The Mortgage Scoop

“Tune in tonight at 10, where we will share lots of meaningless information with you in the attempt to make you think there is some value in actually watching the 10 o’clock news…”

In conversations about the housing market I often have people cite some national statistics they’ve heard.  You know the ones, you hear them on the news too.  Things like, “Home Values have dropped 18% Nationally since the market peak.”  What a worthless piece of dribble that is.

Why is it worthless?  Because real estate is extremely local, probably more than any other business.  The home values in Edina aren’t impacted by the home values in Maple Grove, let alone Maine, Maryland, Michigan, Mississippi and Missouri.  So, adding up all the numbers from across the country in order to give us “national sales statistics” is really just the result of some one getting paid to churn out reports to create news.

Some would argue, “Aren’t these numbers important because they give us the “temperature” of the market?”  Are things getting better or worse?  Are things hot, cold or lukewarm?  True, they do create something of a national temperature gauge.  But, what value does that have?

None.  If there was any real value in numbers like this, the news would report the average temperature in the U.S.  “Tune is tonight at 10, when we’ll tell you the average temperature in the U.S. this past month was 56 degrees.”  Don’t think anyone is going to care about that number, because we can easily understand that it is worthless.   Because we understand that weather–and temperatures–are local phenomenons.  We especially understand that living in Minnesota. 

So, why do people latch on to national reports of house values?  Because they don’t understand how the markets work, and when people don’t understand something they feel comforted by big, simple ideas that allow them to pretend they understand what is going on.  But, do you really know anything about the value of your home or homes in your community because of some national number?  Of course not.

I picked up on a great example of of this in February while preparing some material for our radio show.  I read an article about Consumer Confidence reports and specifically what people thought had happened to the value of their own homes.  In December, the majority of people admitted they thought their homes had lost value in the last year.  When asked how much they thought their home’s value went down, the average answer was 1%.  In January, the same report showed that people now felt their homes’ values were down 2%.

If people can think their own homes are only down 1-2% while hearing that nationally they are down 15-20% they obviously don’t see a connection between local markets and the national market–or, more likely, they don’t believe it applies to their personal home (because, after all their home has unique features and is special compared to the neighborhood).

So, why will we continue to see these reports showing up in the news?  Because not only does the general public not understand what is going on, the people reporting on the housing crisis don’t really have a clue about the subject either.  It’s not their fault, it’s an incredibly complicated series of issues grouped together under one label and reporters rarely have the time to get that in depth into a topic.  I wish they would just save everyone a few seconds of our lives and spend it telling us something that might actually matter…like what was the average temperature for March in the United States.

Alec Grebis has been giving advice to home buyers in the Twin Cities for over 14 years.  He is the first time buyer specialist featured on the Minnesota Real Estate Show, which can be heard on Saturdays from 3-5 pm on 100.3 FM K-Talk.  He works out of the Burnsville office for Cornerstone Mortgage and can be reached at agrebis@houseloan.com.

April 12th, 2009 | Category: Market Update | Subscribe to comments | Leave a comment | Trackback URL