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Junk Statistical Analysis, Luck, Superstition and Coincidence

Multi-millionaire Motivational Speaker Dean Graziosi Shares His Appraisal Wisdom

October 4, 2015 | 4:40 pm | irslogo | Favorites |


Over the past few days I’ve been sent this blog post by a number of real estate appraisers who are upset with its derogatory reference to our profession. It was written by Dean Graziosi in the Huffington Post guest blogger section. I’ve never heard of him but perhaps that’s because I’m not a real estate agent. If you insert the word “scam” in your google search, there are a lot of additional insights that come up.

His Huffpost bio and web site indicates he is a NY Times Best Selling Author along with one of the top personal motivation and real estate trainers in the world. I also learned from his bio that he is a multi-millionaire, a guru in the personal motivation sector and cares deeply about his students. Translation: He basically teaches real estate agents how to sell.


Good. While it’s not my thing, I’m happy for Dean’s success (notice how his watch is strategically placed within his Facebook head shot as an indirect confirmation of his success) assuming no one was hurt. However as a public figure (as indicated on his Facebook page with 340K+ likes), Dean has a responsibility to convey information accurately to his students if he does indeed care.

While I doubt he wrote it it personally, his brand handlers managed to mischaracterize two key issues in a small blog post on HuffPost:

  1. Graziosi frames the current housing market as equal to the bubble’s peak but doesn’t accurately describe what that means.
  2. Graziosi frames the real estate appraiser as something other than a real estate professional while the real estate agent is a professional.

1. Housing Market

Graziosi cites the FHFA trend line as breaking even with the 2006 peak. Yes, based on FHFA methodology that’s certainly true and taken directly from the most recent FHFA report. I do feel the need to split hairs here since his “brushstroke style” of simplifying everything misaligns with reality. He says:

First, and most important, it requires repeat sales of homes, so if there aren’t huge numbers of sales, then we’re looking at a number derived from a small set of sales data. So, we’re not necessarily seeing an excited bunch of buyers flocking to the market. We are seeing a whole lot of homeowners who aren’t selling, waiting for rising values. So, we have a small inventory and competition for it.

The problem here is that there are a lot of sales outside of FHFA data – and FHFA only tracks mortgages that go through Fannie and Freddie. Roughly 30% of home sales are cash and another 5-10% of them are jumbo loans, too large to be purchased by the former GSEs – so they don’t get included. FHFA also excludes new construction.


The Case Shiller index is also a repeat sales index like FHFA but shows a different price point for the current market because it includes transactions outside of the GSE world.


If we look at the number of sales, which is the key point he makes, sales activity is low because we’re not necessarily seeing an excited bunch of buyers flocking to the market. But in reality, home sales are not low and they have been rising for 4 years. Of course sales are not at pre-crash highs because those highs were created largely by fraudulent lending practices including the unethical behavior of consumers caught up in the systemic breakdown that included nearly all particpants in the mortgage process.


Graziosi is right that inventory is low, but not because buyers aren’t flocking to the market – many buyers are being held back credit access has over-corrected. Many homeowners can’t qualify for the next purchase so there is no point of listing their home for sale.


Conclusion – we are not at the pre-Lehman market peak unless you only look through the eyes off FHFA, a distorted subset of the overall housing market. I would think that real estate gurus understand this.

2. Appraisal Industry

Let’s move on to the real reason I am writing this post.

I can ignore Graziosi’s “lite” market commentary but I can’t ignore his misunderstanding of the appraiser’s role in the purchase mortgage process (buyers applying for a mortgage to purchase a home.)

Don’t call an appraiser, as their approach to market value is different than that of a real estate professional. The real estate agent is trying to get you a sold price near to the top of the market, and their CMA, Comparative Market Analysis, is going to give you a pretty good idea of its value.

There is so much to talk about within these two sentences I’m not sure where to begin. It’s mindbogglingly simplistic, misleading and uninformed. Perhaps this is how he makes his students motivated?

Lets go for the big point first:

“Don’t call an appraiser, as their approach to market value is different than that of a real estate professional.” He must be thinking along the lines of the IRS definition, which is

To meet the IRS requirements, you need two things: spend the majority of your working time spent performing qualified real estate activities (regardless of what you do), and rack up at least 750 hours. Qualified activities include “develop, redevelop, construct, reconstruct, acquire, convert, rent, operate, manage, lease or sell” real estate.

Nary an appraisal-related definition within that list.

