of the Bay Area over the last several years. As a result, tons of homes have been built in towns like Tracy, Stockton and Modesto. There have also been entire up-start communities built at former cattle ranches like Mountain House. Most of this growth has been by people who work in the Bay Area, but cannot afford - or do not want to pay for - the houses. If you doubt this, try driving east on Interstate 580 during afternoon commute hours.

Reading the Brookings paper, you might gain a sense of how to evaluate things like:

• -gas costs, auto wear and tear costs
• -time spent commuting measured against time spent with spouse, kids, etc.
• -psychological costs of road-rage
• -physical health costs of traffic stress, sitting in smog and exhaust fumes
• -health care costs related to the above
• -living away from urban cultural centers, food choices, arts, etc.

Everyone will have a different set of priorities of course. But you need to know how to measure the cost of missed opportunity, and other things that cannot be easily defined in dollar amounts.

If you need help figuring out how your mortgage plan can be molded to accommodate your life's priorities rather than restrict you from them, its time to talk.

John C. Glynn, CMPS

Real Estate Finance & Mortgage Planning

San Francisco

More Movement For Change To Real Estate Commission Model

The Federal Trade Commission has issued a lengthy report getting behind the movement for change to the way Real Estate commissions are structured for residential US Real Estate transactions.

I wrote about this in a previous post with a similar report from the AEI-Brookings Joint Center for Regulatory Studies. I'm a huge fan of the Freakanomics guys; they have some interesting criticism of the Realtor commission model despite a few oversights and a petty undertone. Also, 60 Minutes has a story coming up this Sunday about alternative compensation models. Its unclear if they will contribute to this debate with balanced representation, but the fact is that this issue continues to be one of the biggest in the Real Estate business today.

It continues to be a very interesting battle, and the National Association of Realtors (NAR) has their defenses of course. Problem is, most of it sounds 'defensive'. There is some merit to the claims made by NAR, but the inherent problems with professionalism and integrity within this business make these defenses 'not applicable in all cases'. Some good insight to their viewpoints can be found here (see links at bottom of that page for more).

At the bottom line is a comment I give frequently: work with a professional. It holds true in Real Estate and financial services as much as it does in medicine or auto repairs.