We are now in post-Labor _School Is In Session Mode_ and Matrix readers are showing it. This week we had many well thought out points of view on a whole range if issues. There were a few readers that stayed after school to finish them:
* Falling prices do not spur sales—stabilized and rising prices do. Most people did not buy stock when the market was falling? If they did it was only because their “perception” was that the fall was temporary. Slowing of housing sales tells me that the current “perception” is that prices will continue to fall.
* There is a definite distortion in Shiller’s graphic, but I think the error is in the gov’t inflation numbers. Ever since Greenspan instituted the “substitution principle” in the inflation gauge we have had a false reading of true inflation. I think inflation since 2001 has been so under-reported, that by using the official numbers, we are seeing this skew in Shiller’s graphic. Looking at real world examples where I live (central Florida), housing is up 110% since 2001, milk has gone from $2.20 to $3.40/gallon, and we all know what gas prices have done in the last 5 years. Even Disneyworld tickets have gone from $40 to $67. About the only places I have not seen major price increases would be automobiles and consumer electronics/computers, but those are from production efficiencies. I imagine most of the HELOC growth has been because people are needing the extra income to keep the same lifestyle they had in the ’90s because incomes have been flat while inflation has been much higher than reported.
* If you want to know what the long term average annual price change was over the last few years as a whole then the OFHEO data is good. If you want to know what the average price change was during the most recent 12 months only you will not find that in the OFHEO data. This is becuase OFHEO uses same house data for determining their index – using the recent transaction compared to its prior transaction years ago. Apples to apples but measuring long term averages – not recent movement. A home bought five years ago and sold recently will show a positive average annual gain – even though it has declined during the latest period. The OFHEO HPI is essentially a rolling average of many years of price movement.
* Market timing is inextricably linked to the efficient market hypothesis. The EMH states, quite simply, that it is impossible to outperform the market. Why? Because the market is all-knowing, an asset is always perfectly priced based on all known information. All market participants share the same information and no single player has any advantage. Market timing is a perfectly valid concept in an imperfect market, especially in those markets where information isn’t equally shared among all players (an information asymmetry exists). A single participant who receives advanced notice of information will most certainly have an advantage over the other market participants. Information assymetry in the real estate market is just one of the reasons that it is an imperfect market. Keep in mind that real estate is a radically different asset than stock. While the stock market is far from being perfectly efficient, it is most certainly more efficient than the real estate market. Don’t forget that insider trading is a form of market timing. Does it work? Yes, albeit not legal. While I don’t believe it possible to “time the market” in a traditional sense, I do believe that the price of an asset will revert to it’s fundamental-driven mean when both overpriced and underpriced.
* While I agree that many are on the sidelines, I disagree as to why. I don’t feel people are not purchasing because they fear prices MAY fall, people are not purchasing because prices have NOT fallen. I am one of those buyers on the “sideline” and I’m not trying to time for the bottom. But I am looking for price reductions as I feel prices are overly inflated. (That being said I do plan to stay in any home I purchase for a minimum of 10 years.) So I feel that this doesn’t mean I’m trying to time the market. I’m just waiting for the inevitable and I think others are as well.
* I sell real estate now, but I was in the business of design and Web development for years. There is a old saying and a glib truth in selling and buying design services: “you can have it good, cheap and fast; but you can only get any two of those at a time.” I think that applies across many industries including real estate services. There is certainly evidence that technology can change things. The ability for it to dis-intermediate an industry, as the expedia/zillow guys did to travel agencies, is possible, but also quite rare. I’d ask you if the customer has actually benefited from it? Are air fares significantly cheaper because of it? I haven’t noticed; and it now costs my time to find the best fare and route. Discount on-line stock brokers did not put the full service ones out of business. The smart ones that offer real knowledge and guidance are still around. Amazon did not kill Wallmart, Ebay has not replaced Christies, and Yahoo did not see Google coming. There is room in the market place for multiple business models. The perception of value is what’s important. The big lie in all of this is that people are led to believe that they are getting the same services for less. What’s missing from the Redfin service proposition is any claim that they will work to get a seller the highest price possible. That’s what brokers actually do. Their model is based around doing it cheaper not better; and you generally get what you pay for. The caricature of the overpaid, lazy real estate broker is spin that serves Redfin and others who would like us to believe it. Like the title of your post implies Jonathan, as an industry, full service practitioners and the NAR could probably do a better job at communicating.
* I might be able to market-time the cost of housing, but I can’t market-time things such as losing my job, getting a new job, having a baby, terrorist attacks, parents dying, getting divorced, having a mental breakdown, or inheriting wealth. It may not be impossible to market-time housing prices, but simply impractical.