The problem with Graziosi’s communication skills as a best selling author and nationally renowned real estate guru who gives seminars for a living to communicate to his students (agents) how to succeed is – if we (appraisers) are not “real estate professionals” then it is a hop, skip and a jump to suggest we are “unprofessional” as if appraisers are something less than a real estate agent. Ask any consumer if they hold real estate agents in higher regard than real estate appraisers? In my view both industries don’t have sterling legacies but one isn’t more professional than another. Remember that he is used to speaking to his students who are real estate agents, the kind that sign up for this type of course. Promote BPOs and help agents get more listings – has got to be his recurring mantra.

The second issue with his quote concerning an appraiser’s value opinions – “their approach to market value is different” than a real estate agent. Providing an opinion of market value is likely the intention of both. Most real estate agents are hoping to get the listing and the appraiser is not incentivized by the home’s future sale. The agent may be the most knowledgeable person in the local market but there is an inherent potential conflict. Graziosi suggests that the broker will give you a price you want to hear. However I do like his idea of getting three broker opinions – that’s a very common practice – nothing new there. Ironically both an agent and an appraiser are looking at closed sales, contracts and listings but the appraiser doesn’t have an inherent conflict. They aren’t going to get the listing no matter how accurate their value opinion proves to be.

One problem with today’s appraiser stereotype as this column brings out indirectly, is that bank appraisers now generally work for appraisal management companies (probably about 90%) and the best appraisers tend to avoid or perform minimal AMC work because they can’t work for half the market rate. As a result, good appraisers aren’t necessarily known as well by the brokerage community as in years passed unless they get in front of the brokerage community in other ways, like giving seminars, public speaking, etc. Competent brokers within a market will know who the competent appraisers are.

There are unprofessional professionals in every industry – doctors, lawyers, deepwater diving arc welders and farmers, so please don’t make sweeping pronouncements to the contrary – especially if you are in the business of communicating information to “real estate professionals”.


The real estate appraisal industry is not unprofessional
IRS definition aside, real estate appraisers are real estate professionals

As I’ve walked through this response, I realized that the silly advice blog post in the Huffington Post by an infomercial guy did what it intended, stir up conversations of any type to get his name out there when his actual content was devoid of useful information. There is a great post I stumbled on the industry of motivational speakers: Real Estate B.S. Artist Detection Checklist. Worth a read.

Looks like I’m never going to be a multi-millionaire wearing a huge watch strategically placed in my head shot. If you notice my own head shot in the righthand column, my watch is very small.


UPDATE From the I have no idea for whom the appraisal is being performed but I am a 20+ year real estate professional (see definition above) department: Here’s an article from the Santa Fe New Mexican “Be cautious of appraisals” that damns appraisers using a stunning lack of understanding of the appraiser’s role in the mortgage process given his experience. This piece was written by a mortgage broker who was also a former financial consultant and real estate agent. The author states:

Everyone in every business falls under some measure of accountability. Certainly appraisers must also be accountable to their customer. The customer is the homeowner, not the AMC.

No it isn’t.

The appraiser’s client in the mortgage appraisal situation you describe is not the homeowner. The AMC is acting as an agent for the lender in order to for the lender to make an informed decision on the collateral (of course that’s only a concept). The appraiser is working for the AMC (who works for the lender) and not for your homeowner. Your logic from the housing bubble still sits with you today.

Yes I agree that the quality of AMC appraisals for banks generally stinks, but blame the banks for that, not the appraisers. Quality issues don’t change who the appraiser is working for. AMCs do internal reviews and make ‘good’ appraiser’s lives a living hell for half the prevailing market rate loaded with silly review questions by 19 year olds chewing gum to justify their own institution’s reason for existence. No wonder you are frustrated with appraisers from AMCs. ‘Good’ appraisal firms like mine avoid working for AMCs whenever possible. Yes I would be frustrated as a mortgage broker today because your industry got used to using appraisers as “deal enablers” during the bubble and nothing more. I contend that the current mortgage process post-Dodd Frank is clearly terrible and AMCs are a big part of the problem.

ASIDE This new era of online journalism for print stalwarts like the “Santa Fe New Mexican” and new versions like the “HuffPost” rely on filler-like the above 2 articles discussed here. Very sad.

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[Three Cents Worth #281 NY] 6 Graphs That Prove New York Real Estate’s Love of Mondays

May 16, 2015 | 9:10 pm | curbed | Charts |

It’s time to share my Three Cents Worth (3CW) on Curbed NY, at the intersection of neighborhood and real estate in the capital of the world…and I’m here to take measurements.

