More Housing MisInformation... When Will it Stop?

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Poor REALTORS! The misinformation campaign about the housing market continues with yet another announcement of a “drop” that is entirely meaningless. When will real estate brokers take control of the information story?

<!--more-->Yet another announcement is making the media rounds today, lowering confidence and confusing the consumer. Trulia (amongst others) released data today indicating that home sellers “slashed” prices for homes "on the market" last month. The media, untrained in either economics or real estate, is churning this report as if the “market has dropped” once again. Even financial networks are making the mistake of saying this latest price reduction continues to “wipe out” billions of homeowner equity.


Let’s pretend you go into your backyard and, using materials acquired with your credit card, build a dozen birdhouses. You then place those birdhouses on a table in the town square, and set a price for them. After a month, a few people have stopped by but nobody has purchased. So you reduce the price of three birdhouses by 30%. Suddenly, consumers purchase those three birdhouses, while the other seven remain unpurchased.

Does this mean all of birdhouses - including the overpriced ones - were "on the market" last month? Of course not.

The error in this story – and the current housing reports – is that the entire supply of inventory was “on the market” in the first place. In fact, it was not. Homes that are overpriced are not “on the market.” Homes with signs in front of them are not “on the market.” Overpriced supply represented by advertisers and entered into a MLS database or website are not “on the market.”

Nothing is “on the market” unless and until a buyer shows up and purchases it.

Basic economic theory requires both supply and demand. Markets don’t come into being both parties come together, until a buyer purchases (or at least makes an offer to purchase) something from a given supply. The mere collection, pricing and marketing of products – houses, computers, cars, whatever – only constitutes supply. Unless buyers show up – with demand – and actually purchase, it’s a mistake to call the supply and advertising a market.

This might seem like a fine point, but it’s a critical one. Most MLS and real estate portal sites are not markets. They are databases. Portions of their data represents the market. But it’s not the supply prices.

Only offered prices represent the level of the market. That's because offers only occur at the equilibrium point between sellers and buyers. And that's where the market occurs.

Reporting seller pricing – and its ups and downs – is an exercise in misunderstanding markets. It’s closely tied to the erroneous tracking of another market statistic: days on market. Most MLS and portals calculate days on market as the time since the property was listed by a REALTOR to the current date. But if nobody has been making any offers, can we really say the home has been on the market for those days?

Not a chance.

Markets operate on the principle of price equilibrium. Prices require demand and supply. Reporting only on the prices of supply tells only half the story. Housing oversupply might be depressing prices – but only of sold homes - not unsold ones. Price adjustments on unsold homes are a normal market mechanism, because sellers have imperfect information and their emotions often override more reasoned price considerations. It happens in every market, boom or bust. A drop in seller price guesstimates only indicates their proper correction of pricing judgment. What's more: falling prices for houses "for sale" but purchased with little or no money down doesn't mean a loss of anything on the seller's part. In many cases, certainly not equity.

A real drop in the market can be measured by comparing prices that induced offers this month to prices that induced offers last month. That’s where the “market” levels exist.

Why does this point matter? Three reasons: First, misinterpretation of price reductions as a drop of homes in the market harms consumer confidence. It conflates demand with price. Actual buyer demand may not have changed at all (the price of sold homes may be holding steady in the same markets, which it is in many places). Second, equating price reductions with a loss of market value – Trulia says nearly $34.8 million was “slashed” as if it was lost – is another fiction. If an $100 overpriced birdhouse gets no offers, but $50 ones sell quickly, did the seller really lose $50? Not necessarily, especially if the house was initially acquired with no real cash. Even short-sales don’t cause sellers a “loss” because in most states, there is no recourse: sellers don’t pay the lost different or get taxed on the forgiven (short) principle.

Yet it’s the third reason that this market misinformation is particularly harmful to the housing industry, regardless of boom or bust. Misrepresenting seller price reductions as a loss of market value validates the practice of overpricing by sellers. It makes it seem like initial seller prices were somehow “market” prices, and that it’s only some “dysfunction” of the market that is causing them to lower their asking price – and lose value. Economists – and real estate professionals – know this is a fallacy. It is an error of pricing in booms, and it’s equally an error of pricing in recessions. If the real estate industry is ever going to clear current supply, and pursue better practices in market creation in the future, it’s time to stop reporting fictional measurements as actual market changes.

