Disinformation in the Speculative Frenzy of Southern California Housing
Chuck Ponzi November 30th, 2005
dis·in·for·ma·tion (ds-nfr-mshn)n.
1. Deliberately misleading information announced publicly or leaked by a government or especially by an intelligence agency in order to influence public opinion or the government in another nation: “He would be the unconscious channel for a piece of disinformation aimed at another country’s intelligence service” (Ken Follett).
2. Dissemination of such misleading information.
The feeding frenzy of the housing bubble has its share of pundits. As no surprise, when the stakes get higher, so does the rhetoric. During the unwinding of the last speculative phase in the stock market, many learned the hard way that giving false or misleading information can get you into trouble. The saving grace of many of those analysts was their ignorance… they actually believed that the stocks would go higher.
In the US justice system, incompetence is not a crime. However, losses from malpractice can be had when a responsibility of some magnitude is placed in the expectation of the minds of those involved. Doctors and Lawyers can be sued for incompetence when the reciever of the service has been led to believe that the person is qualified. Stockbrokers can be sued for giving misleading information in the light of contradictory evidence.
So, this leaves us with the question of what responsibility Real Estate Pundits and Agents have when making statements of the future performance of an asset such as a home in the future of price declines. Anyone care to wager how sue-happy Southern Californians will handle a 35 or 45% drop in their home prices?
Here are some of the implicit parties
Name: Gary Watts
Qualifications: Was right the last time around in 89
Stance: Prices will increase into the forseeable future at double-digit rates
Name: David Berson
Qualifications: Chief Economist for Fannie Mae
Stance: “Since they started keeping track in the early 1950s, there has never been a nationwide decline”
Name: John Karevoll
Qualifications: DataQuick Information Systems Economist
Stance: “(Affordability Index) is an interesting number but for the past two years or so, it hasn’t really meant anything to tell anybody anything”
Name David Lereah
Qualifications: Chief Economist for National Association of Realtors
Stance: “There is no national price bubble. Never has been; never will be”
Name: Gary Painter
Qualifications: Director of Research for the University of Southern California’s Lusk Center for Real Estate (Wow, that’s a mouthful)
Stance: (Hot housing markets aren’t bubbles) “because valuations have been pretty much in line with what economists call the fundamentals of demand — low interest rates, very little supply”
Will these gentlemen become targets of personal damages in the future? Will they be required to submit the standard “Not for use as investment advice” as other professionals need to?
Anyway you look at it, residential real estate has changed in the minds of the people of America. It is no longer a place to live, many consider it their most important “investment”, and for many, their only.
Wonderful “Pearl Harbor” list but I have one nit to pick.
Karevoll at DataQuicksays “(Affordability Index) is an interesting number but for the past two years or so, it hasn’t really meant anything to tell anybody anything”
This is true, very true. For the last two years the HAI has been worthless. He deserves to be applauded for this not excoriated. Reading between the lines he is saying that there’s something wrong that’s going to eventually resolve. That’s what bubble watchers are saying isn’t it?
True, but I didn’t put perhaps one of his more damning remarks. This is him on Mercury News Quoted:
“We’re not seeing any indications in digging through the numbers that there is any impending turn in the market. All we’re seeing basically is that the market is going to continue to normalize,” he said.
(Emphasis added)
He was practically the one who coined the phrase “soft landing” back in April 05.
He’s definitely no Lereah, but he has mislead since he is in a position to know better, having all the historical data available to him much more than the common man.
BTW, the second quote came from less than 2 weeks ago.
Alright, with the context restored the criticism of Karevoll can stay.
Thing is, as completely wrong about what is happening as he is he still speaks the technical truth. Wait, kill me after I’ve said my piece. There is very little in the numbers that supports a turn in the market. That’s the literal truth and also wrong. I know it, you know it and I -suspect- Karevoll knows it. So far we bubble brainiacs (smart enough to see the bubble) have only inventory and total ownership costs on our side. This lack of confirmation is the expected condition at the start of a correction. The gas bags (all hot air contributing to the bubble) have a great general economy and stable rates and historically low supply among others to hold onto.
All I’m saying is that DQ goes to great lengths to avoid editorializing their reported data. They are a valuable (and free) resource. I called the turn 06 Oct ‘05 sometime after breakfast. Nothing DQ reports is in any way contrary to that call.
Robert,
You’re right. I definitely won’t kill you on that one. In this day, it is unfortunate that even one slip of the tounge taken out of context can seem pretty bad, vast number of people (even educated people) can be led to believe the greatest of old wives’ tales because they don’t have the time or energy to research the facts.
What is important is to maintain a critical mind and teach this kind of critical thinking to those around us (not just internet braniacs). It’s much easier to get your information spoon-fed to you by CNBC, FOX News, or CNN.
In reality, however, we must all censor what information is important and what is not. I hate to see people throw away their hard-earned money to smug flippers or inexperienced agents. We only hope to educate others with an opposing viewpoint.
Will Southern Californians ever be able to sue these guys? In a word, no. Nor should they be able to because of 2 words: caveat emptor.
Thanks for your thoughts.
Guys, what we got here (go to url)is a classic example of speculative frenzy of SoCal Housing happening or rather collaboratively perpetuated in a remote area(so they think) in Littlerock, an unincorporated area of the Greater Antelope Valley, County of Los Angeles. Palmdale and Lancaster are neighboring communities just minutes away were once known as “affordable and justifiable” to ALL white collar workers to sacrifice the daily commute of approximately 120 miles to and from downtown Los Angeles, 100 miles to and from the San Fernando Valley depending on where their work is situated (notwithstanding fuel $$$)Man, whoever these crooks are unconscientiously slammed all these peoples lives from BAD to worse. Imagine what shall have happend to all these honest tax payers homes after the fact.