THE LAW OF PHYSICS APPLIES TO HOUSING: What goes up must come down and now is still a good time to buy

Posted by Steve Kleber on Jan 31, 2008

We’ve all seen, heard and read about the sluggish, declining housing market. The unsold surplus inventory of homes, limited funds in the form of tighter lending options, mortgage crises, stock market plunge….

When I sat down at my computer this morning, mulling over the housing downturn and the latest media coverage surrounding the recessive nature of this volatile, cyclical market, I had every intention of listing the ways the market would return to normalcy, and in time, record-breaking highs as we saw in 2005.

“2008 is going to be a year of everyone rolling up their sleeves and working together,” said Jim Hughes Jr., executive vice president of Wheaton-based developer Wiseman-Hughes Enterprises, in a recent article I read in the Sun-Times. I was inspired by his statement, and thought it an uplifting outlook; quite the opposite from the negative and pessimistic position we’ve been seeing from today’s media.

I began to list ways we could “all work together” in order to turn things around: changes in mortgages and underwriting practices, the government taking steps to head off a crisis with the adjustable mortgages that are still out there, a “cleansing of the markets” to migrate back to the traditional asset classes, rebound of the stock market, in addition to highlighting the industry analysts’ forecasts of growth, although moderate, throughout the next few years.

Succumbed by a slight case of writer’s block, I checked my email and received numerous RSS feeds from Advertising Age; bold headlines discussing the latest National Association of Realtors’ (NAR) advertisements filled my inbox. And to my surprise, they were shockingly critical of the association, heeding a totally new take for this blog.

What’s all the fuss about?According to the NAR’s new $40 million advertising campaign, “Interest rates are low, and buyer opportunities have never been better.” Directing its viewers to http://www.housingmarketfacts.com/, the new NAR ads claim that on average, home prices double every 10 years and 60 percent of the average homeowner’s wealth comes from home equity. Seems like pretty straightforward messaging, right? Wrong.The pieces I’m referring to appeared in Advertising Age and are titled “What Housing Crisis? Realtors’ Ads Defy Reality” and “Pay Heed to What Realtors Don’t Say in Their Latest Pitch”. (You can also view the new NAR ads by checking out this article.) In my opinion, they are overwhelmingly critical. Just read the titles; obviously not fans of the new NAR ad campaign.

What the critics are sayingHere’s some of the cynicism as included in the above articles, “It’s [housing] a risky investment — unless borrowers recognize that, they could be misled.” “Were the ads trying to lead you down a road with blinders on? I thought so. I found it objectionable and a little offensive.” And the [NAR] ads “are misleading and not especially forthright and, in a way, the way we got into this situation [the subprime-mortgage crisis] in the first place.”What really caught my attention was Bob Garfield’s article where he stated “so if a slick TV commercial directs you to housingmarketfacts.com, caveat caveat caveat freakin’ emptor. For facts you can really bet the house on, you might also check out rottenlyingsleazyrealtors.com.” He also states that the NAR ad campaign “is a perfect miniature of the inherent conflict of interest Realtors wallow in, like pigs in the sty, all the time. They have no incentive to perform due diligence for buyers. They don’t even have incentive to protect their clients, the sellers. Their only interest is in closing the sale.”

Wow. One reader comment addressed my thoughts exactly: “Bob, you sure seem to have it in for realtors. FYI, I am working with one to sell a condo now in CT and the standard commission there is 5%, not 7%. And, I think you paint with a very broad brush – the realtor I am working with has been very forthright and ethical in his dealings with me. Even though the place has been on the market 4 months and we’ve dropped the price several times, I’m not ready to rip apart a whole profession as you are.”

Other quoted sources didn’t quite come out so abruptly but revealed they did think the ads should come with a disclaimer, “similar to those for pharmaceuticals or financial-investment companies, or a responsibility message similar to those from beer and alcoholic-beverage companies.”

The NAR defends its adsThe NAR isn’t going to put up without a fight. An NAR spokeswoman commented that the ads don’t need any disclaimers. They emphasize the growth will come “over time” and advise consumers to consider local markets and seek advice from a real-estate agent. “They’re there to help,” she said, adding the organization also can find houses to rent. So, is 2008 really a good time to buy?Yes; I wouldn’t describe housing as a “get-rich-quick” opportunity, but let’s face it, no matter what the market status, housing still remains an excellent long-term investment. Is renting really perceived as a better investment? Get serious. I’ve been involved in the housing industry for over 20 years, and it has always been cyclical. After a high, will follow a low. It’s the way of the world.

At least I had a good laugh when I read one of the comments following Bob Garfield’s article: Pretty harsh. Did you buy at the height of the market or something?”

What are your thoughts? I’m interested in hearing your perspective. Click below to make a comment.

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This entry was posted by Steve Kleber on Thursday, January 31st, 2008 at 1:48 pm and is filed under Advertising, Housing Market, Marketing. You can follow any responses to this entry through the RSS 2.0 feed. Both comments and pings are currently closed.