Gary Watts and the Incredible Logic Shrinking Machine
Chuck Ponzi August 14th, 2006
A recent review of Gary Watt’s new predictions brings to light a few issues that sadden and disappoint anyone who works for the real estate industry; and should at least disappoint or engender feelings of distrust in those who buy and sell real estate with a Realtor.
Frankly said, aside from Gary’s predictions (I am confident he will be soundly trounced this year), he is advocating a lack of morality that is breathtaking at least. And perhaps even legally actionable in its intent.
If you want to review his mid-year analysis, it is here.
Here are a few choice quote, backlit by the corresponding points of the Realtor Code of Ethics it rubs or breaches:
Listing Cycle:
a. Our listing inventory usually “peaks” in September/October and declines through January, February, March and into the April/mid May time period.
b. The buyers normally begin entering the market in February and stay strong through June.
c. However, this year is . . . INVERTED! The latter half will be more active.
There is currently no historical precedent for an “inverted year”… never happened before, so without any sound discussion of what has fundamentally changed about 30 years of documented history, we are left believeing that he is just hoping.
A brother-in-law of mine told me you can wish in one hand and poop in the other and see which one gets full faster. Although I don’t claim to understand this logic, I am certain that wishing into the one hand will never get it full.
From Article 11:
REALTORS® shall not undertake to provide specialized professional services concerning a type of property or service that is outside their field of competence unless they engage the assistance of one who is competent on such types of property or service, or unless the facts are fully disclosed to the client. Any persons engaged to provide such assistance shall be so identified to the client and their contribution to the assignment should be set forth.
You know where I’m going here… Watts’ competence to issue economic analysis has to be questioned. When those who defend his track record speak, they are referring to his “forecasts” which are fortunately for him issued mid-year (or later). Uh… with mid-year forecasts allowed, I am confident that most people with high-school algebra could do as good or better than Mr. Watts. That’s a fact.
Also from his mid-year outlook
Listing Agent Advice
1. Price Reductions:
Please do not put a “price reduced” banner on your listings, and if you have one up, please take it down. It “falsely” advertises to the neighborhood that prices in the area are going down. What is more true is that sellers are lowering their expectations and becoming realistic. Plus: For we who show property, it does not instill confidence in our potential buyers.
From the Code of Ethics (COE)
Article 15 REALTORS® shall not knowingly or recklessly make false or misleading statements about competitors, their businesses, or their business practices.
At the very minimum, this is a conflict of interest to clients. If a buyer is not properly informed of the past status of pricing on the property, he/she is unable to assess the willingness of a seller to negotiate on the property’s sale. Besides being counterproductive, I am confident that the ‘ol boys monitoring the cartel status and anticompetitive information-mongering tendencies of the NAR would be happy to know if those who control the information contained in the MLS are withholding from consumers in a concerted attempt to put buyers at a disadvantage. Not a good position to be in considering the open lawsuit to that effect from the Department of Justice.
Besides, is he really that naiive to believe that other agents will actually heed his suggestion? If so, they are truly unsavvy businesspeople. Watts does not hold any position of administration in the local real estate community, so his remarks can only be seen as asking listing agents to be uncompetitive. Certainly not an ethical solution for those they are representing! Following Watts’ advice makes you less likely to sell a home from a willing (and perhaps even desperate seller), and perhaps even subject to administrative oversight that you did not properly represent your client. You could be in hot water for following his advice!
From Watts’ document:
Sold Signs: When the listing goes into escrow, please put an “in escrow” or “sold” banner on the sign! The days of a panicked buyer, desperately looking on their own for a home, are long gone. Once again, we are advertising to the neighborhood the wrong information.
Plus: Imagine how potential buyers feel seeing all those for sale signs. Do you really think you’re helping them enter the market?
Signs: If you have a listing where there are other (or many) for sale signs nearby, I would recommend that you call the other agents and see how many of them will remove their signs from their listings. At the very worst, rotate your signs until one (or more) of the listings sell, then make sure it has a sold sign on it!
He is advocating collusion, plain and simple. Any realtors who actually follow this advice could be at risk for a legal fight.
Article 12 REALTORS® shall be careful at all times to present a true picture in their advertising and representations to the public.
Ooh, that’s gotta hurt.
From his document:
Affordability Index: The numbers state that so few can afford a home - Factual
A seriously flawed index using archaic methods that are no longer relevant – Accurate
His discussion of “factual” and accurate should actually prompt someone to open a dictionary and check out the meaning of the words:
Factual:
1. Of the nature of fact; real.
2. Of or containing facts.
Accurate:
1. Conforming exactly to fact; errorless.
2. Deviating only slightly or within acceptable limits from a standard.
Well, those actually look pretty similar to me, can someone else who is perhaps a linguist or semanticist explain to us if Mr. Watts has any foundation in…well… fact? (Besides, Accurate actually allows for a deviation within “acceptable limits… wouldn’t that make factual actually more accurate than… accurate?)
Besides that, I distinctly remember some stock analysts representing stocks and mutual funds saying that the old methods of valuing companies where outdated and archaic. Something about a New Economy or something like that?