Check out my 3CW column on @CurbedNY:

After covering more serious topics as of late, this week I thought I’d lighten things up and look at New York city’s signed contracts by day of the week. I used the roughly 2,000 contract dates I had for the closed sales in Q1 of 2015, as used in the Elliman Report for that time period, and parsed out the market by day of the week. Strategically, there is probably nothing to be learned from this exercise, but hey, it’s an angle I’ve never examined before…

[click to expand chart]

My latest Three Cents Worth column on Curbed: Three Cents Worth: 6 Graphs That Prove New York Real Estate’s Love of Mondays [Curbed]

Three Cents Worth Archive Curbed NY
Three Cents Worth Archive Curbed DC
Three Cents Worth Archive Curbed Miami
Three Cents Worth Archive Curbed Hamptons

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Bloomberg View Column: Housing’s Misleading Health Indicator

November 30, 2014 | 11:00 am | BloombergViewlogoGray | Charts |


Read my latest Bloomberg View column Housing’s Misleading Health Indicator. Please join the conversation over at Bloomberg View. Here’s an excerpt…

The National Association of Realtors will release its monthly U.S. existing home sales report tomorrow. Among other things, the report includes what’s known as the absorption rate, or how many months it would take to sell all inventory at the current sales pace. This report and the media coverage around it will inevitably provide the well-worn insight that when the rate is less than six months, housing is “healthy”…

[read more]

My Bloomberg View Column Directory

My Bloomberg View RSS feed.

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Status Quo Bias: ‘Linear” Thinking in the Real Estate Industry

June 8, 2014 | 8:09 pm |


When we look at forecasting, planning, trending or anything that includes a look out over the future, I find the real estate industry (i.e. appraisers, real estate agents & brokers) generally thinks along linear lines.

For example:

  • When housing prices rise…they will rise forever.
  • When housing prices fall…they will fall forever.
  • When sales activity rises…they will rise for ever.
  • When inventory falls…it will fall forever.
  • When rental prices rise…they will rise forever.

…and so on.

Where does this status quo bias come from?

I don’t think this bias only specific to the real estate industry – but I describe it through the industry only because it simply happens to be my area of focus. I do find that real estate professionals can be quite disconnected from the mindset of their clients when the market is at extreme points in the trend i.e. peak and trough.

For example, in the dark days following the Lehman Brothers bankruptcy, I was giving a speech to a large group of New York real estate agents in October of 2008. Roughly a dozen agents approached me before and after my presentation saying they were getting offers on their listings at roughly 30% below ask, characterizing the offers as “lowball.” It was quite amazing to hear all the agents use a similar characterization of the post-Lehman market. Of course when nearly all buyers are behaving in the same manner, that becomes the new market condition.

Towards the end of 2008, I found that New York real estate agents rapidly changed their view on the market as sales contract activity fell by 75% YoY. The real estate agent disconnect with the consumer was evident by the early spring of 2009 when it was apparent that buyers were not as negative in their outlook of the coming real estate year as the typical agent was. Needless to say that the market did see a significant rebound over the following year and the consumers were ultimately right.

My takeaway from all of this is never to get too comfortable with a trend. Although we like to say “the trend is your friend,” it is only your friend “until it ends.”

I would think this “status quo bias” behavior manifests itself more strongly in professions that are sales commission heavy, i.e. where commission incentives and generally over-the-top positive thinking are the norm and the agent tries to feel like they have some control over the impact of the market on their livelihood.

Of course the real estate market could care less what anyone thinks.

I was away last week, invited by the US Army to participate in a seminar at the US Army War College in Carlisle Pennsylvania after they heard me give a speech about the evolution of our company. Last week was a complete strategic immersion at the college and frankly I didn’t think a whole lot about the housing market or social media. I met an impressive group of accomplished military veterans who are furthering their careers. I also got to meet civilians like me from around the country that were also invited to participate. I gained invaluable strategic insights and friendships from this event that have made a real impact on me and how I interpret information that is presented to me.

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Pulling the Case-Shiller Index Back by 6 Months to Reflect Actual Buyer/Seller Behavior

May 27, 2014 | 10:45 pm | Charts |

[click to expand]

The Case Shiller Index was released today and it continued to confuse consumers, pundits, economists etc…and for good reason. It’s 6 months late.

I wondered what would happen if their index result was pulled back by 6 months to see how it lined up with a couple of significant housing milestones (purple vertical lines). The most recent housing milestone was last year’s Bernanke speech that resulted in the spike in mortgage rates in May-June of 2013.

In the modified trend line (dotted blue) housing prices surge up until mortgage rates spike. This is clearly more logical than the actual index showing housing prices surging for six months after the mortgage rate spike.

