The National Association of realtors is dedicated to advancing the interests of listing agents who dominate the organization. Their primary focus is to generate real estate sales and commissions that provide income for its members. It spends enormous sums promoting real estate sales with the mantra, “it’s a great time to buy or sell a home.”
The problem with this singular focus and approach is that it is not always a good time to buy or sell a house. realtors want to pass themselves off as experts on real estate whose advice can be relied upon by market participants. However, realtors have no interest in whether or not it truly is a good time to buy or sell because for them, it’s always a good time to generate a commission. This conflict of interest causes realtors to be self-serving liars who line their own pockets at the expense of the people they ostensibly serve. I detailed this phenomenon in the 2010 post Urgency Versus Reality: realtors Win, Buyers Lose.
realtor Mind ®™
I recently attended a realtor marketing seminar, and it was fascinating to watch the realtor mind at work. The presentation included many “reasons to buy” realtors could use in their own
consultationsmanipulations with customers. There was little or no regard for the veracity of the claims, it only mattered that realtors have something, anything to create urgency in buyers.
Many realtors see their job as presenting buyers with reasons to buy, any reason, and hope the buyer is gullible enough to believe them. They feel no responsibility for buyer outcomes; whocouldanode, right? What other explanation is there?
realtor Mind is Everywhere
How widespread is realtor mind? Am I unfairly labeling a large group based on a few isolated incidents among unscrupulous practitioners?
Back at the peak of the housing bubble, the National Association of realtors produced the “Suzanne Researched This” commercial. The scene is set with a couple discussing a home purchase in their kitchen with a realtor voyeuristically listening on the phone. In stereotypical fashion the commercial shows women how to browbeat their spineless husbands into submission, and it shows men how to acquiesce gracefully and pretend you got something out of the deal.
In their defense, the NAR did not say prices are going to the moon, but it does show that manipulating people to buy — even in 2006 when it was disastrous to do so — it the primary goal of NAR advertising. It is easy to see this couple, and anyone who fell victim to the Suzannes of the NAR, going through the foreclosure process today. Is the NARs culpability for that? Are the Suzannes?
If there is a doubt that some realtors are simply clueless shills who will use the appreciation angle to their advantage, watch the video below:
In the monthly reports I publish, I also measure the affordability of homes relative to historic norms. I’ve even developed a market timing system designed to inform people when conditions favor buying or selling. This month I added two great new graphs showing the valuation history and rating system recommendations from 1988 to present.
I believe I utilize a better methodology than the NAr, but the real reason the OCHN affordability measures are better has less to do with technique than it does with philosophy. I want to be accurate and tell the truth. The NAr wants to find some reason, any reason, to convince buyers to buy. It’s this difference in philosophy that directs every decision big and small that goes into the final product we each produce. It’s why my reports have value, and it’s why the NAr’s reports have none.
In the past, we have discussed how worthless the NAR’s Housing Affordability Index is. This weekend saw an odd column in Barron’s that was suckered in by the silliness of that index.
This suggests to me it is time to take another pass showing exactly why this index has so little value to anyone tracking housing values and affordability. let’s begin by going back to our 2008 analysis:
“The index as presently constructed is utterly worthless. It provides little or no insight into how affordable US Housing actually is.
One would think that with the resources of the NAr and the data they collect, producing an accurate and useful report would be easy. Unfortunately, since they are burdened with a pathological philosophy devoted to deception and manipulation rather than truth and accuracy, they produce a worthless piece of propaganda.
during the huge run up from 2001-2007, there was but one month — ONLY ONE MONTH!— where the NAR said homes were not affordable!
Compare that with my rating system above that went red from 2004 to 2010. It didn’t suggest prices were affordable until mid 2011 when valuations finally became attractive locally.
Here is the 10 Year Housing Affordability Index:
Looking even longer term — 1989 to present – shows just how absurd the index is:
If the NAr were actually interested in producing an accurate affordability index, they could easily do so. If they merely examined those times in the past when houses were not affordable, identified the conditions that made them so, and adjusted their index to reflect past reality (which is what I did), they could easily develop an index that is a robust indicator of market health that would send timely signals to market participants who are concerned about when they should buy or sell a house.
But that isn’t what they want.
The NAr wants to produce a piece of propaganda designed to manipulate market participants into action. By their own criteria, their affordability index is a success. Unfortunately, by the standards everyone else applies, their affordability index is worthless drivel.
$341,850 on a $5,150 investment, plus 3 years squatting
California real estate really is like playing the lottery, except that many more people win. The former owners of today’s featured property put $5,150 down when they bought this property, and over the ten years that followed, they extracted $341,850. When it all blew up, they were allowed to squat for three years.
- The former owners paid $174,000 on 3/30/1995. They used a $168,850 first mortgage and a $5,150 down payment.
- On 11/13/2002 they refinanced with a $232,500 first mortgage.
- On 1/12/2004 they obtain a $90,000 HELOC.
- On 7/7/2005 they opened a $140,000 HELOC.
- On 11/22/2005 they refinanced with a $386,400 first mortgage and obtained a $55,200 HELOC.
- On 6/27/2007 they refinanced with a $510,000 Option ARM.
- Total mortgage equity withdrawal was $341,850 plus negative amortization for the three years they bothered to make payments.
- With the Ponzi money cut off, they quit paying their mortgage in 2010, and they were allowed to squat for three years until the bank finally forced them out.
These people, like many other OC Ponzis, had friends that knew them and witnessed how they spent money. To the degree they took notice, which is less than most people think, they must have been impressed by their profligate ways. Some the Ponzi’s friends may have even got caught up in “Keeping up with the Ponzis.” Unfortunately, that’s a difficult task when the Ponzis are getting exorbitant amounts of free money from stupid lenders. In order to keep up, many probably went Ponzi themselves. Ponzi borrowing spreads like a financial virus, a plague that wipes out all who contract it.
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Proprietary OC Housing News home purchase analysis
25182 VIA VERACRUZ Laguna Niguel, CA 92677
$414,900 …….. Asking Price
$174,000 ………. Purchase Price
3/30/1996 ………. Purchase Date
$240,900 ………. Gross Gain (Loss)
($33,192) ………… Commissions and Costs at 8%
$207,708 ………. Net Gain (Loss)
138.4% ………. Gross Percent Change
119.4% ………. Net Percent Change
4.9% ………… Annual Appreciation
Cost of Home Ownership
$414,900 …….. Asking Price
$14,522 ………… 3.5% Down FHA Financing
4.40% …………. Mortgage Interest Rate
30 ……………… Number of Years
$400,379 …….. Mortgage
$123,150 ………. Income Requirement
$2,005 ………… Monthly Mortgage Payment
$360 ………… Property Tax at 1.04%
$0 ………… Mello Roos & Special Taxes
$86 ………… Homeowners Insurance at 0.25%
$450 ………… Private Mortgage Insurance
$280 ………… Homeowners Association Fees
$3,181 ………. Monthly Cash Outlays
($468) ………. Tax Savings
($537) ………. Principal Amortization
$23 ………….. Opportunity Cost of Down Payment
$72 ………….. Maintenance and Replacement Reserves
$2,272 ………. Monthly Cost of Ownership
Cash Acquisition Demands
$5,649 ………… Furnishing and Move-In Costs at 1% + $1,500
$5,649 ………… Closing Costs at 1% + $1,500
$4,004 ………… Interest Points at 1%
$14,522 ………… Down Payment
$29,823 ………. Total Cash Costs
$34,800 ………. Emergency Cash Reserves
$64,623 ………. Total Savings Needed