2008-10-13 (Monday) by Gregory Tucker.

“How should the value of all the homes in a given market be measured?”

Market prices are determined by individuals making (more or less) independent decisions. The Zen but true answer is a property is worth what it is worth–nothing else. A seller may have felt his or her house was worth a certain amount at a certain time, but because they didn’t sell then, the “appraisal” was just a guess.

Self appraisals, especially in the housing market, are notoriously unreliable to behavioral economists. Emotions are involved in the selling decision. Sellers are viscerally averse to taking a loss. Even worse, when homeowners watch their home’s “value” at the market peak, they reset their expectation of what constitutes a “loss”. Many respond to weak market conditions by raising–not lowering–their fantasy price, apparently in hopes of building in negotiating wiggle room. This results in even lower liquidity at a time when markets are already dysfunctional.

Appraisers have more objective methods, involving recent comparable sales, or comps. When we sold our house in Dallas we obtained a $300 appraisal to price our home. Our home went a little below appraised value. The appraisal process was fairly reliable, because Dallas possesses vast tracks of suburban wastelands with row after row of identical houses. In Portland I asked our Realtor about the value of an appraisal, but he said it is only useful for getting the bank to sign off on the deal, nothing more–they simply verify the house isn’t wildly overpriced.

The total price of all homes in a market is simply the RMLS average price times the total number of properties. From there you can adjust for systemic risks. For example, the systemic risk in New Orleans or Miami or Southern California is higher than in the midwest, for example, which is free from hurricanes and earthquakes. Portland, by the way, is also subject to earthquake risks, though many homeowners don’t realize it. Systemic risks are those which can cause a severe imbalance between buyers and sellers.

The risk adjustment is roughly equivalent to the observation that Gates (who art in Redmond, William be thy name), may be forced to liquidate his positions in MSFT, causing a severe mismatch in buyers vs. sellers. Risk adjusted return calculations are a well-known albeit overlooked calculation in investing. Systemic risks could be positive as well. A company might open a major facility in Portland, or rapid changes in weather conditions in the U.S. induced by global climate change may encourage hundreds of thousands to move to Oregon and Washington in the course of a few years. Both could cause real estate values to skyrocket.

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2007-06-09 (Saturday) by Gregory Tucker.

I put up some new photos of the recent visit of Yoshiko to Portland. Yoshiko is an intern at the Japan-America Society of DFW who stayed with us for several months. Her internship is up soon, and she is visiting friends throughout the U.S. before she return to Japan (possibly for good).

Link to photos

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2006-08-25 (Friday) by Gregory Tucker.

Plano resident, Anousheh Ansari, is capturing headlines around the world as the first female private space explorer. On Sept. 14, she will blast off for an 8 day expedition aboard the International Space Station. Anousheh will be the fourth private space explorer to visit space, and the first astronaut of Iranian descent. She spent over 6 months preparing for the journey at the Gagarin Cosmonauts Training Centre in Star City, Russian and the Johnson Space Center in Houston/TX, USA.

Full Story

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