Thursday, July 19, 2012

Housing Shills

In 2005, the chief economist for the US National Association of Realtors told The Washington Post that "there is no national housing bubble. Any talk about the housing market crashing is ludicrous."

Since then, this man has admitted that in that job, he was pressured by executives to issue optimistic forecasts, and then was left to shoulder the blame when things went sour. "I was there for seven years doing everything they wanted me to," he argued.

The lesson here is an important one for investors. Industry trade groups and company managers tend to put a positive spin on things. If you believe them without doing your own objective analysis, you are bound to become a sucker at some point. Consider a potential parallel in the current Canadian housing bubble.

A few months ago, the Canadian Real Estate Association came out with a new housing price index, one that they can feed to the media that reduces some of the "confusion" associated with average prices. (After all, average prices are soooo confusing, they make my head hurt!)

“One of the key goals is to take a little bit of volatility out of housing statistics,” says Jason Mercer, senior analyst for the Toronto Real Estate Board. The index adds some subjectivity into the numbers, by adding factors into home price benchmarking such as proximity to schools and parks.

When the index came out in February, cynics alleged that its whole purpose was to cover over the beginning of the end of a massive real estate bubble. Interestingly, the bursting of this bubble may have already begun. The average sales price in Vancouver fell 13% in June from one year ago! What did the MLS' new HPI index show for Vancouver in June? A year over year rise of 1.7%!

Be wary of paid shills!

1 comment:

ManfredSteyn said...

I would like to think that post-crash there will be a reckoning for the GVREB, Global TV, Vancouver Sun and all the rest of the property-pumping cabal. But we now live in a world without accountability. Just look at Wall Street --nothing has changed, hardly anyone there has been punished or even restricted from their reckless, criminal behaviour. Stick a fork in our entire economic system; its resting on a foundation of misinformation and corruption.

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