Anywho, who is Mr. Watts to tell us about this fundamental shift in human psychology? Has he been professionally trained, published any demonstrable works? As far as we can tell, he’s a salesman plain and simple. I hope those reading his “outlook” realize that he has everything to gain by you believing it.
Perhaps we should also reflect on the first article of the COE:
Article 1When representing a buyer, seller, landlord, tenant, or other client as an agent, REALTORS® pledge themselves to protect and promote the interests of their client. This obligation to the client is primary, but it does not relieve REALTORS® of their obligation to treat all parties honestly. When serving a buyer, seller, landlord, tenant or other party in a non-agency capacity, REALTORS® remain obligated to treat all parties honestly.
The Document as a Whole
There are also a number of seriously flawed arguments in his document:
June marks the Federal Reserve’s 17th straight rate increase and yet they still cannot slow this economy down! This should be the end of rate hikes for the rest of the year.
First off, dead wrong. If the FED fails to slow the economy down, it will hike more! Not less. That is simply idiocy.
Secondly, irrelevant. FED rates do not directly impact mortgage rates, and less the speculative nature of SoCal real estate. They do not change psychology like rates; that changes on its own! Credit spreads are some of the smallest in recent times! With that kind of imbalance, we pretty much only have 2 options; higher rates in the future, or recession!
The Federal Reserve reports that consumers have $5 trillion dollars in liquid cash sitting in banks or savings and loans. By April of 2006, they had $53.83 trillion dollars of household Net Worth.
Irrelevant. First off, average homeowners (which makes up about 95% of Orange County) have very little liquid net worth. There is even a joke about the SoCal Two-thousandaires. Secondly, that household networth that he is so concerned about is primarily Housing, and secondarily retirement/pension savings. Not the kind that can be tapped to buy more houses!
Personal income has been growing at twice the rate predicted by economists. So with consumers making up 70% of the economy and business spending growing, these forces are propelling the economy upward with a “one-two punch”. The economy should continue to grow at a rate between 3% and 3.5% for the rest of the year.
Besides being incredibly irrelevant, wouldn’t the economics growth of 3 to 3.5% mean that housing should follow a similar path? He also fails to put it in context for those readers who know nothing about economics (mostly realtors) that this is somewhat anemic growth, and could be argued that it is lower than inflation (he is not quoting inflation-adjusted numbers), and therefore we are actually already shrinking, not growing). His misuse of the numbers just shows you can torture the numbers long enough to tell you anything. Or, as Mark Twain said, “there are lies, damn lies, and then there are statistics.”
Besides, the vast majority of the liquid net worth is held by the top 1%. And, believe me, they are not buying multiple stucco boxes in Mission Viejo!
As of June, we have employed 1.8 million new workers over the past year. We have averaged over 2 million for the last two years – all adding tax receipts to the Treasury. If you add in the self-employed, we added another 1 million workers last year!
Once again, out of context! (and not using “accurate” figures). Economists have hypothesized that we need to have 250K new jobs per month JUST TO STAY IN PLACE! I’m no bear on America, but please get your facts straight man! Each of the BLS numbers have had downward revisions, and many have argued offer little insight into the quality of work being created. I’m no expert, but this topic has been handled many times by Mike Shedlock and Calculated Risk. The information is readily available, although I doubt that Gary is seeking it out. He is optimistically filtering and modifying information to suit his own objective.
In the U.S, incomes exceeding $100,000 (+) are growing 6 times faster than the population. For the first time, there are over 1 million people living in $1 million dollar homes and 1/3 of them own a 2nd home!
This one is easy… inflation, and overleveraging. There is little to no equity in many of these homes, and the 2nd home is an “investment” property. Warren Buffet has been known to say that it is only when the tide goes out that you discover who is swimming naked. The tide is going out.
[California's] employment growth is at 1.5%, adding 223,000 jobs last year. However, our self-employment growth rate is 11.1% which added another 218,000 jobs.
This screams for an answer. When 98% of your new jobs were “self employed”, that means there is a problem with your economy. Considering that there were about 60K new real estate agents in California last year, you can see how real-estate dependent we really are! That’ not even including the other real-estate jobs we created.
Finally, if demographics and migration were putting pressure on sales, we should see a shrinking supply of homes, not a growing supply. As of this morning, www.ocrealestatefinder.com shows 19,199 homes for sale. For the sake of the clients of those reading his outlook, I hope that none of them actually believe that artificially restricting exposure of their listings will help them (or their clients) in any way. Volume is bad and it is going to get worse before it gets better.
Gary Watts major in college was Psychology so, he tries to f&*^k with the mind of people as his mind is f&*(ked.
I appreciate how easy it is to do character assassination on a person who is a public personality, ie Gary Watts. The funny thing is that you are just helping him raise his status even by attempting to give him negative PR. You are still not brave enough to put a name to your opinion. Which makes it as valuable as well, the newspaper - which sucks. Your level of genius has yet to be matched.
Character Assasination?
There is no reference to his character, just his a question to his competency to issue forecasts for real estate.
