The Wall Street Journal reported yesterday that the housing sales reports by the National Association of Realtors dated 2007-2010 are actually 20% worse than what was reported. NAR walks a fine line when reporting facts and building membership, just like our own accountability between buyers and sellers in that we owe fiduciary to the client and truth to others. NAR, in its effort to deflate the media bias may have inadvertently endorsed the widely held public's opinion that the real estate market is bad, and that Realtors are not trustworthy. But that's simply not true.
Is WSJ any different in their motives and objectives from NAR? Not really. They have to write to their audience, while being truthful. When I saw this story break I had every intention of slamming NAR for fueling the belief that real estate isn't stable and that real estate agents are not honest. But after some Q&A on Trulia and receiving some great "answers" I decided to write about the real issue, that has created this controvery caused by two competitors within the same industry - Financial Investments.
The WSJ is probably tired of hearing Robert Kiyosaki and Donald Trump, along with a string of infomercial guys say that you should put your money where it has the potential to provide the highest ROI and learn all about the market to minimize risk. I'm sure with pervasive negative media about corporate scandals, failiures, etc. that the DOW and NASDAQ are losing funds to - real estate, the pressure to knock down real estate is huge.
Let's look at the NAR quandary of toggling between truth and growing its membership. They have to report numbers supported with data from MLS data bases and banks across the country, yet they have to put it in the best light to keep members happy.
Let's talk about reporting the numbers for a minute. You can manipulate data however you want -that's the definition of statisitcs. In a normal bell shaped curve you can adjust your standard deviation. If your number is 52 it really is a range of 50-54 with a 2% standard deviation. The statistician can change that margin of error or data set to reflect their output, and because nobody reads the fine print, nobody knows. Did you know that "average" doesn't always mean the same thing when used? It depends on which outcome drives your point best, mean, median, or mode. It's just that complicated.
Do I care about NAR reports? Sure, but I know enough about stats to know it's just a trend tool. Other than that, no. The media seeks drama to report for ratings which turn into advertising dollars - sell-outs. They always talk about national averages in 30 second sound-bites - phooey. Can you even introduce yourself in 30 seconds without missing important information?
I put even less weight in national reports when I consider housing values. Take one city that has maybe a 20-25% foreclosure rate in a city, and even higher if you drill down to a zip code or MLS area. Then compare that to San Antonio you'll get less than 10%, no matter how far you drill down (assuming you aren't looking at a developer who goes belly up, an outlier). The only news I respect is C-Span, which doesn't take advertising dollars, doesn't have a political agenda, and invites callers to call in live - way cool!
THE GOOD NEWS! This whole media battle is about convincing buyers to buy something - stocks or real estate. Historically real estate has been more stable than any other financial product other than T-Bills (over-leveraged) and municipal bonds (which now are not so trustworthy given cities and states are so far in the red they are filing bankruptcy). There are some exceptions but it's not the rule, it just seems that way since the media focuses on these dramatic situations. Real estate is a scarce commodity, and people have invested in it for centuries making it the longest running investment market in the world. Anyone who owns land is wealthy. The euro, gold, the dollar - they can bust. But if you have land and its assets, you rule.
So which is better? Stocks, bonds, or real estate? Diversify, that's what I say!
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