Friday, March 30, 2007

Can the Media drive Real Estate Market Prices Down?

What is the impact on the media on the real estate markets?

I think you will find this an informative perspective on the real estate market, but a long article to read. I found it a very interesting article because it echo's the sentiments down in the US and these types of articles seems to rear their head because the markets are very soft throughout the US.

When our Canadian markets last experienced a downward trend, from about 1990 to 1994, there were many negative articles about the state of the real estate market and I believe that this had a very strong influence on people's decisions to NOT purchase a home or even make a move. I firmly believe that the press influences if not drives our real estate marketplace in the GTA. The next time there is some skepticism in the press, just watch how the local real estate market stalls.

Enjoy, your comments are always appreciated!

Media coverage can dampen real estate market

Fact or fiction: The media decides whether you buy or sell a home.

Sounds ridiculous, even insulting. But many real estate professionals insist there is a psychological component to buying a house -- and that a lot of negative publicity about the housing market can have an effect on whether consumers will buy, sell or sit.

Chances are, when you are thinking about buying a home (and you're really honest with yourself), factors such as your credit rating, income, debt load, the available houses in your market and the prices in your market are going to have more of an impact than what you read or hear over your morning coffee.

But that's not to say the broadcast and printed word don't have some impact.

Many blame the media for the slowdown that hit the housing market in 2006. "What happened to us is the media," says Ellen Renish, regional vice president for the National Association of Realtors, or NAR.

Stories about a real estate "bubble" and its potential to burst caused consumers to "not do anything," she says. "And nothing happened. The bubble stories really stopped things for three months," Renish says. "It was pretty scary."

Looking for deals

When it comes to sales, the biggest factor is "the local economy," says Dick Gaylord, president-elect of the NAR. "But I can tell you that almost every buyer I talk to today thinks they're going to get a phenomenal deal."

In the Midwest this year, one big yardstick is job growth torquing the force of supply and demand. "If jobs come, there will be buyers," says Lawrence Yun, a senior economist with the National Association of Realtors. "And if jobs don't come, there won't be buyers."

"But I think the media does have an influence," he says. "I get calls from Realtors who have been working with buyers for months -- then the buyer reads or hears something that predicts a price crash or large inventory and the buyer decides to wait. The media is trying to portray the reality of the market."

But many times "there tends to be a slight slant that tends to scare potential buyers," he says. "People start placing a lot of reliance on what they read, particularly from major papers."

This is one reason it pays to investigate on your own. Especially since neighborhoods and price ranges in various areas of a region, state and town can be vastly different.

Also, talk with a couple of pros in your area. "You might find out that the market is better than you were led to believe in the press," says David Ledebuhr, regional vice president for the National Association of Realtors.

The long-range view
Real estate professionals would like to see more of the long-range perspective in real estate media coverage.

The real estate market is cyclical, says Ron Phipps, broker for Phipps Realty in Warwick, R.I. "For those of us who've been doing this for a while, this is a normal cycle," he says of the current buyer's market climate. "It's not particularly bad."

He worries that the media "amplifies minor changes," he says. "The media is like the wind: It creates white caps, it creates a lot of excitement -- which can cause people to be overwhelmed."

While talk of a real estate bubble "is great theater," the hard fact is that most people buy a home to have a place to live, Phipps says. The price will differ according to what a buyer can afford, but that basic need is always there.

Real estate professionals have also seen a wide range of interest rates in the past two or three decades. And while nobody likes to see climbing rates and the bigger mortgage payments that result, some agents remember when rates for a typical home were in the teens. And, they also remember that lower home prices added some balance to the equation.

"I sold houses when the rates were 16, 18 percent," says Renish.

"And I bought my first house at 9 percent," she recalls.

What part does the economy play?

From a practical standpoint, many of the areas of the country that are seeing depressed growth or declining prices can link it to one or more of several factors: a shrinking jobs market or faltering local economy (including a higher number of foreclosures); overbuilding; or speculators who bought to make income or quick profit and dumped the properties when interest rates started to rise or prices started to decline.

Mike Fratantoni, senior economist with the Mortgage Bankers Association, agrees that jobs are the No. 1 factor when it comes to the health of the home market. "Absolutely, the job market is most important," Fratantoni says. "And we think that the Fed's successive rate increases have not quite worked their way through the economy yet. We do anticipate that as these work into the economy, we will see some slight increase in unemployment," likely by the middle of 2007.

And while the media likely has "some psychological aspect" for the buyer and seller, says Fratantoni, "at the end of the day it's the fundamentals" like affordability, a strong job market and income growth that signal buyers that "it's a good time to get in," he says.

When it comes to buying and selling, "I do think there is something about psychology," says Nicolas Retsinas, director of the Joint Center for Housing Studies at Harvard University.

Nationally, home prices increased 60 percent in the period between 2001 and 2006, he says. "If you bought a home five years ago, you're in pretty good shape as far as equity building."

When it comes to the recent decline, "part of it was psychology," Retsinas says. "We had seen interest rates heading up. As we look back, at some point buyers started to wonder, 'Will these exist tomorrow?'"

In addition, home prices had been escalating so much faster than salaries that "the mortgages couldn't bridge the gap between incomes and house prices," he says. "It's almost as if house prices had to take a breather."

All real estate is local
One common complaint from real estate professionals regarding media coverage is the failure to understand and communicate that all real estate is local. So while a bubble, hot market, flipping trend or price decrease gets a lot of media attention, it doesn't mirror the entire market.

"It's a reflection of something going on in one area, in one dynamic spot," says Dave Dalzell, a regional vice president for the NAR. But consumers hear it and get concerned, he says. Then "we have to take and analyze the neighborhood" where they're buying, he says. "My town just had the biggest jump in home values in 20 years," he says. "We think it will slow down some, but won't lose money."

Ken Libby, owner/broker of Stowe Realty in Stowe, Vt., echoes the thought. "The only argument I have with the media is when people try to paint one picture for the whole country," he says. "And you can't do that." By Dana Dratch •

Read more about the real estate market trends and current status.

Toronto Real Estate Board (TREB) Average Prices and Graph

For more information please contact A. Mark Argentino

A. Mark Argentino, Broker, P.Eng.,
Specializing in Residential & Investment Real Estate
RE/MAX Realty Specialists Inc., Brokerage
2691 Credit Valley Road, Suite 101, Mississauga, Ontario L5M 7A1

BUS. 905-828-3434
FAX. 905-828-2829

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