Is The Media To Blame For Today’s Real Estate Problems?

June 15, 2008

I’ve noticed that some of my fellow Realtors® blame the news media for much of the real estate slump. They especially seem to blame the media for spreading bad news–about real estate and other areas of the economy–and thereby scaring buyers and sellers.

It’s true that the media tend to sensationalize the news. And there’s no obligation for the media to print just good news, or to shine a light on the silver lining of a black storm cloud.

Much of the problem, though, is that there are a lot of bad economic and social developments, and these get reported. That’s the nature of news.

A couple of days ago, I spent about 15 minutes on Google going through the news headlines. Now, advocates of “everything is just great out there, but look at the depressing news coverage” will find this fodder for their arguments. Yes, here is a collection of bad news. But the publications aren’t making this stuff up. Here’s a sampling:

Chances jump of rate hike as early as August
MarketWatch – 5 hours ago
By Laura Mandaro SAN FRANCISCO (MarketWatch) — Futures traders increased their bets that the Federal Reserve would hike interest rates as early as August, …
Ford shareholders flock to Kerkorian tender offer, UK – 4 hours ago
By David Bailey DETROIT, June 10 (Reuters) – Ford Motor Co investors, reflecting pessimism over its near term prospects, responded to billionaire Kirk …
Trade deficit jumps to highest level in 13 months
The Associated Press – 8 hours ago
WASHINGTON (AP) — The trade deficit jumped to the highest level in 13 months in April as America’s bill for foreign crude oil soared to an all-time high. …
Government steps up review of oil, commods price surge
Reuters – 1 hour ago
By Joanne Morrison and Tom Doggett WASHINGTON (Reuters) – US regulators stepped up their efforts on Tuesday to determine why prices for oil and a range of …
McCain questions Obama VP advisor links to Countrywide, NC – 20 hours ago
Republican presidential nominee John McCain is making an issue of Democratic rival Barack Obama’s selecting former Fannie Mae CEO Jim Johnson as part of …
Bush Urges Congress to Approve War Funding
Voice of America – Jun 7, 2008
By Scott Stearns US President George Bush wants $178 billion more in military spending to help pay for wars in Afghanistan and Iraq. …
Asia Day Ahead: US Stocks Slump on Jobless Rate, Oil Surge
Bloomberg – Jun 8, 2008
June 9 (Bloomberg) — US stocks tumbled, sparking the Dow Jones Industrial Average’s worst sell-off in 15 months, after a jump in the unemployment rate and …
US Third-Quarter Hiring Plans at 5-Year Low, Manpower Says
Bloomberg – 16 hours ago
A slowdown in employment is likely to erode consumer confidence and spending, which accounts for more than two- thirds of the US economy. …
US consumer confidence hits record low -IBD survey, UK – 7 hours ago
NEW YORK, June 10 (Reuters) – US consumer confidence sank to a record low in June as a surge in gasoline prices to more than $4 a gallon and a jump in the …

Some reading these items may be tempted to “shoot the messenger” and blame the media. No: These underlying problems are not the media’s fault. They’re serious problems being faced by various sectors of the economy. And these problems aren’t going to go away next week or next month.

Equally important, large segments of the American public are aware of these problems, and that makes them nervous about spending hundreds of thousands of dollars for a home. They go to the supermarket and see the rising price of food, and the shortages of staples like rice. They fill up their gas tank, spending $80 for a tank of $4.25 gasoline. They’re seeing their neighbors lose their jobs. They can’t help but see the boarded-up houses with the auction notices posted in front. They’re not stupid.

And I didn’t even both to search out news stories pointing to the huge overhang of property that are likely to go into foreclosure in the next year.

I’m not saying it’s all doom and gloom. Far from it. From a real estate perspective, interest rates remain good. Prices are lower than they’ve been for the past few years. (Low enough? Hard to say.) People who buy wisely today are very likely to be very pleased 5, 10, or 15 years from now.

But the news media aren’t to blame for today’s real estate problems. (Unless you want to blame them for not reporting the facts 3, 4, or 5 years ago about the impending bubble, and the reasons for it. But that’s the topic of another blog.)

How Will The Real Estate Market Be Affected By The Presidential Elections?

June 1, 2008

The residential real estate market has slumped across the country. Some areas have been hit worse than others.

In the search for solutions, some are looking to the presidential elections. There’s a hope that, somehow, the election of a new president will re-energize the markets. But will it?

