Who are you, and why should I listen to you?

My name is Andrew, and I’m a (fairly) new homeowner.  I purchased my first home in August 2011.

Of course, I’m keenly aware of the fact that this does not make me the least bit special, and you should not be impressed.  (Indeed, if I had to summarize my thoughts on housing policy in one sentence, that one sentence would be that owning a home should not make one special as far as the government is concerned.  But alas, I’m getting ahead of myself.)

Why make a blog about real estate, then, when I have so little experience with it, and have no particular qualifications to lecture anyone on the real estate industry, and even less so on government policy?  Well, as those who know me personally will attest, I… to put myself in a positive light, I’ll just say, somewhat euphemistically, that I think carefully about where my money goes.  As you’re probably aware, real estate tends to be pretty expensive, relative to the other things one typically buys, and particularly in New Jersey where I live.  In my case, the closing costs alone were more than double the amount of any other purchase I’ve made in my life.  Correspondingly, I devoted a lot of thought to various aspects of this purchase, though in retrospect there are things I didn’t think through enough.  Of course, there’s a certain amount of education on the process that any new homeowner needs to have, but for me, I think, it went beyond that.

Independently of the fact that I was investing what I considered a terrifyingly high percentage of my net worth into real estate, I also developed a strange fascination with the whole transaction process in its own right.  Hundreds of questions swirled around in my head, more out of genuine curiosity than anything else, and even after the basic financials of my purchase were more or less settled:  What is title insurance?  Why do I have to buy it?  Why does the title “Realtor” have an (R) symbol after it?  Why is mortgage interest tax deductible?  Why does the government guarantee mortgages?  Why does the government want me to buy a house at all, anyway?  I even questioned one of the sacred cows of the housing industry:  Are higher house prices actually good for the economy?

Faced with all these questions, I decided to read.  A lot.  I found myself spending a few Friday nights reading about things like monoline restrictions, GSEs, and the Case Shiller index.  I looked at mortgage amortization tables.  I learned about the history of the mortgage interest deduction.  I got annoyed at the fact that the online mortgage calculators I found wouldn’t let me set the interest rate to 500% just to see what would happen, so I wrote my own mortgage calculator.  (I won’t leave you math nerds hanging: the reason the online calculators won’t let you set the rate so high is because of rounding error.  Rounding the monthly payment to the nearest cent creates a little error in the principal amount in the first few months that snowballs into a huge error towards the end of the mortgage term.)

Why did I do all this?  I can’t really explain it.  But I think it’s fair to say that I’ve learned more, and thought more, about the real estate industry than most people have, even if I don’t have as much practical experience with it as many others do.

And so here I am, a few months after the fact, with hundreds of thoughts (and still many questions) swirling around in my head.  But one thing that stands out in my mind, as a result of all that I’ve learned, is the strong impression I have of the real estate industry being stuck in the last century:  Many players essentially make their living off of information asymmetry, but of course as the availability of information to buyers and sellers increases (that new internet thing I keep hearing about), the industry hasn’t really adapted at all.  I think the real estate industry is in the same boat as, say, the music, movie, and publishing industries:  it will have to change to survive the next century, or maybe even the next couple decades.  And, like the music and movie industries, it has staunchly resisted any attempts at change.  The difference is that the aforementioned industries have more or less been forced to undergo changes already (think iTunes and Kindles), while the real estate industry hasn’t.  Yes, buyers may look and sellers may post their properties online, but on closing day, when money changes hands, you’d be hard pressed to find any difference between the average transaction of today and the average transaction of 10 or 20 years ago.

I’ve also realized that my opinions on the housing industry, and the reasons I hold them, don’t seem to be shared by many.  So, what better way to express myself, and call out the real estate industry on its anachronisms, and convince everyone else that I’m right and they’re wrong, than by unceremoniously spewing my opinions all over the internet?  If nothing else, this blog will force me to organize my thoughts a bit better.  I find that when friends ask me about my issues with real estate, I have so much to say that I stumble and end up rambling incoherently.  At the very least then, I can use this as a sort of reference for anyone who wants to know more about what I think.

I must also admit that, somewhat oddly, part of the inspiration for starting this blog came from reading the personal finance blog Lazy Man and Money.  He sometimes posts about Monavie, a company that produces and sells juice via an MLM structure and which, he argues, is a pyramid scheme.  His posts have been read and linked to often enough that they show up fairly high on the Google results page for Monavie, and he has received threatening comments and emails from Monavie distributors as a result.  For some reason, I find this funny, and would get a great laugh out of creating such controversy, in the unlikely event that my blog were somehow to become influential enough to do so.

I certainly didn’t intend for this introduction to cross the 1000 word mark, so I’ll conclude by presenting a non-exhaustive list of topics that I intend to write about as time permits.

  • Title “insurance”:  What is it, and why did I just put quotes around “insurance”?
  • The mortgage interest deduction (MID):  How on earth did the real estate industry manage to convince anyone that this is a good idea?
  • Flood insurance:  Why is FEMA involved?
  • Fixed vs. adjustable rate mortgages:  A case study in government involvement in the mortgage industry
  • The National Association of Realtors:  Why everything they say is wrong, more or less
  • HGTV:  A look at real estate’s propaganda machine
  • Real estate bubble:  Did it really cause the economic crisis?  (OK, this one’s a little ambitious, I admit.)

As I think you can tell from the list, I will focus on the industry as a whole; this will most definitely not be a how-to guide for buying and selling real estate, which as I’ve noted, I’m woefully unqualified to write, anyway.

A possible secondary topic will be a bit of quantitative education.  My background is very technical (I hold an advanced degree in statistics if you’re impressed by such things, though I don’t think you really should be), and I’ve found that much discussion of housing policy is marred by technically illiterate argumentation.  I’ve long thought that statistics is taught quite horribly in high schools and colleges nationwide, and that it need not be as confusing as most people think it is after taking their required introductory class.  I hope to explain to a non-technical audience what to make of some of the most commonly-used statistical arguments in policy discussion.  I might even decide, one day, to post about the dreaded correlation vs. causation problem, about which it is quite difficult to find any well-informed discussion anywhere on the internet.  But that’s certainly another post for another day.


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