Editor’s note: The housing bubble debate has grown louder in recent weeks. Rather than add to the mix of confusing stories that attempt to decide who’s right and who’s wrong, this four-part series takes a closer look at the numbers, what’s happening in specific markets and how the media is relaying the message. (See Part 1: Making sense of a changing housing market, Part 2: No agreement on real estate market and Part 3: Some real estate markets are cooling.)
In March 1991, the Los Angeles Times ran a story called, “The Big Chill,” which described the turning real estate market in Southern California. After it ran, “Realtors were pissed off,” said writer David Myers, who penned the controversial story.
Despite the angst from the industry, Myers’ analysis proved to be right on the mark as the Los Angeles real estate market crashed. The median home price in Los Angeles County fell 22.2 percent from June of 1991 to January of 1996, the bottom of the market.
Today, similar headlines are popping up, such as, “Will housing bubble burst?” which appeared in the San Francisco Chronicle this week, and Reuters’ “Housing bubble is real, report says.” A British business journal, The Scotsman, entered the fray with, “Why we should fear a housing crash in the U.S.”
Such headlines can stir up fear among home buyers and sellers, which may impact their confidence in the market. Consumer confidence is key to a robust housing market, experts say, which raises the question of whether the media starts to play a role in how markets move.
Norm Bour, co-host of a real estate and finance radio talk show in Southern California, recently approached the subject of how the media may impact housing market behavior when headlines of impending market crashes start to appear. He worries that doom-and-gloom headlines will indeed affect some consumer decisions.
“Sometimes when people perceive things to be a certain way it creates a false reality,” said Bour, who is a 24-year industry veteran.
He fears home sellers might start to put their houses on the market at lower prices because of the paranoia that the market is heading for a crash.
Buyers and sellers in Southern California are paying close attention to housing market conditions. Consumers calling Bour’s radio show, “The Real Estate and Finance Hour,” want to know where the market is heading and whether there is a price bubble that’s about to burst.
Bour believes the housing bubble discussion among consumers and the media is justifiable because data shows his local market has slowed. However, the interpretation of the data often is skewed. While industry insiders say the market is “slowing,” the headlines will blare in 24-point font that the market is “crashing,” he said.
“It does pose a danger to the market because it brings a false illusion of where the market is going. If sellers perceive this to be a reality, there will suddenly be a glut of inventory because everybody wants to get out,” Bour said.
However, consumers can’t blame the media for raising the question of whether or not there is a housing bubble. The discussion itself is important because of the weight housing has in the overall economy. And if these questions were not raised, the media would not be doing its job.
Valerie Patterson, senior editor of the Wall Street Journal’s RealEstateJournal.com doesn’t recall a time when there’s been so much media coverage of housing bubbles. She thinks a lot of the recent attention comes from the fact that houses are most people’s biggest asset, coupled with the poorly performing stock market of recent years.
RealEstateJournal.com has a message board discussion that asks the question, “How has the housing bubble affected your plans to buy or sell a home?” The board has more than 6,000 postings from consumers debating both sides of the bubble argument.
No one has ever accused Patterson of inflating the bubble discussion in her role as a journalist, but she said some of the people on the message board have made general accusations along those lines.
“I don’t think you can blame the media as much as you just need to look at some of the realities and fundamentals of the local market,” she said. “If they’re just reporting, you can’t really say they overdid it.”
But people often make the mistake of thinking reporters are experts on the subjects they write about, when in fact their job is to simply relay to readers what the real experts have told them. For the most part, housing market stories come from the industry itself. Reporters respond to studies, economic indicators, and home-sale and -price statistics.
Lew Sichelman, a well-known syndicated real estate columnist, refutes the idea that he’s the go-to person for questions about real estate. Sichelman has covered real estate in his weekly consumer column for more than 30 years from his home base in Washington, D.C.
“I’ve been told I’m an expert, but I don’t consider myself to be an expert,” he said.
Steve Kerch, real estate editor of CBS MarketWatch.com in Chicago, acknowledged there is a certain psychological element to housing markets, but believes people who base their investment decisions solely on what they read in the press aren’t making a wise choice.
While some reporters get flack from real estate brokers and agents for hyping up a slowing market story, Kerch gets just the opposite from his readers.
“I write stories that deal in facts and figures. I write stories that say there is no housing bubble, so I get letters from readers who say I’m ridiculously optimistic,” Kerch said.
His experience with readers shows how widely debated the housing bubble topic has been. For every person who believes there is a bubble, there is someone who disagrees. The media so far hasn’t attempted to come up with its own conclusions–evidenced by the variety of housing bubble headlines. For every “Housing market to crash” headline, there is one that reads the opposite.
Auburn University finance professor James Barth said the bubble discussion is important, but he thinks the story is often overblown. While the facts in some instances, such as inventory levels and sky-rocketing home prices may lead one to believe the market is overheated, certain fundamentals like rising income levels and low interest rates have to be considered as well.
However, if everyone agreed that there either is or is not evidence of a housing bubble, there wouldn’t be a story to tell, Barth said.
He pointed out that the media isn’t the only one telling the story. Financial and regulatory agencies are conducting studies and raising the question as well. The Federal Reserve Bank of New York, giant banking institution HSBC Securities and the Center for Economic and Policy Research have each conducted studies of the existence of housing bubbles.
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