Comments (31)

Marcia Kramarz
Re/Max Executive Realty - Medway, MA

Great Post - The media is like an enormous wave that rushes over the real estate landscape and it simply can drown that segment of the economy just by the words they print- so frustrating - I'm constantly trying to damn that wave with real data but it's virtually impossible.

Sep 15, 2010 06:28 AM
Donald Tepper
Long and Foster - Fairfax, VA
DC area investor helping heirs of inherited homes

I respectfully, but firmly, disagree.

Maybe our disagreement is just a question of semantics and the definition of the phrase "on the market."

To me "on the market" means "offered for sale." You say:

Homes that are overpriced are not "on the market." Homes with signs in front of them are not "on the market." Overpriced supply represented by advertisers and entered into a MLS database or website are not "on the market." Nothing is "on the market" unless and until a buyer shows up and purchases it. . . .

Only offered prices represent the level of the market. That's because offers only occur at the equilibrium point between sellers and buyers. And that's where the market occurs.

I'd consider each and every one of those homes--overpriced or not--"on the market." They're being offered for sale. Now, if you want to call that equilibrium point "true market value," I agree. There we're talking about value as established by the market.

"On the market" is the supply side of the equation.

The flip side of "on the market" in real estate parlance might be "in the market." Consider:

John and Mary Jones have their home on the market for $400,000. Bill and Sue Smith are in the market for a home costing no more than $380,000. Bill and Sue offer $365,000 for the home. John and Mary counter at $380,000, and Bill and Sue agree. The transaction price is $380,000. That's the fair market value of the home.

I agree with most of the remainder of your post. For example: "Misrepresenting seller price reductions as a loss of market value validates the practice of overpricing by sellers. It makes it seem like initial seller prices were somehow "market" prices, and that it's only some "dysfunction" of the market that is causing them to lower their asking price - and lose value." Very good point.

So, maybe it's just a matter of terminology. But I just can't accept your definition of "on the market."

Sep 15, 2010 06:43 AM
Manuel Monserrate
Raleigh, NC

It's not going to stop because it's (mis)information that attracts a lot of attention, and the media will run with anything nowadays to do so.  It can only be countered with true information, not stopped.

Sep 15, 2010 06:51 AM
Virginia OnullConnor
Realtor®, Photographer, Artist - Temecula, CA
Realtor - Temecula, Anza, SoCal

Dear Matthew - I love you, love your posts and blogs, and hold you up as a model of what is good in our industry and social media. I saw you in Long Beach a year or so ago and was blown away by your presentation. It kills me to do this, but....

I am afraid that I must completely disagree with one of the premises in your post.

If a house is listed, it IS "on the market"! If it is available "for sale" with a sign out front, it IS "on the market". It may not be competitive, it may not sell, but it is most certainly FOR SALE and on the market.

Your birdhouse analogy is faulty. If you set them out on a table for sale, they are absolutely ON THE MARKET by definition regardless of whether or not anyone buys them! If they are available for purchase they are for sale. They may not be ON SALE, as in at a "sale price" or discounted price, but if they are available for purchase, they are on the market.

You say "Nothing is “on the market” unless and until a buyer shows up and purchases it. " False! Nothing is a SOLD statistic until a buyer shows up and buys it. It is definitely "For Sale" and therefore "On the Market" by definition. According to your statements, only distressed homes, REOs and short sales that are priced to sell quickly count as being "on the market". They drag the market down, but plenty of rationally priced homes sell at better than REO prices.

That is part of the problem with media reporting, they don't understand the market, so they put a negative spin on everything. Doesn't matter. If it is listed, it is on the market regardless of sale price. Even if it is overpriced, sometimes they DO sell. If it is worth X to a buyer, market comps will not matter if they have the ability and desire to buy, and they will.

If a buyer shows up to a house that is not listed or for sale and somehow convinces the owner to sell it, a buyer showed up and bought it by your definition, but that house was NEVER "on the market"!