In the earlier milestone in April 2010, the adjusted index (dotted blue line) immediately begins to slide after the April 2010 signed contract deadline passed to qualify for the federal homeowner tax credit as part of the stimulus plan. Yes, that’s exactly what happened on the front lines.

I’m going to call this new methodology “time-shifting a housing index.” From an historical perspective, this is a much more useful and reliable trend line. For the near term, it places the CS HP 6 months behind the market without any relevance to current conditions. Then again, the S&P/Case Shiller Home Price Index was never meant to be a monthly housing indicator for consumers as it is currently used by the media. It was originally created to enable Wall Street to hedge housing but never caught on because of the long time lag and therefore the eventual ability of investors to accurately predict the results.

The top chart is fairly self-explanatory but here’s the math again:

  • May 2014 Report Publication Date
  • March 2014 Data (Jan, Feb, March Closings – February is midpoint)
  • January 2014 Contracts (Nov, Dec, Jan Contracts – December is midpoint)

Contracts Assumes 90 days between closing date and “meeting of minds” between buyer and seller i.e. 75 days from contract to close +15 days to signed contract from “meeting of minds.”

“Meeting of Minds” Moment when buyer and seller agree on basic price and terms, usually a few weeks before contract is actually signed i.e. May 2014 Case Shiller Report = December 2013. The optimal moment to measure housing.

Here’s a regular chart that has a longer timeline, with and without seasonal adjustments (you can see that seasonal adjustments are essentially meaningless.)


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Stories on Chinese Overtaking Russian Home Buyers in Manhattan is Purely Anecdotal

May 4, 2014 | 4:21 pm |


I’m not saying the US isn’t seeing an uptick in buyers from China, especially housing markets such as Manhattan. After all, there is a global trend where money is chasing stability and safety. US real estate has been a key beneficiary of this trend.

However it is important to realize that there is no US data from independent sources that links overseas nationalities with residential real estate purchases. Why?…because of long time concerns in the US about fair housing laws and by extension, the gray area of tracking nationalities to housing purchases although it is the norm outside the US.

When any housing trend is discussed, it is important to understand where the source of the trend came from. I’d really like housing market followers to appreciate that the trend analysis on the foreign buyer subject bantered in the media as of late is literally based on nothing. There has been an outpouring of coverage of the topic over the past few months, but the sourcing is only from real estate brokerage anecdotes because that is all there is for reporters to work with. I was interviewed for some of the following articles but disagreed with the general story premise, and I assume that is why my view wasn’t inserted.

Whichever stance you take on this particular trend – that Russians used to dominate the Manhattan housing market and how the Chinese have taken their place at the top – there really is no wrong answer, because there are no facts. All sourcing on the topic to make that point are from real estate agents referring to their opinion, often based on their past few transactions.

I first noticed this new new storyline when Russia invaded Crimea. Would the Russian position as the number 1 foreign buyer of real estate in Manhattan now go away? The brokerage community, or at least a couple of real estate agents claimed this to be the case.

I have no evidence to the contrary even though there are huge capital outflows from Russia that began with the Russian invasion of Crimea. In my view, the real estate agents were confused by the high profile sales by Russian buyers (think of Russian Oligarch buying 15 Central Park west for $88M) and perhaps has some direct feedback in some of their own transactions. However I don’t think Russians were ever the top homebuyers in Manhattan, just the highest profile.

If we have learned anything from the current Manhattan new development boom, it is the fact that high profile, high end transactions are not a proxy for the balance of the market much like a handful of high profile Russian purchases are not a proxy for some sort of Russian real estate dominance.

Manhattan Real Estate Feels a Russian Chill [NYTimes]

Now that the Russians are “out” (see previous) of the top spot, that must mean that the Chinese are “in.” Check out the headlines to this storyline although much of these articles build on the Reuters piece (linked below) which is based on real estate agent anecdotes. A slew of brokerage PR driven stories on the Chinese are now dominating the real estate headlines in New York City.

Perhaps this uptick as something to do with recent closings at well published Chinese buyer favorites like One57 and perhaps the fact that China is poised to become the world’s number 1 economy.

NY real estate firms woo Chinese buyers [China Daily] The Chinese take Manhattan: replace Russians as top apartment buyers [Reuters]


Who are the dominating the foreign buyers of Manhattan real estate?
Anecdotally I think it remains Canadians but is dominated by Europe (UK, France, Germany, Italy, Spain, Ireland, etc combined) because they are still the largest tourism group. Brazil doesn’t get enough respect since they are the 3rd highest source of tourism to NYC. This list is 2 years old but I doubt China has passed Europe or even come close but this is, shall I say, “anecdotal.”

