Why is it impossible for anyone – REALTORS, banks, media or economists – to accurately describe what is going on in the marketplace? If buyers are going to feel confident about moving back into the market, we should expect all of these groups to be providing clear, verifiable market facts that back up the “best time to buy” sloganism thrown at consumers. Yet most of the punditry has left consumers – especially skeptical Gen X’ers and impressionable Gen Y’ers – more confused than ever. And with a few trillion extra dollars sloshing around the economy and gas prices already moving higher nationwide, time is running out to make the clear-minded case that, by next year, real estate will be back to a “bad” investment once inflation roars back. Subtract the free-Federal-money for first-timers and add in a few million FHA loans that are about to default, and we’re actually on the verge of destroying the near-historic affordability levels once again.
Instead we’re left with “pay no attention to the man behind the curtain” proclamations from questionable analysts, partial data, a local appraiser and a journalist. We’d probably be better assessing market conditions with a Barney-Frank-roll-of-the-dice.
Take, for example, this article from the Wall Street Journal, entitled “April Drop in Listings for Homes,” whose timing coincides with the National Association of REALTORS’s MidYear convention in Washington, D.C. Anyone who thinks that words still have meaning cannot possibly read this article and decide whether it means good news or bad news for housing. For example, the first two sentences are:
The number of homes listed for sale in many U.S. cities continued to fall in April in what some analysts see as a sign that the market may be nearing a bottom. But the picture is clouded by uncertainty over how many foreclosed properties will hit the market.
To normal human beings, these two sentences basically mean that the writer of the article doesn’t have a story. He has some facts that are being thrown on the wall to see what will stick. Either home inventory fell, or it didn’t, right? Wrong: In a world of half-truths and data-manipulation, the housing market is warming or cooling faster than the ozone layer. Homes listed by REALTORS seem to be fewer, which is where the data from the article comes from. But consumers can buy any home, including those listed by banks, for-sale-by-owner and government departments, like HUD. So inventory may actually be up – way, way up – in the most distressed markets of the country where shadow inventory isn’t represented by a REALTOR.
So the market has actually ……… who knows?
The doublespeak continues, with inestimable data piled on next: “Fannie Mae and Freddie Mac, among the biggest owners of foreclosed homes, typically have only about 35% to 50% of those homes listed for sale at any given time, according to industry estimates.” How many is that? If Fannie Mae only has 1000 foreclosed homes, then 350-500 of them on the market isn’t a problem, is it? Unless the Government Sponsored Entities actually own a million foreclosed homes, which means the real fun hasn’t even started, with or without improvements in REALTOR-listed inventory.
Well, maybe a chart will clear it up, right? Don’t count on it. Here’s the WSJ’s best stab at plotting data provided by ZipRealty:
Now, your guess is as good as mine, but I can think of at least three different conclusions that can be had from this data.
- REALTORS still do not know how to price property correctly (or maintain current-to-market pricing) since almost every market shows a 40%-plus price drop from the previous month (green column). Clearly, homes are still overpriced, even if inventory is falling. That’s not the sign of a bottom.
- Seven of the twenty-three markets in the chart have RISING inventory. That’s nearly a third of the data. So can we really claim that home inventory is falling “nationwide” when seven of the largest cities – Philadelphia, Dallas, Boston, Chicago – still have increasing supplies of homes?
- Has anyone ever heard of New York city? Apparently it did not occur to anyone that omitting data from the biggest housing market in the country would be spotted by readers. The last sentence of the article does quote an obscure appraisal firm on New York City inventory. And we call that reliable data?
None of this means that housing inventory isn’t falling. Nor does it address the “impact” of that decrease in inventory on prices, because no data provided on the rate of sales in the same markets.
Without actual sales data, or sold pricing trends, inventory data is pretty much meaningless. It’s like saying that because there are less apples at the grocer’s today, things are improving in the apple business, when in fact, the reason there are less apples on display today is that they were all rotten yesterday. The storekeeper threw them out to reduce his inventory; he didn’t sell them. Similarly, one could argue that, without sold data, the decreases in inventory may have come from homes leaving the market un-sold.
Those are called “expired listings.” Expired listings aren’t a sign of economic activity or price improvement. In fact, they are a sign of further capital and labor destruction, an economic downturn, as months of advertising, labor and broker dollars spent on “contingency” of a sale have simply disappeared into uncompensated thin air.
The inventory left the market; but it didn’t do so in exchange for a profit.
Finally, when an article quotes Thomas Lawler, a former SVP for risk policy at Fannie Mae who left in 2006 and a critic of the Case-Schiller reporting methodology, any conclusions must be questioned. Mr. Lawler may, in fact, be right; but it’s hard to take his conclusions seriously, calling a bottom to the market based upon inventory changes in barely two-thirds of twenty-three cities in America.
Most consumers would do better with a crystal ball.
Unfortunately, REALTORS prefer prognostications to even crystal balls. This article has already made its way through the real estate blogosphere, been posted on countless agent Facebook walls and twittered and tweeted into the mindless void to thousands of consumers. Real estate agents are already waving this headline all over the web, with few examples of interpretation or relevancy. NAR simply slapped it up on their “news” page, without their own economist weighing in. Once again, the industry has been left it up to consumers (who have added their comments to the WSJ page) to point out the article’s inconsistencies. The real estate industry has outsourced its credibility to a brokerage iwth partial-market data, a former Fannie Mae risk analyst and a New York City appraiser.
All that’s missing is a quote from Chris Dodd or Countrywide.
Which leaves us with the question we started with at the beginning. How comes there are so few clear answers about the housing industry, from the housing industry? If the real estate industry wants to gain the trust of the next generation of buyers, if they want to sound credible talking to sellers about realistic pricing strategies, and most importantly, if they want to forestall the day when consumers equate the brokerage industry with psychic readers, it’s these headlines of false success it has to worry about first.