Matthew Ferrara, Philosopher

There is No Housing Market

In the movie the Matrix, Keano Reeves’ character is seeking the truth. When he encounters a prodigy apparently bending a spoon with his mind, he is told, “Don’t try to bend the spoon: That’s impossible. Instead, only try to realize the truth: There is no spoon.” Could this be the advice real estate agents need to explain to their customers?

If there is no spoon, then there is no housing market. At least, not in the way we talk about it in popular media and conversation. We hear people ask, “How’s the market?” and the only rational answer is, “Which market?” Yet this simple necessity has been consistently overlooked by too many people with too much access to a worried public. In a classic mistake of media-meets-mania, we’ve packed a complex economic analysis into soundbite-sized charts and indices.

All of which are wrong.

Most REALTORS are trained in the following truism: “All real estate is local.” Either that’s a trite cliche, or it’s a useful shorthand for the proper way to measure the fragmented, loose patchwork of local housing markets that matter to individual . Assuming the REALTORS are right, then the media, and its popular eggheads, are wrong.

If the real estate industry is right, then “nothing” dropped 27% in July.

Like the spoon, there is no national housing market. Not, economically speaking. Not in the same measurable sense that we think of other sectors of the economy. Simply adding up different local market trends doesn’t create a homogenous sector on a national level. Yet that’s what most of the measurements we use to report market movements actually do.

But it doesn’t work because the products (houses) are infinitely variable in shape, size, location, feature and price. The production methods (, marketing, selling) used by different companies in different states varies as much. There’s no “McDonalds School” of real estate anything – building, , selling, servicing or profiting. Every local real estate market combines a a motley crew of consistency, accuracy and efficiency in buyers, sellers and REALTORS. It’s like trying to aggregate the the performance of local “yard sales” into a “national” industry.


And meaningless. Even consistently measurable factors such as unit availability, consumer demographics, income levels, taxation zones, school performance and unemployment rates are so different every ten miles or so that discussing it on a national scale is senseless. (In fact, the process of selling property varies so significantly by agent within the same company, it could be argued that housing markets are so small, they should be measured on a per-agent basis. For our purposes here, we need not go that far.)

We can say that any national claims that the “housing market” is rising or falling or anything is intellectually impossible.

What, then, do all those charts and graphs we see in the media measure? Analytically speaking: nothing. The adding-up of local sales units or prices, then comparing it to the month or quarter before, doesn’t constitute a national trend. That’s why the same media outlets report housing falling somewhere at the top of their page, while noting prices soaring elsewhere at the bottom of the page.
The simple fact is that unlike other product or service markets, housing isn’t produced or traded nationally. Most buyers move about 12 miles from their previous home. A tiny fraction relocates nationally. Competition isn’t national either. Boston sellers do not compete with Miami sellers when setting the price or terms of their home. Nor do Charlotte buyers consider what Los Angeles buyers are offering today.

Worse, the use of housing as an economic “indicator” is tenous, at best. Try to find an textbook that includes housing as a measurement tool. Money supply, inflation rates, unemployment levels, taxation rates, even “price indices” of homogenous commodities are useful. Gasoline, milk, the Big Mac index.

But a “housing index” is as absurd as a “wristwatch index.”

This analytical mistake also leads to economic policy mistakes. It’s chicken-and-egg thinking to claim that the mathematical aggregate (increasing or decreasing) of local housing consumption drives the national economy in the same direction. Housing doesn’t drive economic activity; economic activity drives housing purchases. A recovery won’t happen if people stary buying more homes; the economy needs to recover before people can start buying more homes.

Talking about the housing market as if it were a single, homogenous industrial sector – and reporting its aggregate increases and decreases – is not only inaccurate. It’s dangerous, especially in a recession of today’s duration and depth. Misapplying aggregate market performance as an guide to local behavior can cause an already worried consumer to lose confidence, question spending and delay consumption – in otherwise healthy local markets. REALTORS need to take their own advice, and help consumers find the truth: There is no spoon.

  • Bravo! BRAVO! Condos? Single Family Homes? Multi-family homes? Inside 128? Between 128 and 495? West of 495 though Worcester county? Investor markets? Owner occupied markets? Market timing is dangerous, financial advisors will tell you that. Sell if you need to move, buy if it makes sense to do so. Past reports of housing performance is NOT an indication of future expectations. Do it when it feels right.

  • Interesting perspective. What you said, plus remembering that broadcast media is a business. Their Headlines and stories are written like we might choose a blog title, or the title for new movie, all designed to create attention, attract viewers, and the va-va-voom, sell ads.

    What’s really happening, “reality”, or “balance”, or “insight”, is NOT part of the “How To Attract Attention & Rubber Neck Viewers (pending doom & cataclysm)”, then sell ads,formula.

    Thanks for sharing your thoughts, good stuff.

  • Great post, Matthew. Intelligent, articulate and informative. Yet, I totally disagree. We should debate this issue in a public forum (something like the Strategy Salon). It would be a great session!!

  • Lynn Desmond

    Matthew this is the best article you ever wrote! It is so right!

