Chief Economist Visits Boulder Area (Part 1)
Real Estate Is Local
Yesterday, I had the opportunity to attend a presentation made by National Association of Realtors Chief Economist, Lawrence Yun. I found it to be very informative and in the end reinforced many of the conclusions that I have made recently about our market (positive).
Dr. Yun has come under scrutiny by many people for over stoking the real estate boom a few years back and now hurting the market with bad news. As Dr. Yun said yesterday, the media has made the real estate bust a top story. Only rivaled by the upcoming elections. He admitted that the media reports are hurting the market. Buyers are not ready to buy when they hear Great Depression and housing in the same sentence (ie. “National housing prices fall for first time since Great Depression”). He believes that the media has a bias toward negative news. The media has an agenda to report housing in a negative light and will find the sources to agree with their story. He said he was recently contacted by a producer from one of the national nightly news shows. The question to him was “How much has the American homeowner lost?” He gave information and statistics stating that the majority of homeowners were better off now than they were three years ago. On average they had gained about 50% over 5 years and were now down 2%. He watched the news report and his interview was not mentioned. The lead was “US homeowners have lost $700 Billion!”. They had found a source to tell their story.
Real estate is local and it is hard to characterize any one market by the compilation of all markets. Dr. Yun gave the analogy of providing a national weather report. Would it do any good to know that the national average temperature is 47 degrees? Weather researches would find the report interesting as they study global warming. Large energy companies would use the information to gauge overall demand for energy. People in Florida would hear the report and wear a jacket even though it was 78 degrees. People in North Dakota would think it was a heat wave and wear a light jacket instead of a parka and gloves. In the end, not that practical for any particular area. The citizens in Florida should have a local forecast and the people in North Dakota should listen to their local forecast. The same is true for real estate.
The NAR compiles and provides information on a national basis. This national snapshot is needed and used by various government agencies (including the Federal Reserve), large insurance companies and large investors. However, the national snapshot is picked up by the media and reported as fact for every locale in the nation. This is a disservice to the consumers and many people are making decisions based on a national report. Just like those people in Florida wearing a jacket, people in Grand Junction CO, where the market gained over 13% last year, begin to question their market because they hear it is so bad.