First, any effect will be psychological. Now, that’s not to discount psychology. A lot of what’s affecting the current market is buyer (and seller) psychology. And that was certainly the case a couple of years ago, before the real estate bubble burst. People were buying on emotion, not facts and reality. The market was soaring; their friends were making fortunes in a matter of months, and they wanted in on the action. The facts suggested that the growth rate was unsustainable. And reality suggested that soon, with continued escalation of prices, no one would be able to afford a home.

So, what might the psychological effect of the presidential election be? Considering that many people blame the current Bush Administration and its policies for the position we’re in now, the election of someone who supports the current policies probably would have very little effect. The election of someone who represents a break with the past could have a significant psychological effect.

Note: I know it sounds as if I’m saying Obama would help the real estate market and McCain wouldn’t. Again, we’re talking psychology, not actual policy. From that perspective, then, an Obama victory might help, and probably more than a McCain victory.

But it could be possible for McCain to stake out a far different economic position than Bush has. Or he might select someone as his vice presidential running mate who would do that. Or announce people he’d like to appoint to his Cabinet.

On the other side, while Obama in general reflects change, he’d still have to articulate a position of change as it applies to the economy in general and to real estate in particular. And, yes, if Clinton somehow got the nomination, the same conditions would apply.

Obama’s website, at the moment, doesn’t have much detail on the subject. He does say:

“Obama will crack down on fraudulent brokers and lenders. He will also make sure homebuyers have honest and complete information about their mortgage options, and he will give a tax credit to all middle-class homeowners.”

But that’s not the root of the problem.

Obama’s site also says:

“Obama will create a fund to help people refinance their mortgages and provide comprehensive supports to innocent homeowners. The fund will be partially paid for by Obama’s increased penalties on lenders who act irresponsibly and commit fraud.”

That might help a small portion of those in trouble. But it won’t help anyone who’s already lost their home, either via a foreclosure or short sale. And it doesn’t appear to help people whose homes have lost substantial value. If someone bought a home in 2006 for $500,000 and it’s now worth $350,000, refinancing that $500,000 mortgage, while lowering payments slightly, still leaves the homeowner “upside down” by $150,000. And all the other homes in that neighborhood are still only worth $350,000…versus $500,000 a couple of years ago.

Meanwhile, McCain does have a proposal, but when you consider the paperwork, the hoops homeowners would have to jump through, and the bureaucracy it’s sure to spawn, there’s a real question of whether it would benefit many homeowners.

McCain’s website says:

John McCain Is Proposing A New “HOME Plan” To Provide Robust, Timely And Targeted Help To Those Hurt By The Housing Crisis. Under his HOME Plan, every deserving American family or homeowner will be afforded the opportunity to trade a burdensome mortgage for a manageable loan that reflects their home’s market value.

Eligibility: Holders of a non-conventional mortgage taken after 2005 who live in their home (primary residence only); can prove creditworthiness at the time of the original loan; are either delinquent, in arrears on payments, facing a reset or otherwise demonstrate that they will be unable to continue to meet their mortgage obligations; and can meet the terms of a new 30-year fixed-rate mortgage on the existing home.

How It Works: An individual picks up a form at any Post Office and apply for a HOME loan. The FHA HOME Office certifies that the individual is qualified and contacts the individual’s mortgage servicer. The mortgage servicer writes down and retires the existing loan, which is replaced by an FHA guaranteed HOME loan from a lender.

So, under McCain’s plan the homeowner had to be creditworthy after 2005…but nevertheless have accepted an “unconventional loan”…and must be in trouble now…but still must be able to qualify for a 30 year conventional loan. That eliminates a huge chunk of the population in trouble.

And then there’s the fact–as with Obama’s plan–that you’d still be refinancing a $500,000 mortgage on a $350,000 property. When Harry Homeowner wants to sell in a year or two, and his property is still worth under $500,000, what then? Are we just postponing tens of thousands of short sales?

If any of the candidates came in with a “Marshall Plan for Housing,” a major program, well laid-out, with some freshness and creativity, that could have a positive effect. Otherwise, I wouldn’t expect much.

One exception: The housing market around Washington, D.C. Every time there’s a presidential election, housing activity increases simply because a lot of people (administration officials, staffers on the Hill, congressmen and representatives, and so on) leave, and others come to replace them. I think it’s safe to say that there might be a greater turnover in all those categories than in past years. So, it’ll help the DC area. As for the rest of the country? Highly unlikely.

Don Tepper,

Realtor with Long & Foster licensed in Virginia