Analyzing why “It’s a great time to buy or sell a home!”

Yesterday, we discussed the $40M NAR ad campaign, “It’s a great time to buy or sell a home!”

On the way home, I actually saw the full page ad in the Personal section of the WSJ; (Unfortunately for the NAR, the section’s front page article was “The New Word in Home Sales: ‘Canceled’)

I read the ad as a typical consumer would . . .  then I reread the ad critically.

When I was finished, it occured to me that EVERY SINGLE STATEMENT IN THE AD IS MATERIALLY FALSE OR MISLEADING. The nicest thing I can say about any of the points is that they are incomplete.

To wit:

NAR Advertising Claim Reality
Interest Rates Near Record Lows

Today’s interest rates are comparable to 40-year lows, offering homebuyers a once-in-a-lifetime opportunity.

Interest Rates WERE at record lows in 2003 when the Fed Funds Rate was 1%; Since then, rates have climbed 425 basis points (4.25%); Mortgages were as lows as 5.125%; They recently were over 7%.
Large Inventory Won’t Last

There are currently 3.75 million homes for sale. We have had a record inventory of homes on the market in recent months, offering consumers the greatest choice in decades.

Slowing Sales and Overbuilding are the reasons for the inventory buildup; Year-to-date sales are down 16.5%.

Economics 101 tells us that increased supply means decreased prices.

Large selection also means selling your current home has become more difficult;

Prices Overall Have Stabilized

Contracts for home sales in August are up 4.3 percent1 and the outlook is for home prices to increase next year.

Home prices have experienced their first price drop in a decade;

As unit sales continue to slump, the  Median Price Keeps Falling;

This is no basis for assuming any price stabilization has occured.

Positive Outlook

Former Federal Reserve Chair Alan Greenspan recently said that housing prospects are looking up. “Most of the negatives in housing are probably behind us. The fourth quarter should be reasonably good,  certainly better than the third quarter.” According to industry estimates, 2006 will be the third-best year on record for home sales.

Is this the same former Fed Chief  Greenspan who advised getting variable APRs at the precise low in interest rates?

As to the “record sales,” its more informative to look at the current trends, rather than the raw numbers (population growth will create meaningless “record numbers”).

Real Estate is a Great Investment

Homeownership is a safe, secure way to build long-term wealth. The national median price of homes bought ten years ago has increased 88 percent. The number of US households is expected to increase 15 percent during the next decade, creating a continued high demand for housing.

Actually, it performs about half as well as stocks do over the long run.

Up 88% over the past 10 years is far above the historical norm — mean reversion is very likely.

(But you gotta live somewhere, right?)

Don’t Delay

Now is a great time to buy or sell a home.

If you delay, you run the risk of paying less for a new home.

In all my experience trading, I cannot recall ever coming across any item that it was a great time to buy and sell something simulataneously.

Perhaps the NAR is a fully hedged Long/Short fund .  . .

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Gee, no wonder so many real estate agents have a sketchy reputation; The bullshit is a professional hazard, from their Professional Association on down . . .

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Sources:
The New Word in Home Sales: ‘Canceled’
Buyers Back Out of Deals In Record Numbers; A $30,000 Deposit, Lost
JUNE FLETCHER and RUTH SIMON
WSJ, November 3, 2006; Page W1

http://online.wsj.com/article/SB116252244421212232.html

Category: Data Analysis, Economy, Psychology, Real Estate

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Category: Media, Retail

It’s a great time to buy or sell a home!

In fact, its such a good time, that the National Association of Realtors decided they need to drop $40 million telling you so: > > Buy the way, imagine if a Fund manager or analyst ever said: XYZ? Oh, yeah, its a great time to BUY OR SELL that. (They would cart them away). Here’s…Read More

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Blog Spotlight: Abnormal Returns

Another edition of our new series:  Blog Spotlight.

We put together a short list of excellent but somewhat overlooked
blog that deserves a greater audience. Expect to see a post from a
different featured blogger here every Tuesday and Thursday evening,
around 7pm.

Up next in our Blogger SpotlightAbnormal Returns. AR is a year old blog written by a private investor with
nearly two decades of experience in the markets.  His experience
includes a stint in a variety of roles with a mainstream investment
management organization, extensive publications in the practitioner
literature, and a hedge fund start-up.  The Abnormal Returns blog is
focused on investor education and unearthing items of interest for the
investment blogosphere.

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Abnormal_returns

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Today’s focus commentary looks at Stock Replacement Strategies in the Spotlight

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Stock
Replacement Strategies in the Spotlight

Seldom a day goes by
without the financial press reporting on some new financial product innovation. 
We have been attuned to the fact that with this increase in choice also comes a
need for education and proper context. 
While
ETFs are clearly the most visible
innovation, the list does
not end there.  Option volumes have
also
surged
showing an increasing
interest on the part of investors to more closely match their viewpoint with the
most appropriate financial instrument.

We
here at
Abnormal
Returns
do not claim to be
options experts, but the time is right to explore an interesting options-related
opportunity.  The stock market, measured by the S&P 500, has run up from a
June low of some 1220 to a recent high of nearly 1390, for a gain of some 14%. 
With some
valuation
and
technical
measures becoming a bit overextended it should not come as surprise that some
investors are looking to reduce their overall market exposure.

Read More

Category: Blog Spotlight

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Category: Retail

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Category: Economy, Psychology, Retail

Blogger’s Take: Hard or Soft Landing ?

Category: Blog Spotlight

Home Price Indexes, Prices

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