I do agree with you about the media. It is unfortunate that the media usually misrepresents or misunderstands what is going on. Good news doesn't sell papers or acquire viewers.

Please don't hate me....

Sep 15, 2010 07:00 AM
Sonja Patterson
Keller Williams - BV - College Station, TX
Texas Monthly 5-Star Realtor Recipient for the Hou

I agree with Donald.  If I were to tell my seller's "your home is NOT on the market, " what would they think? :) 

I agree with you on the media having way too much negative influence...that's why I don't bother tuning in. :)

Sep 15, 2010 07:25 AM
Stephen Hodge
Chestnut Park Real Estate Limited, Brokerage - Cobourg, ON

Well pointed out - though I also agree with those above who disagree - the overpriced homes are "on the market" as they are availble to put offers in on and the owners - theoretically at least - are prepared to sell for good market value. However, the point that measuring a drop in asking prices as having anything to do with anything, anywhere, ever, is on the money. The only real measures come from properties sold - number sold relative to those available, average selling price, overall number sold compared to the year previous, etc.

Reporting on drops in asking prices is a silly and meaningless measurement, only serving to demonstrate the public's (understandable) lack of willingness to accept today's reality over yesterday's hubris. It tells us zippo about anything economic however, nadda, nothing.

Sep 15, 2010 09:51 AM
Victor Zuniga
Berkshire Hathaway Home Services California Properties - San Diego, CA

Fantastic post! Our local San Diego news paper flip flops back and forth every other day. Consumers need to listen to us agents and take our advice. Consumers are always reluctant to accept the numbers but the numbers don't lie.

Sep 15, 2010 09:54 AM
Dianne Bartlett
Brightside Realty, LLC - Austin, TX

Interesting post but not sure of its relevance.  In our market, the crucial number is "months of inventory."  This can help an agent calculate the "odds of selling" for a homeowner.  With inventory high and solds low, our sellers' odds of selling right now are...


slim to none.  (the exact number is 15% or less.)



Sep 15, 2010 09:56 AM
Ken Patterson
TPR Properties - Rocklin, CA
Roseville Real Estate, TOP Rocklin Realtor

Student of the game!  Nice Post...

Sep 15, 2010 10:28 AM
Damon Gettier
Damon Gettier & Associates, REALTORS- Roanoke Va Short Sale Expert - Roanoke, VA
Broker/Owner ABRM, GRI, CDPE

I agree that many homes are NOT on the market, only taking up space.  If sellers and their agents would get real we would have half the inventory we have now.  Since there is not a rule in place that would force people to use common sense, we have to deal with inventory levels that are beyond belief and continue to sift through the mess to find the real houses on the market.

Sep 15, 2010 10:29 AM
Tim Bradford
Cleveland, OH
NMLS 250013

Loved the post and the explaination.  When ever I hear housing news, I tend to shake my head.   I beleieve we all know that Housing Prices are LOCAL.   When numbers are published or promoted on other than a local level my question is what value is it.  

Sep 15, 2010 11:02 AM
Richie Alan Naggar
people first...then business Ran Right Realty - Riverside, CA
agent & author

I will listen to anybody.....but make my own diagnosis accordingly......Good post

Sep 15, 2010 11:30 AM
Christine Donovan
Donovan Blatt Realty - Costa Mesa, CA
Broker/Attorney 714-319-9751 DRE01267479 - Costa M

You make a good point about the loss of value.  Data always needs to be properly analyzed to be useful.

Sep 15, 2010 03:13 PM
Gary Woltal
Keller Williams Realty - Flower Mound, TX
Assoc. Broker Realtor SFR Dallas Ft. Worth

Matthew, I think they mess up with the words on loss of market value with loss of equity. Loss of equity is a reality and where much of the pain out there is felt.

Sep 15, 2010 03:52 PM
Matthew Ferrara
-- - Boston, MA
Matthew Ferrara & Company

Thanks to everyone who posted replies; I appreciate everyone's thoughts.

Here's one for those who didn't agree with my assessment of "on the market" - I think I might help clarify with this point: The "market" doesn't occur when someone offers a product for sale; it only occurs when a seller and buyer interact. Therefore, if a product has no offers - it can be advertised, but that doesn't make a market either - then there's no market 'occurring.' 

