realtors expound shoddy analysis to create a false sense of urgency
realtors are more interested in generating false urgency than helping buyers make a sound decision that’s best for their family.
When a realtor talks, at some level you know that most of what they say is bullshit. They aren’t necessarily liars that intentionally make false statements, they are bullshitters, people who make statements without regard to the truth, usually to manipulate behavior for self-serving reasons. realtors don’t care about truth. realtors want only one thing: to generate the largest commission possible with the least amount of time and effort. Bullshit helps reach their goal because bullshit smooths over all objections by telling people what they want to hear.
The Credibility Continuum
The credibility of anyone’s opinions relies on the history of factual and truthful statements made by the individual. I’ve been writing about real estate issues daily for over seven years, so I have some credibility on the subject due to the large number of statements and predictions that proved to be accurate and prescient. Nobody is infallible, so achieving 100% credibility is impossible, but with skill and integrity, anyone can gain a great deal of credibility to comment on a subject.
The easiest way to visualize how credibility works is to see it as a continuum as described below. Infallibility (100% credibility) is on the right, and always wrong (-100% credibility) is on the left, and zero credibility is in the middle. Notice that always being wrong is not 0% credibility because if someone were always wrong, anyone could know what the right answer is by believing the opposite. Further, it takes a great deal of skill to be either right or wrong all the time because it would require the person to know the difference.
Zero credibility comes from random guessing; sometimes the person is right and sometimes the person is wrong. This can happen because the person has no skills or knowledge in a subject matter, or as in the case of realtors, the person may simply be making up opinions and guessing what someone wants to hear — bullshitting.
realtors score less than zero on the credibility continuum. Many have minimal skills, but those that do are trained to offer self-serving bullshit answers to any question. Many realtors bullshit out of ignorance which puts them closer to zero, but still in the negative; however, many realtors are smart, and they knowingly lie and manipulate people making their credibility score even more negative.
realtor Reason Du Jour
Some time ago I attended a marketing presentation with many examples of how to manipulate the current situation to create urgency when none exists. One of these pertains to the inevitability of rising interest rates, and it goes something like this:
If a buyer is looking at a $400,000 home, very low interest rates make the payment affordable, but when interest rates go up, it will be harder and harder to finance that $400,000 home. In fact, if interest rates go up a full point, a buyer might lose as much as $100,000 in buying power; therefore, you should buy before interest rates go up.
Hmmm… I nearly raised my hand to ask a follow up question but then I contemplated who my audience was and what they understand about real estate markets and finance, I decided against it. I ask the question here:
OK, if I buy today, the buyer who wants to purchase the house from me in the future when I am ready to move may not be able to borrow as much money. Won’t that make my house harder to sell, and might I have to lower the price — a great deal — like the $100,000 mentioned in the example? Isn’t the fact that my take-out buyer is going to be much less leveraged working against me?
We all know the answer to those questions (See: Future loan terms determine future house prices), and that was when I had an epiphany: the realtor mind is unconcerned with reality, it is only concerned with urgency, and if urgency conflicts with reality, urgency wins, and buyers lose. Buyers are supposed to believe the realtor cares and that they are looking out for the buyer’s best interest; beliefs wholly incompatible with a realtor Mind®™ that places urgency over honesty.
realtor Mind®™ explains why realtors allowed their credibility to fall to less than zero. Urgency is more important than honesty, and without honesty, they can’t gain any credibility; therefore, realtors have no credibility, and as long as realtor Mind®™ run their association, they never will.
Almost $20K lost for waiting just one year, far more in hottest markets
With interest rates and home prices expected to climb in the next year, the financial penalties of delaying or forgoing a home purchase in today’s market have become very steep, according to the inaugural Opportunity Cost Report released today by realtor.com.
The report examines a wide range of factors, including the long-term financial impact of owning versus renting a home, the likely monetary gain renters forego in waiting to buy and the financial benefits of homeownership by market.
“Current market conditions give buyers the opportunity to build substantial wealth in the long-term, compared with renters and later buyers, in advance of the projected increase in mortgage rates and continuing price appreciation,” said Jonathan Smoke, chief economist for realtor.com. “The problem is inventory is low, which has many would-be home buyers – especially first timers – standing on the sidelines and missing out on potentially material financial gains.”
These same “sophisticated” analysis techniques were used to dupe buyers into purchasing homes at the peak of the housing bubble. Compare Mr. Smoke’s statements with those made by the NAr in 2006.
Nationally, the estimated wealth an average buyer would accumulate over a 30-year period based on today’s dollars totals $217,726.
Although some markets are more buyer-friendly than others, national data shows homeowners see significant financial benefits as compared to lifetime renters. In 88 percent of MSAs, buying a home produces a financial benefit of at least $100,000 over 30 years.
Ten markets offer an especially considerable upside to owning, with estimated 30-year financial gains above $500,000, and opportunity costs of waiting three years as high as $200,000.
These MSAs, in California and other Western states, are relatively expensive markets with strong housing demand and limited supply. The potential long-term wealth in these areas is the greatest nationwide, and likewise, the long-term financial penalty for delaying ownership is substantial, due to price appreciation, escalating rents, and higher mortgage rates on the horizon.
Personally, I believe home ownership is a great way to build wealth over the long term, assuming owners don’t extract their equity and blow it on other things. (See: Home ownership with no mortgage is the best retirement plan) However, what is true over the very long term may or may not be true in the short term, and there is nothing special about today’s circumstances that warrant any special urgency.
“This analysis looks solely at the financial reasons to buy a home, based on assumptions about rising mortgage rates and changes in home values,” Smoke said.
In other words, garbage in, garbage out. His model undoubtedly assumes more appreciation than people will ultimately enjoy because rising rates will be a persistent headwind.
“It’s important to remember that a home purchase decision is deeply personal. Potential buyers need to consider factors such as upcoming life events, job security and potential relocation, in addition to financial benefits, because they too can have a significant impact on ownership.”
Sometimes people buy for the wrong reasons. People make rational purchase decisions based on faulty reasoning and irrational beliefs. Most of these center around false assumptions on the financial rewards of owning real estate.
Buying a home for rapid appreciation is a fools game. Most would-be Donald Trumps base their opinion of long-term home price appreciation on short-term market trends. By the time the general public becomes convinced house prices will go up forever, they have already been rising in an unsustainable manner for far too long and most likely ready to crash.