Is This Really 'A Great Time to Buy or Sell a Home'?

In fact, its such a good time, that the National Association of Realtors decided they need to drop $40 million telling you so (click to enlarge):

Buy the way, imagine if a Fund manager or analyst ever said: XYZ? Oh, yeah, its a great time to BUY OR SELL that. (They would cart them away).

Here's the NYT take on this:

"Just as dairy associations, with their widespread ads, have tried to convince Americans of the many benefits of milk, the National Association of Realtors will begin promoting the notion that buying a home is an unalloyed good in a $40 million campaign that boldly declares: “It’s a great time to buy or sell a home.”

Gee, you almost think these guys are transactional based or something, taking a cut of any buy or sell. But wait, there's more:

"The ads will try to counter the drumbeat of dour housing data and news by making the case that historically low interest rates, a large supply of homes on the market and the group’s forecast of rising prices next year make now an ideal time to buy a home.

The campaign, which was developed by the Most Agency, based in Newport Beach, Calif., starts today with full-page ads in The Wall Street Journal and USA Today. It will make its way into other newspapers, including The New York Times, over the weekend and onto television and radio networks early next year...

Independent economists, however, are somewhat more skeptical. Many predict that sales and prices, as measured by the association, which fell in August and September from a year ago, may decline further because there are too many homes on the market and because the rapid run-up in prices has put homeownership out of reach of many."

Good stuff. Here is my very favorite part:

"Showing how perilous the art of forecasting can be, the ad by the National Association of Realtors cites a 4.3 percent increase in the number of existing home sales contracts signed in August, from July, as evidence that “prices over all have stabilized.”

But Wednesday, new data released by the association showed that contract signings fell 1.1 percent in September, from August, and 13.6 percent from September 2005. A spokesman said that the first ads were prepared before the latest figures were available and would be updated next week.

Mr. Stevens dismissed the idea that the campaign, the first of its kind undertaken by the association, could be viewed as a sign of desperation . . ." (emphasis added)

Desperation?!? Whatever could they be talking about?

On the way home, I actually saw the full page ad in the Personal section of the WSJ; (Unfortunately for the NAR, the section's front page article was "The New Word in Home Sales: 'Canceled')

I read the ad as a typical consumer would... then I reread the ad critically.

When I was finished, it occurred to me that EVERY SINGLE STATEMENT IN THE AD IS MATERIALLY FALSE OR MISLEADING. The nicest thing I can say about any of the points is that they are incomplete.

To wit:

NAR Advertising Claim	Reality
Interest Rates Near Record Lows Today’s interest rates are comparable to 40-year lows, offering homebuyers a once-in-a-lifetime opportunity.	Interest Rates WERE at record lows in 2003 when the Fed Funds Rate was 1%; Since then, rates have climbed 425 basis points (4.25%); Mortgages were as lows as 5.125%; They recently were over 7%.
Large Inventory Won’t Last There are currently 3.75 million homes for sale. We have had a record inventory of homes on the market in recent months, offering consumers the greatest choice in decades.	Slowing Sales and Overbuilding are the reasons for the inventory buildup; Year-to-date sales are down 16.5%. Economics 101 tells us that increased supply means decreased prices. Large selection also means selling your current home has become more difficult;
Prices Overall Have Stabilized Contracts for home sales in August are up 4.3 percent1 and the outlook is for home prices to increase next year.	Home prices have experienced their first price drop in a decade; As unit sales continue to slump, the  Median Price Keeps Falling; This is no basis for assuming any price stabilization has occurred.
Positive Outlook Former Federal Reserve Chair Alan Greenspan recently said that housing prospects are looking up. “Most of the negatives in housing are probably behind us. The fourth quarter should be reasonably good,  certainly better than the third quarter.” According to industry estimates, 2006 will be the third-best year on record for home sales.	Is this the same former Fed Chief  Greenspan who advised getting variable APRs at the precise low in interest rates? As to the "record sales," its more informative to look at the current trends, rather than the raw numbers (population growth will create meaningless "record numbers").
Real Estate is a Great Investment Homeownership is a safe, secure way to build long-term wealth. The national median price of homes bought ten years ago has increased 88 percent. The number of US households is expected to increase 15 percent during the next decade, creating a continued high demand for housing.	Actually, it performs about half as well as stocks do over the long run. Up 88% over the past 10 years is far above the historical norm -- mean reversion is very likely.    (But you gotta live somewhere, right?)
Don’t Delay Now is a great time to buy or sell a home.	If you delay, you run the risk of paying less for a new home. In all my experience trading, I cannot recall ever coming across any item that it was a great time to buy and sell something simultaneously. Perhaps the NAR is a fully hedged Long/Short fund .  . .

Gee, no wonder so many real estate agents have a sketchy reputation; The bullshit is a professional hazard, from their Professional Association on down...

Comments

[Mark Birdsall:]

Further, the 4.3 % supposed increase in new home sales in August was a bogus statistic, arrived at by comparing ESTIMATED (initial) sales for August to REVISED July figures--just after the July figures had been revised downward by6%. The REVISED August figures are now out (they come out one month later) and they show that in August, comparing apples (revised) to apples (revised July) the DROP in sales from July-August was 1.2%
It was rather stunning, though, how many major media outlets reported the "4.3%" increase, without asking any questions. Is logic or statistics taught any more? August initial figures should have been compared (before revised #s were out) to July initial figures--showing August down 2.05 % from July.

2006 Nov 07 11:31 PM