If everything that was offered for sale were considered "on" a market, then we'd have no definition of a market. However, economists define markets as interchanges where goods and services are bought and sold. So there has to be both activity - supply and demand - in order for there to be a market.

This is something that many sellers and buyers do not understand. If a seller signs a listing agreement, it does not mean the house is suddenly "on the market' - it's simply listed. If the agent advertises it in the paper, it's still only "advertised." If there is no demand for the product - which is represented by buyer activity (offers or completed purchases) then it never made it into the market. Would you really say a home with a sign in front of it for 12 months was "on the market"? 

It holds true for buyers who under-offer, too. They aren't "in the market" if they offer 50% of a market-trending offering price of a commodity. If I go to the car dealer and offer him $10,000 for his $20,000 car, am I really a buyer "in the car market"? Certainly not.

Why is this distinction important? Because there is a LOT of media chatter about homes that are actually NOT in the market. Not every REO is on the market; not every low-ball buyer is in the market. Not every seller property that started out-priced, and reduced, is even in the market.

I think it's important for REALTORS not only to point out that the real estate market only occurs where transactions (and near-transactions via offers) are occurring. It can put media misinformation in perspective; and it can help both seller and buyer clients understand that the role of pricing isn't a guessing game. It's a real place where things are being bought and sold; and if they don't want to go there, they should be talking to a REALTOR.


Just some thoughts. Thanks especially to the REBLOGGERS, too! I appreciate it!

- MF 

Sep 16, 2010 10:45 AM
Virginia OnullConnor
Realtor®, Photographer, Artist - Temecula, CA
Realtor - Temecula, Anza, SoCal

Definition: A market is any place where the sellers of a particular good or service can meet with the buyers of that goods and service where there is a potential for a transaction to take place. The buyers must have something they can offer in exchange for there to be a potential transaction.

Nothing there about competitive pricing determining whether something is on the market or not. If  home is offered for sale, it's on the market even if the price is so high it will not likely sell.


Sep 16, 2010 06:03 PM
Matthew Ferrara
-- - Boston, MA
Matthew Ferrara & Company

@Virginia: Can't agree with you on that one: If a bunch of people get together and put products on tables at a flea market, then advertise their goods in the newspaper, but no buyers actually show up, there is no market. The stock market isn't a listing of goods "for sale" it's a reporting of the goods being "transacted" by buyers and sellers. 

I'd hate to think we could go with the "potential for sale' theory with sellers; if so, we should just tell them to pick ANY price because they'd be "on the market" but they'd never really be close to the market because there'd never be a chance of attracting a buyer...


Sep 17, 2010 03:00 AM
Brian Morgenweck
Power Realty Group, LLC Bergen County, NJ - Hackensack, NJ
Broker/Owner, GRI, CRS, ABR, SRS

Brilliant in its simplicity of conceptual basics! (I appreciate your logic & totally agree with you.)

A market is made when supply & demand (seller & buyer) come to a meeting of the minds & a deal is made possible. Market makers join the two sides When both sides don't exist for any product, neither does a market.

Possibly, "On the mark" would help folks get it. How about, "300 new listings this week!" (Well, 230 expired last week because they were mostly overpriced and re-listed this week.)

An MLS is like a restaurant menu...a database of offerings. Not everything sells unless the products being offered meet with diners' desires. Hence, the always overlooked Sambuca Gimlet with an olive for $25! There's no market for it!

Keep writing!

Sep 20, 2010 11:46 AM
Matthew Ferrara
-- - Boston, MA
Matthew Ferrara & Company

@Brian: Yes, yes, yes! Exactly my point!


Thanks for your comments!

Sep 20, 2010 01:58 PM
Richard L. Sanderson
Richard L. Sanderson Consulting - Kalama, WA
helping improve local property tax systems


Excellent post!  I saved this so I could go back and read it in detail when time permitted.  Many companies and organizations are making it a priority to fight misinformation.  I agree that there is far too much misinformation about real estate markets in the media these days.  I loved the birdhouse analogy.  The general media doesn't understand real estate economics but the industry does and should make a greater effort to get the correct stories out there.

Sep 28, 2010 10:03 AM