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Three Reasons Why I Ignore Housing Market Experts

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My friend sent out an article today about how Baltimore is predicted to see its housing prices fall 27.8% in the next five years. 27.8% over five years is approximately 5% each year for five years… that’s the prediction. I think predictions like that are worthless and why I generally ignore them.

Reason 1: Where Were You Four Years Ago?

If you can predict the future with absolute certainty, why couldn’t you predict we were going to enter a slowdown in 2006 back in 2003? The market’s been somewhat slow for over a year now, so why didn’t we get some advance warning? The reason why is because you can’t predict the future. You can make an educated guess about what will happen next year, maybe the year after, but five years? C’mon now.

Reason 2: Experts Say What Is Popular

Wouldn’t you like to get one TV? What about see your name in the newspaper or magazine? Of course you would and so do experts. That’s why they will look at the data and why a lot of them will come to the same conclusions. When the market’s hot, it’s blazing hot. When the market’s cold, it’s sub-zero. Experts are likely to say those things because that’s what will get them on television or into magazines and newspapers.

Reason 3: Experts Are Never Called Out

Do you have any idea who said the housing market was sizzling hot right before it tanked? Probably not, that’s because no one keeps track and no experts are ever called out when they’re wrong. When things go sour, some CEO gets canned. I bet they wished they had these experts tell them that subprime was going to go into the toilet and their SIV’s were going to get them axed (though they both received handsome paydays).

What do you think of all the housing doomsday experts? (the ones that do scare me are the experts talking about the dollar and the exchange rates, so I can’t claim total rationality, I mean the Canadian dollar is worth more than the US Dollar! Insanity!)

{ 7 comments, please add your thoughts now! }

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7 Responses to “Three Reasons Why I Ignore Housing Market Experts”

  1. MoneyNing says:

    Actually there is one housing blog I frequent that have been calling a crash 1-2 years ago and he’s been right so far.

    As to experts, I agree with you because everyone makes predictions. The only difference is that they will tell everyone on TV and we won’t!

    I’m a little nervous about China and other countries dumping the US dollar too. I sure hope the US doesn’t go into a slump like Japan did 20 years ago (they are still no where near the 1989 stock market level after 18 years).

  2. Mitchell Dobrenen says:

    I am a licensed real estate agent in South Carolina.

    Housing markets are local, not national. In some cases they are a few blocks in size. So never try to apply anything an expert ever says about a national market to your local market. How do you think real estate agents make money when the country is going to hell? They play their local market.

    In my part of South Carolina we have one city and two lakes that are HOT. Take one step out of those areas and you can buy 20 to 30 per cent more house without even trying.

    There are two universities in the area and parents are buying their kids $150,000 to $200,000 condos and townhomes to live in. You couldn’t pay a local native to live in a townhome or condo. Who buys them when they want to sell, the next out of the area parent with more money than they know what to do with.

    In some areas we’ve got houses selling for less than $20,000 on one street and similar houses selling for $80,000 two blocks over.

    You simply can’t make generalizations.

    I know of a couple of people in the local area that are going to become millionaires in real estate because they are happy to capitalize on foreclosures.

    If you are worried about China then make currency plays to take advantage of whatever bad thing they might do to the dollar. That’s how George Soros made his money. It’s nice to worry about other people, but it doesn’t feed your family. Even during the Depression fortunes were made.

    In college I took an economic forecasting course. We were able to do all sorts of crazy things to the US economy to see what would happen. 20% unemployment, no problem, just put in the number. No matter what we did the economy would recover in a year or two.

    Remember anything under 5% unemployment is considered full employment. Out of work. I’ll bet anyone that’s breathing can still find a job on the Gulf Coast and I’m sure they’re going to need a few construction workers in Southern California. You’ve got to be willing to move, work hard and live in crowded conditions, but hey, that’s what the Chinese are doing and they’re going to kick our butts over the next century. And so are all those immigrants however they got here.

  3. Laura says:

    I loved #3! You’re so right that these experts don’t get called out. It’s understandable that they get things wrong. I also dislike some of the money magazines that praise the housing industry and then an issue or two later write about how this was inevitable.

  4. I think it’s hysterical that the prediction is so precise: 27.8%

  5. Ruth says:

    Common sense.
    Common sense says that housing can not keep going up double digit figures every year.
    Common sense says that the average earning couple 40-50k a year can not afford 300,000+ homes.
    With out of control health care, food and energy costs that have gone up 20 percent or more a year. These are basic needs that are not included in the government inflation costs.
    The average wage increases are 3-5%. Housing going up 15% a year far exceeds that along with all of the other rising costs. Something has to give.

  6. cami says:

    @Jay Muntz – that is an excellent point.

    There are some housing experts/economists that have been pointing to a correction/downturn for years. However, many are not with the same institutions that they were with two or three years ago, even while attempting to tread lightly.

    As for no experts being tracked, that’s not exactly true, though I’m not exactly sure what makes one person an “expert” anyway. Thanks to the beauty of the internet there are people who have been tracking many of the real estate talking heads like David Lereah (former head of the National Association of Realtors), Leslie Appleton-Young (California Association of Realtors), and Gary Watts (some guy in Southern California) and often post quotes from two or three years ago with what they are saying now.

  7. I agree that experts don’t have crystal balls, and you should never “bet” your future on a prediction (think diversify).

    But, I looked at the Fortune article, and it wasn’t a willy nilly guess at a falling real estate market. It looked at the historical relationship between rents and buying. A solid correlation exists between the two. If a potential buyer has a choice between buying or renting, economic theory states the person will move to the choice that makes the most sense economically.

    Now stating a specific 27.8% drop is arbitrary. Rents could rise quickly and negate a drop in real estate. Of course, interest rates dictate affordability as well.

    From personal experience, I moved to the Baltimore area from Florida a couple years back. I have been renting. One, I am not sure of the exact area I wanted to live so renting made sense, but I also felt housing was due for a fall. I rent a townhouse, and my rent is about $300 to $400 cheaper per month when you factor in HOA fees, taxes, and insurance. Until the gap closes, I will continue to rent. It might be different if homes were appreciating, but they aren’t.

    Of course, as Mitchell points out, real estate is local. I would love to move to SC right now…getting too cold up here for me. 🙂

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