Anyone who has ever mentioned “real estate” at a social or professional gathering no doubt has heard the inevitable question that seems to be on everyone’s mind: “When is the housing market going to crash?” It’s a loaded question, and one that’s of course impossible to answer since the future is unknowable. Yet the question affords a golden opportunity for real estate professionals to educate homeowners and the public about how the housing markets work and what the statistics and current trends are. What, after all, does the question: “When is the housing market going to crash?” really mean?
The difficulty with the question is that housing market terms and statistics are bandied about in a casual fashion and few people know what these terms mean or think carefully about how they are used in everyday conversation. It’s worth taking a moment to find out and it’s worth many moments to share that information with others who want and need to know.
Here are some points to consider:
— Statistics used to track and measure housing markets have specific meanings and can’t be cited interchangeably. For instance, a decline in the number of home sales is not the same as a decline in home prices. Nor does a drop in the median home price in one market mean the prices of all the homes in that market declined. And let’s clear up one of the most common sources of confusion: A slower rate of home price appreciation isn’t equivalent to a decline in house prices. (If you didn’t understand that sentence, please read it again.) If you cite such statistics as home sales, median prices or rates of price appreciation, don’t assume people know what those terms mean. Explain them and try to clear up any misconceptions.
— News reports about housing often rely on national numbers. These totals can be helpful and important for statisticians, economists and housing experts, but they rarely reflect precisely what’s happening in any given local market. Know the difference between national and local statistics, and be sure to specify whether the information you provide to others is national, regional, citywide or local. Explain why national trends may not be the case in your local market.
— It’s also useful to understand whether data has been annualized or seasonally adjusted, although neither of these statistical tweaks is necessarily worrisome. For instance, when the National Association of Realtors reports the national pace of existing home sales each month, that figure is a projection of the total over a 12-month period and it accounts for seasonal fluctuations in sales activity.
— Data is always collected over a period of time or at a point in time. If the time period or point isn’t specified along with the data, any conclusions based on that data may be not relevant to the current situation. When you share data with others, know when it was collected and explain whether it’s current enough to be useful. Anecdotal evidence or personal on-the-spot market knowledge can be a more reliable indicator of current conditions than large quantities of out-dated data, although that’s not always the case.
— Comparisons over time are important, yet current data may appear to be more or less favorable depending on how it is compared with historical data. For instance, a mortgage interest rate that’s higher than, say, 6 percent might appear to be relatively unfavorable compared with the lower interest rates of recent years, but highly favorable compared with historical interest rates decades ago.
— Most sources of information have a bias as a result of their commercial or personal interest or expertise. A bias doesn’t necessarily mean the information is unreliable or untrustworthy, yet knowing the source’s biases can make the data more useful and improve comparisons of disparate data from multiple sources that may disagree with one another. Pay attention to whether the source is a real estate trade group, a bank economist, a government agency or a Wall Street stock analyst and so on.
— A popular Internet search engine returns 1.85 million Web pages for the phrase “bubble in housing market.” Yet, hot-button words like “bubble,” “balloon” “crash,” “soft landing” “boom,” and “bust” can be highly misleading and can trigger irrational feelings and emotional reactions that aren’t supported by hard evidence. Historical and current data are more meaningful than emotional descriptions.
The bottom line is that real estate pros are well-positioned to counterbalance misinformation about the housing markets with education. If you know the facts and you understand what the figures mean, you can help people make sound rational decisions, rather than wild emotional ones.
Marcie Geffner is a real estate reporter in Los Angeles.
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