Click Here for Fear
No news program, blogger, or Twitterer ever got rich by issuing the following statement, ‘Everything is perfectly normal and you don’t need to really worry about anything.’
And with the housing market going from great to insane during COVID, it is only natural that any move in the opposite direction will garner a great deal of attention.
So now that the price gains are slowing and inventory is rising to < gasp! > 1 to 2 months, we are now seeing headlines like these every day:
- Mortgage Demand Drops to Lowest Level in 22 Years
- Housing Crash Imminent: As Mortgage Rates Explode Price Cuts Soar And Buyer Demand Collapses
- A housing recession is the first step to a Fed-induced recession. Here’s where the housing market goes next
- US Faces Perfect Storm 2008 Like Housing Crisis
- Buyers Backing Out of Real Estate Deals
I get it that the market has slowed, but I personally find the practice of writing intentionally misleading headlines only slightly more offensive than uninformed writers writing fundamentally incorrect articles. Yet both practices seem far too common –– and increasing in frequency.
These headlines aren’t designed to inform, but rather, to scare (ok, get clicks) –– and when clients send me article after article some ‘over the top’ headline asking ‘is this true?!?‘ my blood pressure rises ever so slightly knowing that all of our jobs just got that much harder because some website needed a few more clicks.
The Common Themes
Generally speaking, these disingenuous headlines fall into a few basic muddy buckets:
- Applying national news to local markets
- Not understanding basic statistics
- Sensationalism / lack of context
- Abject stupidity
Let’s discuss.
National ≠ Local
In 2008, the real estate market collapsed –– pretty much everywhere and all at once.
Why? Because the fake loans that underpinned the market were one day as easy to obtain as fogging a mirror –– and the next day, they had vanished.
Furthermore, the capital markets that traded those mortgages also simultaneously imploded –– causing all forms of consumer lending to disappear overnight.
No loans = no sales = prices collapse.
So whether you lived in Schenectady, Kalamazoo, Walla Walla, or Richmond, borrowing was impossible –– no region was spared.
Today’s market, however, is not driven by ‘subprime’ loans for any and everyone, but more by ‘The Great Migration‘ from higher cost markets to lower cost markets due the fact that you don’t have to live in close proximity to your job any longer (well, for many people this is true.)
In other words, today’s market is hyper-local and what might be happening in Austin, Boise, or Phoenix is not necessarily happening here, yet these headlines tend to make blanket statements as if they apply to all markets equally –– when they don’t.
The bottom line is that markets where the cost of living is extremely high have seen a population outflow, while markets where the cost of living is low have seen their demand not only skyrocket, but remain high.
You. Have. To. Look. At. The. Individual. Market.
Lies. Damn Lies. Statistics.
I love statistics, until I don’t.
Benjamin Disraeli, former Prime Minister of Britain is (allegedly) credited with saying, ‘There are three types of lies in this world –– lies, damn lies, and statistics.’ I wholeheartedly agree.
Statistics, when used correctly, can help create valuable insight and illuminate the correct pathway forward.
When statistics are abused, they can obfuscate, delude, and mislead –– often all at the same time.
Direction Matters When You Use Statistics
So if statistics are used to help create the lie, percentages are the amplifier that takes it from ‘contains a shred of truth’ to ‘total and utter BS.’
Example, let’s say that your market had 1,000 listings in 2019, and then when the COVID crazy market hit, the number dropped to 500 (very much like our market did.)
That is a 50% decrease.
Now, let’s say that in the last year, the number has gone from 500 listings back to the original 1,000.
That is a 100% increase.
50% down followed by 100% up = THE SAME NUMBER!!!
So few people seem to understand that percentages become far more sensitive when the numbers are smaller –– and the direction that numbers move impact how large the differences track.
Grrr….
Please, Step Away From the Keyboard
I had to pass an exam to get a real estate license. As did my mortgage brethren.
Financial advisors have any number of exams that they must pass to obtain their licensure. Attorneys must pass the bar. Doctors have their boards.
You get the picture.
But what license is required of bloggers, reporters, or columnists? I think you know the answer.
I saw this paragraph in a well respected … errr … well known financial magazine:
“Historically speaking, the Federal Reserve’s inflation fighting playbook always starts with housing. It goes like this. The central bank begins by applying upward pressure on mortgage rates. Not long afterwards, home sales sink and existing home inventory spikes. Then homebuilders begin to cut back.”
SMH.
