patrick.net

Charts and graphs and numbers, oh my!

Increasingly, so-called "upscale" realtorsâ„¢ are using pre-packaged "market and economics" newsletters to push hesitant clients into buying. After all, with the mainstream media throwing so many numbers at the homebuying/homeselling public, who does one turn to for help interpreting what it all means? Of course, your local realtorâ„¢.

I won't name the particular realtorâ„¢ from whom I lifted this particular newsletter. Let's just say he represents "top-end" properties in the SF Bay Area. Assumedly, his clients would include a significant percentage of sophisticated buyers. A lot of these folks read the Wall Street Journal and perhaps need a little "guidance" from their friendly realtorâ„¢ on just what it all means for the real estate market.

Before I share some quotes from the newsletter and my criticisms of the bad economics and logic it invokes, I also refer to a problem we discussed sometime ago in Realtors(tm), Credibility and Influence. There is absolutely no accountability in the real estate industry for what agents say, promise, or write. Nowhere on this entire newsletter do I see Past results are no guarantee of future performance. Or, Buying a home contains inherent risks. I remind that realtorsâ„¢ are charged with helping people in what is for most the single largest financial transaction they will ever engage in. Mutual funds are not permitted to put out "newsletters" like this. Stock brokers are not either, at least not without so many scary disclaimers that all but the most savvy or foolish investor will think twice. But we allow realtorsâ„¢ and mortgage brokers complete freedom to claim whatever they want, whether true or not, without any recourse.

Many of these newsletters, including this one I'm looking at, are produced by Howard Blum & The Financial News & Information Service out of Novato, CA. The product is sold as Daily Economic Insights as a subscription service, which is often then "reframed" and retitled by various agents to include some of the agent's own marketing material and finally distributed to their clients.

The tagline from www.econonews.net (the company's web site) reads: If you need the best financial market, interest rate & real estate market insights available, written in plain English (as in no 'econo-babble')....

Let's see, shall we.

As long as the average S.F. home sells at a premium to the list price we'll continue to have firm prices.

Evidence for this appears to be a nifty little graph in the upper corner titled 5-Years SF Pct. of List Price Sold For which shows March, 06 average home in SF sold for 104.72% of listing price. Source of this data? Well, they credit themselves, Financial News & Information Service. On further inspection, we see that the "average" in the graph is actually a moving average. Nowhere is the period of the moving average disclosed, so we have no idea if this is a 30 day moving average, a 90 day or just whatever moving average yields the highest numbers. Also, notice the range of data is 3/01 through 5/06, apparently carefully chosen to make sure all the moving average trend-lines are well above 100% of listing price.

...new home sales for April, widely expected to decline by 5.0%, saw sales rise by 4.9% instead. The saving grace of that release was that year-over-year April sales were down 5.7% relative to April 2005. This prevented runaway "Fed Fear" from engulfing the markets.

Conveniently comparing adjusted numbers to unadjusted numbers. Also notice an attempt to put a positive spin on rising mortgage rates. There is also a nifty little graph showing mortgage rates from 5/27/05 to 5/04/06, ranging from about 5.25% to 6.25%. Again, we don't know what this is even measuring, but assuming it is standard 30-year fixed rates on conforming loans, the author is attempting to show that rates aren't likely to rise much more. We could dive into a huge digression on what really drives interest rate policy in the US, but suffices to say that worries about the housing market are only one factor, and a relatively small one at that.

Pre-owned home sales for April came in largely as expected by the Wall Street "experts" that are polled by the mainstream media. After the stunning slap in the face for those same housing market "experts" with the new home sales figures the day before, they were no longer prognosticating the demise of the housing sector. Wall Street wants the housing market to flounder so investors will forsake income property and return to stocks and bonds. We are a very long way from that happening.

Notice the reactionary disdain for Wall Street and the mainstream media. Of course, if these people aren't saying what you want, they must be bad people.

Wall Street wants the housing market to flounder? Even though every economist knows this will severely impact consumer spending, burden consumer debt even more, and further distress the already negative savings rate? So, Wall Street wants a huge portion of their best, blue-chip stocks to go into the toilet because people quit spending money? Wall Street does love recessions...or maybe econonews would do well to spend a little more time actually listening to some of that "econo-babble".

One more point: real-estate in the US, as an asset class, is NOT CORRELATED to either stocks or bonds. For what these guys are claiming -- a down housing market will drive investment in stocks and bonds -- to be true, it would be a NEGATIVE CORRELATION. Please, someone demonstrate for me any credible academic or industry research that reveals this strong negative correlation. Otherwise, you're just making stuff up.

Other news during the week included personal income rising by 5/10% in April and personal spending rising by 7/10%, which are both good numbers for the economy. Jobless claims fell by more than expected and the Fed's preferred measure of inflation suggested inflation remains contained. This last item gives us hope for a rate improvement in the upcoming [weeks]...

First, notice the presentation style. It looks a lot better to say that personal income rose 5/10% because there are lot of big numbers there. It doesn't look so pretty to say 0.005 or 0.5%. If you are paid $100,000, then your income rose to a whopping 100,500 per year, or $41.67 per month gross, or about $27.50 net per month. Time to go buy that $2.1M Marina Condo! (See, I can screw around with numbers to make them fit my message too).

Secondly, all sentiment is towards rising inflation, not contained inflation. Reading the "econo-babble" in the Wall Street Journal or Financial Times for any given day and this is blatantly apparent.

...the CA Dept. of Real Estate told us that there were 19,000 new [real estate] licenses issued in the state in the past year. Over the past five years while home prices rose substantially, we also saw the number of licensees rise by 57%. With 495,000 licensees in the state (1 for every 52 people) we suspect there is greater competition for buyers and listings.

One realtorâ„¢ per every 52 people?!?!!!!! Yea, maybe there is a wee bit of competition. And, maybe there's a firestorm coming. What's the percentage of CA residents who buy/sell a home in any given year? I have a sneaking suspicion that there are more realtorsâ„¢ than transactions to be had.

Of course this is all very bad news for realtorsâ„¢, fancy newsletters full of misinformation and spin or not.

--Randy H

#housing