From NYC & CO., here are New York City’s top international sources (2012 figures):

  1. Canada 1,063,000
  2. United Kingdom 1,033,000
  3. Brazil 806,000
  4. France 667,000
  5. Germany 605,000
  6. Australia 595,000
  7. PR China (excl. Hong Kong) 541,000
  8. All Middle East (incl. Israel) 478,000
  9. Italy 449,000
  10. Mexico 387,000
  11. Eastern Europe 384,0000
  12. Spain 380,000
  13. Japan 328,000
  14. South Korea 281,000
  15. Argentina 272,000
  16. Ireland 224,000
  17. India 215,000
  18. Israel 203,000
  19. Netherlands 203,000
  20. Sweden 190,000

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Canadian Housing Prices Now Pushed Up Same Way as US

May 4, 2014 | 1:28 pm |


I was reading Tara Perkin’s piece in The Globe and Mail about the record price spread between the US and Canadian housing markets and saw one of the most startling housing charts of late (above). To be clear, this chart doesn’t adjust for the exchange rate but the article says the Canadian/US existing home price spread would be large – closer to 50% than 66% – still huge.

The article cites Bank of Montreal’s chief economist Doug Porter as saying:

“The main takeaway is that, contrary to all expectations, the Canadian housing market has just kept on rolling in 2014 even as the U.S. housing market has paused for breath (after a steep climb out of the dungeon),” he writes in a research note. “Put it this way, how many pundits a year ago were calling for Canadian home prices to rise faster than their U.S. counterparts in any single measure?”

Yes, true, but this is probably another good reason not to rely on anything published by a lender’s “chief economist” title due to their inherent bias toward the interests of their employer. What I find fascinating about the Canadian housing market is the proliferation of the false rationale that prices are being used as a measure of housing health. For the US counterpart, think Miami and Las Vegas circa 2005 when prices were skyrocketing and sales were falling.

The Canadian government tightened credit conditions a year ago and sales fell sharply:

This time last year it was far from clear when and if the Canadian housing market would emerge from the sales slump that ensued after former Finance Minister Jim Flaherty tightened the country’s mortgage insurance rules.

Focus on March 2014 v. March 2012 in the following chart:

With Canadian home buyer’s access to credit now reigned in, sales fell sharply yet housing prices continued to rise. But Canadian housing prices are rising now much like they are in the US, based on restricted access to credit that keeps inventory off the market. And we’re not talking about household debt.

New housing inventory entering the market in Canada is now falling which is continuing to goose (sorry, Canadian geese pun) prices higher.


The Greater Fool Theory Applies to the Canadian Housing Market

A theory that states it is possible to make money by buying securities, whether overvalued or not, and later selling them at a profit because there will always be someone (a bigger or greater fool) who is willing to pay the higher price.

Of course from our past experience in the US, it’s not surprising to see every outpouring of Canadian housing market bubble concern met with an equal outpouring of Canadian housing bubble denial.

Please stop using housing prices as a measure of housing health. It was obviously flawed logic when applied in the US during 2003-2006 and now it has become apparent it was flawed during the 2012 to 2013 US run up.

Housing price growth doesn’t reflect good housing market health in Canada either.

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It’s St. Joseph’s Day – What Does It Tell Us About Housing Trends?

March 19, 2014 | 11:16 am | wsjlogo |

[Source: WSJ]

Last week I can across Sanette Tanaka’s WSJ column “Spreadsheet” titled “Bless Our Happy Home Sale” that talked about the tradition regarding St. Joseph. I waited to blog about it until today since March 19th is actually St. Joseph’s Day (BTW: who is getting any work done this week with 3/17 St Patrick’s, 3/18 March Madness brackets and now this?).

I love the phrase within the WSJ graphic: “Faith in Action.”

I previously wrote about this here in September 2005 and in October 2007.

Traditionally, Joseph, the husband of Mary, is hailed as the patron saint of home and family. Some believe that burying a statue of St. Joseph in the yard helps sell a house.

Here’s how it the process works when selling your home:

  1. Bury the St. Joseph statue upside-down in your yard, facing toward the house listed for sale.

  2. Sell the house.

  3. The Seller digs up the statue and puts it in the new home in a special place.

The last 4 years of statue sales show a pattern consistent with NAR’s existing home sale pattern with the housing market rebound beginning in 2011.

Who says housing trend analysis is devoid of emotion. Got it?

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