I guess the fact that the most recent increase in the Federal Funds rate actually dropped long term mortgage rates doesn’t really matter. As a matter of fact, so did the prior Fed move, but why let that get in the way of a good story?
It is astonishing to me that so few people understand that the Federal Reserve does not set mortgage rates, especially amongst those who should know how mortgage rates are set.
Ironically, it was the Fed’s inaction in combating inflation that led to the sharp increase in long term mortgage rates, but I digress.
Nope, the Federal Reserve’s playbook never begins with housing, it begins with trying to maintain the tradeoff between high employment and low inflation –– which are generally two diametrically opposed goals.
Housing is just along for the ride.
As a matter of fact, housing has much more to do with population trends and the amount of new construction than it does mortgage rates. Don’t believe me, ask your elders how many homes were bought and sold in the 1950s through the 1980s when rates reached 18% (the answer is ‘plenty.’)
So sad, but here we are.
(Un)Intentionally Disingenuous
This CNBC headline kills me:
Can we please please please please make the distinction between PURCHASE mortgage activity and REFINANCE mortgage activity? Because one of these two forms of borrowing is down 80%, and (guess what?) it isn’t purchase activity.
Nope, the large majority of the drop in mortgage applications is due to the fact that no one refinances into a rising rate environment. As rates fall, people replace their higher rate mortgage with a lower rate one –– but when the rise, they keep their lower rate mortgage in place.
C’mon CNBC, you are better than that. Literally, Econ 101.
And thus, with long term rates falling below 3% for much of last year, the percentage of homeowners who refinanced was the highest ever. Literally anyone who could refinance did –– sometimes multiple times.
That headline is akin to saying that ‘Hunger reached its lowest level ever after Thanksgiving Dinner’ or ‘Dale Earnhardt’s car slowed to its slowest pace after crossing the finish line,’ or ‘Grass height reached its lowest level in weeks after owner cut the lawn‘ or ‘Rick is currently as old as he has ever been.’
Painful.
Sales ARE Down
So just to be clear, I am not saying that sales aren’t down –– they are –– somewhere around 10% in the past 12 months depending on the geographic market and price point.
Why? Largely because of the lack of listings. Nothing on the market = nothing to buy.
But again, why mention that little nugget when you can write a headline referencing a 22 year low, right?
Mortgage rates certainly impact a purchaser’s ability to afford a certain price, but not the ability to qualify. When rates rise, people tend to seek less expensive housing. Again, another nugget that was ignored.
Intentionally provocative headline? Or does the writer not really understand the difference between purchase and refi? I am not sure, but either way it is sad commentary on the scare tactics used to get clicks.
No More Callers, We Have a Winner
This could be the worst article ever written –– https://www.wavy.com/news/local-news/buyers-backing-out-of-real-estate-deals/
And it’s not just the author of the article, but the editor who let this factually and grammatically incorrect piece get published that makes me so frustrated –– ”Now, homebuyers are doing the opposite instead of offering more than the asking price for backing out of deals left and right.”
Huh?
If you are going to say something this fundamentally incorrect in print, can you at least get the grammar correct?
The article goes on to say that when you used to get 25 offers, you now might get 3 to 4, which indicates that buyers are backing out of deals and prices are falling … really?!?
I sincerely hope that the 24 year veteran who was interviewed was misquoted. I have a hard time believing that anyone who has been selling real estate for 2 decades would call 1 month of inventory ‘a seller’s market,’ but who knows? Does it even matter at this point?
Perhaps people will read this for what it is, but the fact that stories such as this gets broadcast over the public airways on a nightly basis and distributed via their public portal is just plain sad on so many levels.
Closing
Did you know it is technically against the law to offer legal advice if you have not passed the bar? The same goes for offering financial advice, medical advice, tax advice … yet rarely does anyone ever get prosecuted for violating the ‘practicing a craft without a license’ laws unless the offenses are totally egregious.
Maybe we should pick up the pace.
Look, there are a lot of really great writers, reporters, and content creators out there who make nuanced and enlightening points –– and overall, I think we are better off by putting the means of being heard into the hands of those who need to be. ‘The ants (now) have megaphones’ once observed Chris Anderson in his famed book ‘The Long Tail’ and that is a good thing.
I think we can all handle a well-researched, well-documented, and well-written article that runs counter to our beliefs. As a matter of fact, I seek out differing opinions if for no other reason than to make sure the logic upon which I have based my own world view is not in need of revision.
But I am just so sick and tired of the intentional misleading click-bait coming from those who know better.
Sorry to vent.
Now back to the article on murder hornets with monkeypox.