DON'T BLAME THE AMERICAN CONSUMER FOR THE STATE OF THE HOUSING MARKET OR THE ECONOMY.

THEY ARE CONSUMERS, NOT HOUSING MARKET ANALYSTS.

A recent comment that the American consumer had marginal ability to pay and didn't care is typical of many posts and comments that I read. 

I dispute that premise. 

The American family does care.  They are, however, unsophistacated in financial matters.  Tell a family that they can have their dream home with low mortgage payments with the promise of refinancing in 2-3-5 years when they are (1) making more money, (2) have a mortgage interest tax deduction, etc. and they will focus on their goal of having their dream home in a community where they want to live, perhaps have their children attend school. 

I also read comments that the American consumer used loan products that they didn't or possibly couldn't understand. 

How is the American home buyer supposed to understand that which many experienced real estate practitioners do not understand? 

What is that consumers field of expertise?  Are they

• plumbers
• carpenters
• computer programmers
• high school science teachers
• attorneys
• graphic artists
• automobile sales persons
• photographer

What in these fields of employment gives these consumers the skills to analyze the real estate market trends??

WHO DOES UNDERSTAND? 

ONE PERSON WHO KNEW OR SHOULD HAVE KNOWN was David Lereah, NAR Chief Economist. 

Matt Heatonbrings us insight into the thought processes of the Chief Economist of the NAR at a time when the NAR, with the data and the ability to analyze the data could have published warnings, if not to the consumer, at least to the membership. 

Q: "Were you wrong to be so bullish?"

A: "I worked for an association promoting housing, and it was my job to represent their interests. If you look at my actual forecasts, the numbers were right inline with most forecasts. The difference was that I put a positive spin on it It was easy to do during boom times, harder when times weren't good. I never thought the whole national real estate market would burst."  More. . . .

WHO'S LOOKING OUT FOR THE CONSUMER?  Why didn't someone who did understand explain the risks to the consumer??  Or, it is possible that no one understood.  Or, is it possible that the entities that do understand the market were more interested in perpetuating the housing boom to the limit in order to maximize concomitant profits?  The opportunity to leverage the small investment into a good return in a few years was quite real.  Home buyers who purchased at the beginning of the bubble, 2003-2004 were able to realize a significant gain.  Goodness, I purchased a home in 2003 for $363,000 and sold it in 2005 for $700,000 almost twice what I paid.  I leveraged a $70,000 investment into a $338,000 return. 

However, when the real estate market leveling off in the Spring of 2005, it was clear to me that it was time to take my money and get out.  I listed my home in April 2005 and we had offers in a week.  I'm capable of watching market trends and unless I had planned to live in that property for many years, which I did not, it was clear that it was time to sell.  How many consumers are able to read market trends and move on a dime???  Very few.  I had also refinanced after the first year to pay the second off from positive equity.  How many consumers are capable of timing refinancing opportunities???  Very few. 

HOW MANY CONSUMERS HAVE ACCESS TO MARKET STATISTICS?

The below is for Montgomery County, MD in September 2006.

  2006   2005   % Change

Total Sold Dollar Volume:	$ 698,526,939	$ 937,433,323	- 25.49 %
Average Sold Price:	$ 538,571	$ 530,523	1.52 %
Median Sold Price:	$ 450,000	$ 439,000	2.51 %
Total Units Sold:	1,297	1,767	- 26.60 %
Average Days on Market:	57	22	159.09 %
Average List Price for Solds:	$ 564,016	$ 529,851	6.45 %
Avg Sale Price as a percentage of Avg List Price:	95.49 %	100.13 %

The pure statistics shown above show a clear trend to a declining market.  Numbers don't lie.

WHAT DID THEY KNOW AND WHEN DID THEY KNOW IT? 

How many consumers knew that the securitization of mortgages was going to cause a meltdown at Fannie Mae???  Very few.  Why did Fannie and Freddie lower their standards to purchase Sub-Prime and Alt-A mortgages that would reset in 2-3 years??  Did Fannie and Freddie warn the consumers buying homes in 2003-2005 that home prices could implode once the price got too high for the average American consumer to qualify for the price, even with low interest rates???  Why not???

If this simple minded real estate broker was capable of seeing the end of the boom in 2005-2006, why were not the geniuses on Wall Street, at Fannie and Freddie, in Congress, at the Fed and at Treasury????   Why were not warnings coming out of NAR in early 2005 that housing prices had exceeded the American home buying qualifying ranges and sales were going to slow???  I seem to recall that NAR focused on membership numbers rather than sensible hard core market analysis. 

REAL ESTATE BROKERAGE CHANGED.  I also completely changed my real estate brokerage business model in 2006 to eliminate over 70% of overhead.  Without the volume that we had had in the past, over 200 closed sales a year, there was no way that paying office expenses, the overhead and risk for in-company agents, etc. that it any longer made any sense to operate as an employing broker.  Operating a lean and mean brokerage model made more sense with the dramatically reduced transactions in early 2006 and getting worse. 

NEW HOME MARKET SALES DECLINE  It was clear by September, 2006, that the new home market in my area was in decline. 

Sales in one of our strongest market areas, Woodbridge, Virginia slowed from 1033 sales of SFH in the first quarter of 2005 to 898 SFH in the first quarter of 2006.  This at the same time that interest rates were going up. 

HOW CAN THE AMERICAN CONSUMER BE BLAMED FOR BUYING A HOME? 

Clearly they cannot. 

                    

                                         "Honey, are you sure we can afford this house?"

                                                 "Of course Dear.  We qualified for financing didn't we?"

                                            "But, what is going to happen in 3 years when the rate goes up?"

                                                  "We'll just refinance.  That's what the Joe and Susan did."

                                                                "Don't worry, Honey.  We'll be O.K."