I recently added a “faux chart” to my weekly post [Curbed]. The numbers were perfectly aligned to illustrate a point that I wished to make. I had about 20 people comment on the post, and one of the anonymous responses (see below) got me thinking about the quality of data that is presented to the public.
Anonymous: “It is always amusing when some Wall Streeter treats real estate like stocks or bonds. Real estate is different from stocks and bonds. Prices aren’t transparent, “friction costs” (eg. brokerage, closing costs, etc.) are very high, and product isn’t easily compared. And you need a place to live. Does anyone actually know a person who sold their house/apartment in anticipation of the market falling, rented a place (or lived in the street), and subsequently bought the equivalent place for less money. I know several who messed that one up pretty badly (mostly Wall Street traders who confused their personal life with their professional life). Yes, real estate is cyclical, but it had maintained a pattern known as “higher highs / higher lows”. In other words it trends higher, although not necessarily in a straight line. Maybe you catch a dip if you are really really smart. But mostly you buy when you have to and sell when you have to. Real estate downturns are driven less by interest rates and more by job conditions in specific markets. Look at Denver after the telecommunications mergers, Houston after Enron, San Francisco after the tech bubble, and New York after the each Wall Street implosion. So much of the price data that the media latches onto is suspect. Small samples that are statistical garbage. Remember the old saying “lies, damn lies, and statistics”. If you can afford to buy, and find what you like, then buy. If not, rent or find another city. But get a life.”
If you think about it, with few exceptions, so much of the source data used by the media and consumer from the real estate market is from compromised resources within the real estate community. Then that news becomes a resource, and its a viscious (a bit melodramatic) cycle.
In other words, the stats are coming from people whose livlihood is dependent on how well the market does. I’m not suggesting that all stats are misleading. Some of the info is great, some is spun and some is presented naively. I am not sure how the consumer can tell the difference.
Its important that readers understand the source of the information they are relying on and take that with a grain of salt. I guess the moral of the story is “don’t believe everything you read.”
Here are some seemingly random thoughts:
The National Association of Realtors (NAR) is a powerful trade group who mission is to promote the real estate brokerage profession. They are the primary source of key housing stats like existing home sales and pending home sales indexes. They produce some interesting stuff we all rely on, but by definition, its spin.
Local MLS and real estate brokers are spokesman for the market: Same as NAR but on a local level. In a changing market, they tend to go on the offensive and use historical trends [Matrix] as support for the argument that the market is currently “strong.”
The use of “Chief Economists” [Matrix] for these trade groups and companies who are there only to “spin”, under the guise that their position is prestigious, above the fray, and are providing a neutral opinion.
The production of market reports whose stats are “cherry-picked” to show the most extreme results.
Market reports updated in small timelines, like monthly, using a small data set. They bombard the consumer with results of diluted reliability. For example, when a specific market area, like a neighborhood is based on a few dozen sales and compared to a prior month, how can that be useful?
The misuse of statistics to grab a headline. During the rising market, we saw crazy growth numbers without drilling down to see what it was all about. The same is happening in a less-frenzied market, were the stats are being exagerated to show a sharp downturn.
Press releases of studies done by a biased party to show how a weak aspect of the market is not really all that bad.
I guess you could say that I am currently in a “glass is half empty” mode.
Tags: Pending Home Sale Index, PHSI, NAR, National Association of Realtors