My View – Wayne Snoey

I see the headlines about real estate like everyone else.  Some say home prices up and some say prices down.  Some say sales up and some say sales down.  Everyone has an opinion and almost everyone wants good news over bad.  We desperately want some good news to feel better about the economy and our future.  We need hope.  But, who to believe?

One rule of thumb is to question every headline that you see in the media.  Screaming headlines sell and boring headlines sell very little.  It is necessary and normal for media to have headlines that will attempt to draw in readers.  Whether they represent the facts of the story is relatively immaterial.   In many cases, one must read to the end of the actual article to find the information that relate the true facts of the story.  I have seen this many times in articles about the real estate market condition.

Unfortunately, we have transformed into a “headline” society.  Yes or no, guilty or innocent, scumbag or hero, market up or down, budget surplus or deficit, winner or loser: the headline decides for the majority of our citizens.  The electronic age has made this problem much worse as media like Twitter, with its 140 character content, suggests that they can carry the story.  Many get news alert headlines via email and text messaging and get used to forming opinions based on these one-liners.

I suggest that we actually start becoming a nation of thinkers.  This means that we actually need to do some reading or listening.  We might be better off ignoring headlines and start with the actual story and then go back to the headline to see if it has any actual meaning.  We would become a better people.

As a long-time Real Estate Managing Broker, I make it my business to know real estate facts.  I study statistics almost every day and from many sources.  One does not become informed from headlines.  One must read, study and question.  My clients rely on my experience and competence to help guide them to the proper decisions about their real estate investments.  How can I possibly do this well if I rely on headlines? Unfortunately, too many others with real estate licenses tend to follow the herd and give poor advice based on wrong information.

Case in point are the recent headlines that state that prices are going up in many areas.  Generally, this is simply not true!  In most cases, prices are holding still at best and some areas are still experiencing declines in prices.  The good news is that price declines have slowed dramatically from two and three years ago.  Lower priced homes have generally stabilized while more expensive homes may have some room to slide yet, depending on the area.

How do these numbers get so confused?  The simple fact is that up to the end of April of this year, we sold a huge number of first-time buyer homes.  This was because of the $8000 Federal Tax First-time Homebuyer Credit, which ended on April 30th.  First-time home buyers tend to buy lower priced “starter” homes and condos, hence most sales were below $250,000.  We compressed a lot of buyers for 2010 into that market time.  Since that time, there have been fewer of these less expensive  homes selling.  On the other hand, the market for more expensive homes for repeat buyers has continued much the same  the whole time, although sales are less than last year.  

Median price is most often used to illustrate pricing.  It is that price point that represents the middle price of equal numbers of homes above and below.  A majority of the sales in the first quarter were below $250,000, hence  the median price of homes sold went down.  Since that time, the share of these lower priced homes dropped significantly.  This means that the median price has risen since more expensive homes are selling relative to lower-priced homes.

Do you now see how the headlines get confused?  The fact that the median price has gone up in most areas does not mean prices have gone up.   Certainly that is the case today.  Median price changes simply have nothing to do with inflation or deflation in most cases.  It only reflects the price range that has been affected.  The only true way to see actual price changes is to look at groups of homes in an area and focus more on the price per square foot and how that has changed year to year.   Even then, one must often look at individual homes within the group.  It there are too many short sales or foreclosed homes selling in a particular month, that will inaccurately reflect lower prices for all homes.

I hope that this blog has provided you with information on which to better judge real estate headlines in the future.   And, hopefully you will apply the lesson to all headlines and begin to question, read, study and think.  This is a great lesson to share with our children and grandchildren as they are more susceptible to the “Headline Syndrome” than we are.  Let’s all become better informed!