  • Anonymous

    It would be fun!

  • John Callahan

    Matt , all great stuff, especially the Aug 3 “Home Buyers Need to get Over It”. My frustration with buyers is the never ending question of “How much will this property appreciate in 2-5 years! The days of a family owning a house 20- 75 years.pasing it on to the next generation and seeing a significant appreciation are gone. Yet, the mindset of huge appreciations in just a few years of ownership persisits. We Realtors need to send a new message. Buy a place, own it for 2-5 years, realize the tax advantage every year VS. renting, sell it, and move on!

  • Some people still think of housing as “forced savings” – which is equally ridiculous when you factor in the INTEREST paid on their mortgage (and let’s not fool ourselves about it being tax deductible…because it’s our money to begin with… ) ;>

  • Recently I watch Gary Keller’s vision speech given earlier this year. He told the audience full of Realtors that when you are asked “how’s the market”, to simply reply, “why do you ask?” Imagine, only sharing the details on the market, the area, etc, with just those that are truly interested in utilizing and benefiting from your knowledge and services. Instead of those people who know you’re you sell real estate and want to see if you’re doing is crappy as the TV tells them you should be, given the current “market”. Each day there are lots of houses that sell, the key is to be the one in your area, wherever that is that is who is called on to help with those transactions.

    Michelle Spalding

  • Sam Ruta

    I always thought that there were at least some quasi scientific standards in Real Estate. I use to spout off that pricing of real estate was an “art” not emperical. After reading your blog, I am not sure I can reasonably expect to have any historical precedence for giving any reasonable answer to a consumer who might ask the “market question”.Your blog strikes me as condescending or at least incomplete in providing some clear cut guidance.

  • Sean Carpenter

    As the Tin Man said in The Wizard of Oz, “It’s going to get darker before it gets brighter.” We can look at everything we want but until we look into the mirror, we’ll never see the moster we must deal with.

    IBlame not the Sellers or the Buyers but look to the lenders, the appraisers and yes, the Realtors. Although it was before my time but i understand that the comic Pogo had it stated very well, “We have met the enemy and he is us.”

    Let’s see how we react to the pitches the market has thrown us.

  • Sam: Thank for your comments. I’d say there is plenty of historical precedence for answering how the market is – within a well-defined geographical and other-market forces area. My point is that to say the “market” is “nationally” doing something – the way we see it in news headlines – is inaccurate and meaningless. A good agent should be able to tell a seller or buyer how “the market” is that DIRECTLY relates to the recent and near-historical sales, offers and demand for homes in their specific geography, without worrying whether the “aggregate” of similar home sales 1900 miles away in another city in another state under different tax and economic conditions is rising or falling.

  • Sean: A very good point. There is some responsibility amongst REALTORS in this mis-analysis. Look at NAR’s Pending Sales Index – it treats the nation too broadly and all we get is “up/down” directional soundbites. In the same month the PHSI is “down” for the country, I meet agents in a workshop who are having a terrific year, writing more contracts than ever….

    I think the real problem is that too many in the industry – and observers/reporters on the industry – don’t understand how to analyze economic data. As a result, we make quasi-economic pronouncements that consumers simply “believe” because it’s on the news every 15 minutes all day long…. and if we’re wrong, it’s a disaster.

  • Steve interesting observation, what do you base this statement on ? Or is this as the previous writer Ken Brand just a way to get headlines ?

  • Brad Higginbotham

    The national news stories should actually cause prospective Buyers and Sellers to hear the proverbial bell ringing in the real estate marketplace. This is when you adjust, if needed, and buy, if you can. Values have adjusted in most markets, interest rates are at a practical zero (factoring in inflation), and this is when you set yourself up to make the next equity play. The Boomers’ parents have at least one more transaction left in their lifetimes, the Boomers have 2 to 3, the Gen Ys and Xers are just forming their version of what a household is to them and the recent immigrants’ demographics and traditions will fill the 5-bedroom McMansions with extended family parts as they move up the socio-economic ladder. Not a market to play in but, one in which to set your plans in motion for the next round of wealth accummulation.

  • @ David – Sorry for the late reply. I understand Matthew’s point. However, I do believe that real estate professionals should know the implications of national industry findings. Just like the Dow Jones gives us a feel for what is happening overall in the stock market. Example: Knowing how delinquencies will impact lending guidelines is important in EVERY marketplace. I realize all real estate is local but national issues DO influence local practices.

  • Yes, they do, Steve! But perhaps my point is, trends may be national but markets are local. At least in the few remaining guild-sectors like real estate…….. (I’m sure that’s going to get me in trouble… :>)

  • Angela Galvin

    Great Artivle Matthew – although we are on then other side of the planet we can relate. In our media they prices, trends etc that are quoted coem right out of Western Sydney and bear no relevance or semblance of comparability to our area of north west Brisbane. May I use this article in my nedt blog post please?


  • Sure! feel free to reprint the article in your blog. Thanks!

  • Artrawding

    Great Article! We have people coming to Weston,Fl thinking it follows national trends and it doesn’t.