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More NAR B.S.

March 26, 2008 – 8:01 am

House prices continue to slide nationwide, according to the latest Case-Shiller data.

But the National Association of Realtors can’t help itself, trying their best to put a smiley face on the implosion of the housing market:

The headline read, “Existing Home Sales Rise in February”, but the real story in yesterday’s existing home sales report from the National Association of Realtors was four short paragraphs in:

The national median existing-home price for all housing types was $195,900 in February, down 8.2 percent from a year earlier when the median was $213,500.

For more on the NAR’s release, that article is here. Comparisons are best made against the same month a year ago. Sure sales were up a bit Jan to Feb, but take a look at this Feb vs. last Feb:

Inventory is still sky high. If more people are selling than buying, prices have to fall for the market to return to equilibrium. This is bad for lenders and buyers who got involved at the top, but good for first-time homeowners who’ve been priced out of the market.

Continuing on my theme NAR Propaganda, I thought I’d post some highlights of an exchange that happened in the comments section of my post two days ago. A gentleman “in the mortgage and real estate industry” said, among other things, this:

JR…future appreciation is not an opinion…the fact is that over the past 40+ years housing has appreciated around 6.5% according to OFHEO….

In our area, according to OFHEO stats, we gainded 78% in value on the past 5 years, and gave back 3.8% last year…these are facts…not guesses.

Next fact is the rule of 7’s … 7 years on a job….7 years in a marriage…7 years in a home….these are norms.

Those who bought a home in the 2001-2002 recession did very well…their 7 years is up this year or next. Those who bought on 2006, their 7 years is up in 2013.

There is no evidence that they will not achieve a positive yield on their home onwership experience.

As for the mortgage credit stranglehold currently exacerbating the housing market, this same knee-jeck reaction took place the late 80’s-early 90’s problems, when lending abandoned the market place. Had we maintained a more stable attitude towards lending, our problems would be greatly reduced.

I have a client on the phone right now. His income is about to be cut by his employer…he works in a stone quarry and has had this job for 10+ years. His hours are getting cut 25%….next month..

Is this a housing problem or an income problem?

I felt compelled to answer this gentleman, “johnp”, b/c as a real estate professional he seems to be following the NAR’s lead: trying to figure out ways to convince people to buy homes in a market that clearly says it would be prudent to wait.

An income problem? Sure it is: house prices grew far faster than median income over the last eight years, which is why those prices are too high and have to fall. Thanks for making my point for me johnp!

But I have a bigger beef with realtors conveniently obfuscating the present and asking people to look at the “long-term.” Here was my reply (with a few edits):

johnp continues to rely on “long-term” results. And his argument that 40 years of data prove his point is specious because, as I said in my comment above, we are in the midst of a housing decline of unprecedented proportion. Many reasonable observers are saying we haven’t faced a housing collapse of these proportions since the Great Depression. By definition, I think an “unprecedented” event is hard to fit into a box using “historical” data.

Again, let me reiterate the core of my argument. Buying a home isn’t necessarily a bad idea. Buying a home NOW is a bad idea–unless you can get a big discount on the market price.

Johnp notes in his first post above that he works “in the mortgage and RE industries.”

It’s funny, the similarities between real estate professionals and investment professionals. Having spent a few years in the investment profession, I can speak for that one. People listen to investment pros when they say you have to “stay invested for the long-term” because you “can’t beat the market.” These folks are often proponents of the “buy and hold” strategy…..for two reasons:

1. unfortunately, they don’t do a lot of real work to determine which stocks are actually a good value. Like johnp’s rule on housing, a stock probably will go up if you hold onto it long enough…..that doesn’t mean you bought it at a good price.

But perhaps more importanly,

2. they ONLY GET PAID if you “stay in the market.” Investment pros typically get paid fees based on the level of assets under their management. Therefore they have an incentive to keep you invested at all times.

Because the bottom line is that investment “pros” are actually SALESMAN. They get paid to sell you something, a stock or a mutual fund….making you money is also important, but SECONDARY.

I suspect things are similar with real estate and mortgage professionals like johnp, who only get paid when house sales and loans actually close. These people are salesman. They’re out to make THEMSELVES money, not you. So when common sense says now is CLEARLY NOT a good time to buy, they have to fall back on sophistries like relying on the “long-term.”

I would certainly grant you that you CAN make money in the stock market or in housing if you hold on for the long-term. But to MAXIMIZE your gains and to AVOID losses, first you have to buy assets (a stock or a house) at a good price.

Look at two investors who have been ridiculously successful, Warren Buffett in stocks and Sam Zell in real estate. Sam Zell (aka Saltator Sepulcri, Latin for “grave dancer”) has made billions largely by buying AT THE RIGHT TIME. Same story with Warren Buffett, he would be the first to tell you that you only buy assets you’re comfortable owning over the long-term. But before that, he would say you have to buy that asset at a discount to its true value.

Most of you would say, well you have to have some kind of special brilliance to be a Warren Buffett or a Sam Zell. Yes and no.

These guys are famous for relying on simple common sense to make many of their investment decisions. Indeed common sense, combined with a measure of fortitude to ignore the stampeding masses, is often enough to keep people from buying at the wrong moment.

Who among you didn’t KNOW deep down that real estate was starting to get ridiculously overvalued back as early as 2004? You just have to stick to your conviction for the (seemingly interminable) period before which prices finally return to common sense levels.

Same story with tech/telecom stocks circa 1997-1998. Wasn’t it hard to stay on the sidelines while fortunes were being made in 1999 and 2000, before the crash that you KNEW would come finally did?

The people that lost fortunes were the ones that kept drinking the kool-aid.

Buying and holding CAN BE a good strategy. But first you have to mix a little common sense into the buying part of the equation.

So, dear reader, I say to you ignore real estate/mortgage “professionals” who say you have to buy now. Your common sense is a better guide to smart investing, whether in the stock market or real estate.