Avoiding Deception
From TheBigPicture:
“The purpose of studying economics is not to acquire a set of ready-made answers to economic questions, but to learn how to avoid being deceived by economists.”-Joan Robinson, Cambridge University
I ran into a head honcho from a Real Estate Economics firm who shall remain anonymous. He gives speeches to conference halls full of realtors. He didn’t know that I’m a part time real estate geek so I asked him what he has been telling people at these conferences. His non-verbatim reply: “We look through all of the data and try to find any bit of good news so people can leave happy.”
Of course those realtors go out and try to convince people that now is a good time to buy. I’m not cynical, here’s a telling quote:
“‘My job as a Realtor is to keep the public positive, and that’s what I’m doing,’ she says. ‘I think we’re all in the position of: ‘If you don’t own, buy. If you do own, re-fi.’”
Maybe I’m crazy but I find it a tad disturbing that we now assume our economy should run on hope and smiles instead of economic fundamentals. I also find it disturbing that someone would admit that their job is to lead people down a potentially disastrous path based on the above belief that the power of happy thoughts can override fundamentals (rents and income levels) that have governed the price of homes for centuries.
I talked two friends out of buying homes near the peak, their number one counter argument “But realtors are saying it’s a good time to buy.” Of course the news was quoting realtors so the public perception was that housing prices simply could not decline. It’s a struggle to convince them that we’re not at the bottom yet when you have the entire real estate industry shouting “Buy Now!”.
I’m usually in favor of allowing people the freedom to make mistakes and approach the future a little bit wiser and more skeptical. But buying a house is such a massive, life altering commitment that making a mistake is the kind of thing from which many will not recover.
I’d be happy to buy at or near the bottom. In fact when the speculation, fraud, and toxic loans are washed out of the system I have a feeling housing on the coasts will be under priced for a while.
Related posts:
It is interesting that most Economists are Owned by those who employ them, often little more than a spin doctor for their client.
In a sense, Economists and Appraisers are alike in the way they are defined, and in the way they perform.
Both are defined as being objective and unbiased. And both tend to slant their reports based on who hires them.
Comment by Steven R. Smith, MSREA, MAI, SRA — February 13, 2008 @
It’s interesting that the bond ratings agencies were in a similar situation and the end result is the same. Mark to model is the new way to play the game.
I don’t really blame the borrowers or the lenders assuming they weren’t breaking the law. And I think it boils down to the law. I’m a small government proponent but if they can create regulations that only kick in once speculation starts to take control this never would have happened.
Of course Alan Greenspan said it’s impossible to predict bubbles until after the fact, which I find ludicrous, but those are the people in charge and I doubt we’ll see anti-bubble legislation in my lifetime.
Comment by Kirk — February 13, 2008 @