Sunday, November 05, 2006

Milestone: National Association of Realtors (NAR) officially gets out the defibrillator

I have to make this short tonight because I have a ton of work to do in my kitchen.

There are plenty of published stories about NAR running $40 million worth of full-page ads this weekend to jump-start the real estate market, and bubblewatcher Annette Haddad of the L.A. Times was among those mentioning that NAR has gotten out the defibrillator (OK, she didn't exactly put it that way - I did).

While we were grocery shopping Sunday morning I got the sudden urge to acquire the Sunday print edition of the L.A. Times so I could see the ad for myself. Bruce unfolded the huge thick paper in the car - this real estate insert was wedged in right after the front section - gee, is it always there?! They must want to sell houses reaal baaaaad!

In shrill 200 point font, the ad headline reads, "It's a great time to buy or sell a home." Then under "Consider these facts" it lists the following along with some accompanying text:

  1. Interest rate near record lows
  2. Large inventory won't last
  3. Prices overall have stabilized
  4. Positive outlook
  5. Real estate is a great investment

I don't want to sound too old, but I remember the monotonous drills I did discerning fact from opinion way back in grade school English classes. And I think I can say that in that list above, maybe #1 is closer to fact, but each of #2, #3, and #5 qualify more as opinion. #4 does not say anything at all. A grade-school child could probably read right through this ad!

Remember these ad phrases below because there is a good chance they will haunt a significant portion of the homeowning population over the next few years:

  • "...the outlook is for home prices to increase next year..."
  • "[Greenspan said that] most of the negatives are probably behind us. The fourth quarter should be reasonably good, certainly better than the third quarter."
  • "Homeownership is a safe, secure way to build long-term wealth."
  • "We have had a record inventory of homes on the market in recent months, offering consumers the greatest choice in decades. Don't delay. Now is a great time to buy or sell a home.

The second interesting thing about this real estate insert is the article by Diane Wedner called "Meet the flockers", accompanied by a cartoon picture of a herd of sheep. The article describes herd psychology in the housing market. There is something about the tone of the article that gripes me - while herd psychology is being acknowledged, one person quoted in the article almost blames people for causing recessions by "following their neighbors" and "ignoring solid economic fundamentals." Well what does that mean?!? What is so "solid" about following a CPI measure that has no basis in reality, a jobs report that creates thousands of phantom jobs out of thin air each month, manufacturing surveys that are cratering in, Enron-style accounting in the government's books, and a yield curve that has been inverted or nearly inverted for the better part of a year?? The economic fundamentals are looking stinkier by the day and maybe the neighbors are being smart and paying attention!!!

The third interesting thing about this real estate insert is an easy-to-miss article buried back in page 11, called "His Little house in the woods proves less can be plenty." This article features a clever architect who specializes in building homes from 50 square feet (that's right, 2 digits), up to about 700 square feet. This points out one way in which our bloated, wasteful, and consumption-oriented overbuilding of dot condos and bubbleminiums could resolve itself in the coming few decades. In my opinion, it shows a deflationary mindset wiggling its way into the unconsciousness of the herd. "Well gee, why do I want this big oversized house, just to pay big heating bills, and lighting bills, and property tax bills, and homeowner insurance bills, when I can have a much smaller place without nearly the expense??" When deflation sets in, spending contracts. And yet another illustration of how what we perceive as valuable can change very quickly.

By the way, Redondo Beach inventory appears to have jumped up to a new high. It was wavering back and forth for a while at the end of October but finally made an upward leap in November. For a while I thought there might be a window of opportunity for a few sellers to escape the bubble with late 2004 - early 2005 asking prices, but now I'm not so sure.

On a final note, I thought I'd quote some passages about the 1929 stock market crash here:

[After Black Thursday (October 24, 1929)] stocks, it was agreed, were again cheap and accordingly there would be a heavy rush to buy. Numerous stories from the brokerage houses, some of them possibly inspired, told of a fabulous volume of buying orders which was piling up in anticipation of the opening of the market. In a concerted advertising campaign in Monday's papers, stock market firms urged the wisdom of picking up these bargains promptly. "We believe," said one house, "that the investor who purchases securities at this time with the discrimination that is always a condition of prudent investing, may do so with utmost confidence." On Monday the real disaster began.

Quoted from The Great Crash 1929, by John Kenneth Galbraith

As some bearish friends of mine say, "There is nothing new under the sun. The more things change, the more they stay the same."


Blogger beebs said...

Gosh, they could have saved the money.

There is no stopping the market once it starts to drop. You just get out of the way.


7:47 PM, November 05, 2006  
Blogger bearmaster said...

Here is a link to a PDF file of the NAR ad:

NAR ad

And here is a spoof of that ad:


8:27 PM, November 05, 2006  
Blogger Rob Dawg said...

Best response is Barry Ritholtz at:

As soon as people realize this was pais for with a tiny fraction of the tiny fraction that realtors pay as dues out of their 6%* the public will react with anger not spending.

* Yes, I know, no one agent or broker or agency sees the whole 6% but the customer doaes and this is supposed to be about customers.

7:58 AM, November 06, 2006  

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