Chuck Ponzi May 3rd, 2006

As is with all manias that have continued far too long, participants start to believe their own propaganda. Some even take offense to opposing viewpoints; as if free speech is a hindrance to their own objective. Just such an mail was sent to the South Florida Sun Sentinal. Sorry, I know this isn’t SoCal, but just wait until it happens here.

In the letter, the author accuses the newspaper of being pro-bubble and therefore creating a self-fulfilling prophecy when real estate slows down.

Earlier this week, and many times in the past several months, you have chosen to run front-page articles on the sales slowdown in the local real estate industry and promoting the concept of a coming “bust.” The fact that virtually all real-estate knowledgeable people said that wasn’t the case, nor was it likely to be, seemed not to enter your thought process. Yet on your front page it went — and down went real estate sales. A self-fulfilling prophecy, no doubt.

I’m a little confused, writer, is a dissenting viewpoint not allowed? If the market truly is as strong as you say it is, it should stand on its own merit, right? Why would a little old thing like a newspaper article change anything about demographics, retiring boomers, or foreigners moving there? If they fabricated stories about terrorist attacks, I might understand, but prices coming down? Wouldn’t that just cause MORE people to buy than LESS? If I know something is extremely valuable, and I can get it for 25% cheaper, don’t you think more people would buy it? It’s as if you have thrown supply and demand out the window, and the market clearing price of homes is more linked to the media’s opinion of its value.

On the flipside, all of the those positive articles about real estate that were splashed on the front page and business sections about the “spotless” track record of house prices don’t constitute a self-fulfilling prophecy?

In Friday’s issue, you covered the comments of the National Association of Realtors’ chief economist, David Lereah, where this highly credible and noted national real estate expert said (quoting your article): “Lereah blamed Wall Street analysts and the media for perpetuating negative hype regarding the housing slowdown. They’re telling us we’re in a bubble and that we’re going to come crashing down. There is nothing that could be further from the truth.” My question to you, dear editor, is this: Why wasn’t that put on your front page instead of in your Business section?

Ohhh… so the problem is not that it was written, but its placement?

Let me take a stab at it. David Lereah, while he may be esteemed, is not a public figurehead. His authority is limited to only the NAR, and his advice is generally directed at Realtors, not the general public. Rising (or Falling) home prices are public information that benefits the general public.
OK, think of it this way. If Lay and Skilling (if you don’t know who these 2 guys are, you probably are a Realtor) made some comment about their wrongdoings, the newspaper could put this either on the front page or the business section because 1. They committed a crime (public) and 2. They ran a company (business). However, if someone like say, Bill Gates made some comment, this would most certainly be in the Business section.

But, just as importantly, you feel slighted that your main cheerleader was shut out from the front page and your rage is uncontainable. You just had to write a letter to the Editor.

In fact, housing in your area is cratering. The warning by the newspaper is their civic duty to notify citizens that they are about to feel a lot poorer if they don’t sell thier homes (a little late if you ask me, but better late than never, right?)

Unfortunately, by writing the letter, you have shown your true colors, you are a realtor. Nobody outside of your group gives a rat’s ass about what Mr. Lereah has to say. He’s an idiot, and how you and your fellow realtors continue to support him despite what the facts say shows how truly uninformed you really are. You see, in the world of Realtors, titles are self-assuming. If I want to call myself an “Expert”, all I have to do is start using it with my name as if it were a title. The same goes for Economist. Does he actually publish scholarly articles or defend complex economic models? No, but he has called himself an economist regardless. I would recommend if you want to change your profession or abilities, just start referring to yourself as a brain surgeon or something along the lines. It works in the land of Realtors, so why wouldn’t it work for you too?

After all is said and done, if your market were as strong as you really say it is, the market fundamentals will stand on their own. The fact that you need a mania just to support the current prices you have doesn’t mean that when the euphoria wears off that people won’t be packing the exits. We already see that with inventory numbers all over the place; record highs for ALL TIME, and we haven’t even seen any price weakness yet… just wait, it’s coming.

True economists know that market clearing prices based on fundamentals will support themselves through bad press, those that are based on fads do not. Are you now suggesting that this time is different? Because if that’s true, we have some Pets.com stock to sell you too.

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