Déjà Vu All Over Again

My passion is blue water sailing.  In order to navigate effectively, one needs to monitor the wind and, in close quarters and docking, the ebb and flow of the tide.  It occurred to me recently that many professions, particularly service professions like mine and perhaps yours, need to stay abreast of “how the wind is blowing” and also the “ebb and flow of the tide” metaphorically speaking, about the ups and downs of business.

The real estate market clearly ebbs and flows.  Furthermore, we often put our proverbial finger in the air and figure out from time to time which way the wind is blowing.

The federal government has proclaimed that we are out of the recession.  Somehow the statistics of how this is measured don’t leave me  warm and fuzzy.  Banks have yet to return to any normal levels of lending due in large part to a lack of demand (with the possible exception of multifamily housing), and the general sense of things seems to be “…it’s better, but not by much.”  A few thoughts about that:

  • The wind’s not blowing much at all.  Using the sailing metaphor, it’s really nice to experience 15-to-20 knot winds pushing you in the right direction with calm seas and  bright sunshine.  When the wind is not blowing, you need to fire up another energy system – the diesel.  It’s amazing what the diesel engine can do in place of the energy provided by the wind, kind of reminds me of what $85 billion per month can do to the economy when nothing else is really going on.  Nice to have it, but it’s costly, not nearly as efficient as the wind, and certainly not nearly as enjoyable.  The wind’s barely blowing, it has picked up a little but not much.
  • In shallow waters, it is absolutely critical that you pay attention to the tides and understand that high tide will provide you a safety margin while low tide is fraught with running aground and other unpleasant experiences.  Where are we in this business cycle?  Are we near high tide or a rising tide where there is plenty of safety and cushion under the keel, or are we more like a low tide situation where we need to proceed with absolute caution, be vigilant and pick our way through the situation?  As we all know, it doesn’t take an astute business person to figure this one out.  We are presumably riding along a rising tide still aware that catastrophe could strike if we are not vigilant, well-prepared, and paying attention to the obstacles in our way.

I’ve had some fun  with this sailing analogy, and frankly it occurred to me the other day while reviewing the company numbers.  Appraisal volume and fees are down.  This is the inspiration for the déjà vu all over again.  This has happened no less than three other business cycles in my 40-year appraising and consulting career, whereby retrenching of the business and movement towards better times was preceded by a growing attitude among businesses that appraisals are no more than “file stuffers.”  Interestingly, this phenomenon almost always is the forbearer of better times followed by the inevitable recession at the end of the seven to 10 year cycle.  Yes, times will get better, in all likelihood at a much slower pace this time.  We will ease our way out of this recession, and then seven to 10 years from now we will find or create another disastrous scheme that will expose our human failings once again.  In the meantime, we should expect to see some spikes of prosperity, survival of the fittest, and all those other clichés that often define a real estate recovery.  However, suffice it to say, sitting at the desk of some first year MBA school is a bright young student figuring out the next scheme that will once again tilt the balance of equity and debt in an untenable position as it relates to real estate. (CMBS 2020?)

Where are we in the cycle?  We’re moving forward.  We’re not exactly accelerating out of this recession; in fact, due largely to weak job growth and confidence issues in government, we’re tip-toeing.  Maybe this is good, maybe not – time will tell.  The good news is, the tide is rising and will likely pick up.  Times will be better.  How do I know this?  Once again, as I mentioned, our volume and average fee has dropped.  This seems to always be a precursor to better times, clearer skies and better sailing.

Thomas B. Harris, Jr., MAICRE®, FRICS