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Analyzing why "It's a great time to buy or sell a home!"

Saturday, November 04, 2006 | 07:38 AM

in Data Analysis | Economy | Psychology/Sentiment | Real Estate

Yesterday, we discussed the $40M NAR ad campaign, "It's a great time to buy or sell a home!"

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 occured 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 occured.
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 simulataneously. 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 . . .

Sources:
The New Word in Home Sales: 'Canceled'
Buyers Back Out of Deals In Record Numbers; A $30,000 Deposit, Lost
JUNE FLETCHER and RUTH SIMON
WSJ, November 3, 2006; Page W1
http://online.wsj.com/article/SB116252244421212232.html

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This analysis is good to keep in mind when next reading something put out by the National Association of Realtors. Quote-of-the-day:In all my experience trading, I cannot recall ever coming across any item that it was a great time... [Read More]

Tracked on Nov 5, 2006 7:05:06 PM