I love the part that says “call the other agents and have them take down their for sale signs, at the VERY LEAST put them on rotation”. I’m an agent, and I would laugh if another agent asked me to take down my sign so they could put up theirs. What would my client think? I just like how he assumes it won’t be a problem, and if there is a slight problem we could maybe to a sign rotation…LMAO. Fool. The agents in my office listen to this guy like he can’t be wrong, it’s so lame.
“The agents in my office listen to this guy like he can’t be wrong, it’s so lame.”
When you desperately want to believe something that just isn’t so, you tend to put great stock in the person who says that it is.
I love the person who described Gary Watts as a “public personality.” Yeah, I saw him out with Paris Hilton the other night.
Guys, these could be realistic prices for this market… trust me there are people who can afford these prices. A lot of people in Orange County are making a lot of $$$, six figures is quite normal these days.
A dual income family can easily pull in $180+k or more. To give an example… Friend of mine, he makes $90k, wife makes $75k..both educated professionals combined income $165k and looking to buy here in Irvine, around $550k townhome.
The waning of demand is just a pause, as people realize that prices are staying flat or appreciating marginally they will resume their purchase plans.
The bubble naysayers are getting more worried as evidenced by their greater presence on these blogs lately. Likely they are realtors and flippers who know they are screwed and are trying desperately to find blame. Rather than blame themselves and the Realtor cheerleaders like Watts and Lereah, they attack the bloggers.
Why are they here? THEY ARE SCARED SHITLESS!!!!
As for the OC couple with the $165k annual income, they could easily spend $4500+/mo using a 30-yr fixed. Or else they’ll be forced to live on the edge with a non-trad. Deductions become debatable due to the AMT. Typical realtor/mortgage brokers won’t alert them to these issues. If they bite, they aren’t smart. Of course, with realt-whore friends like the guy above (notice how he says “trust me”), they won’t get good advice and maybe will jump in (and suffer the consequences). However, prices can’t keep going up with only those options available to a modest upper income family like that. With home prices flat and a non-trad, there’s no equity to gain—why not rent?
If the OC couple is truly smart and educated, they’ll rent. These naysayers truly reveal their motives and idiocy.
btw, I’m anonymous because when the shit hits the fan, I don’t need some psycho ex-realtwhore trying to track ME down (1 of 55 working CA adults is a real estate agent—that will soon be a lot of pissed-off unethical losers). The internet is great for that sort of thing. Rather, I plan to direct the newly homeless to their REAL enemies.
Furthermore, concerning housing in Orange County, I’d prefer to heed the advice of a true professional, not some shady realtwhores.
(reconnect the following 4 lines for the link.)
http://www.pimco.com/
LeftNav/Regional+Market+Commentary/
Global+Credit+Perspectives/2006/
Kiesel_For_Sale_06+2005.htm
PIMCO VP Mark Kiesel sold and is renting. Smart guy!
SCOREBOARD
Bubble Bloggers - 1
Naysayer Realtwhores - ZERO
And that ZERO doesn’t just refer to won (in their case, lost) debates, it also refers to the number of their closings for the 2nd half of 2006!!!
HA HA HA HA HA HA HA HA HA!!!!
(good luck finding us, realtWHORE!!!)
what’s with all the hate in here? If prices go down then interest rates will go up. Also rents are set to skyrocket in the near future?
So I don’t see any validity in any of your arguments so stop spreading false information. Not buying now is only going to make this more expensive, buy at $600k 6.5% payment=$3800 or $540k 9% payment=$4400 your choice
And if you buy now at least you don’t have to deal with rising rents. Buying a home is always a wise decision for the long term.
watts, is that you?
In the Bay Area, rents have already started to come down with so many units available. This week the ads show at least a 10% price decline since May. (Example: 5 Bd 3 Bath in Alameda–$2600, in May they would have been asking closer to $3000)
More empty unsold homes will soon be up for rent as well, likely lowering rents even further. If the suckers can’t sell their money pit, they can’t move out and rent, now can they? I don’t see rents increasing from here. Overcapacity is your pallbearer, RealtWHORE!!!
Hey Realtwhore, you should adjust your ambitions to being a rental manager. At least then you’ll get some (not much) income.
HA HA HA HA HA HA HA!!!!!!
I have to agree with Anon… whichever that one is. But, rents are going nowhere fast in Socal. There is a LOT more inventory coming online in Orange County with such a high buy-to-rent participation ratio, renters have a lot to choose from. Normally rents and housing prices move in lock-step, however due to “affordability” loan products, they have been decoupled. However, rents always are determined based on rental supply vs. rental demand because rents have to be paid out of current income, not out of future income like deferred payment plans like interest only and neg-am products allow housing purchase prices to decouple.
I have said it before, and I will say it again for those who are not economically inclined…
If rental housing stock exceeds the rental demand, prices fall, that’s a simple economics principle. There are some excellent examples of that; look at small urban centers in places like the Southern Tier of New York, or upstate for that matter, as well as many places in Pennsylvania. Real rents have been falling in some places for 30 or more years because of excessive supply. Nominal rents are down for the past 15 years due to major pullouts in several cities.
In a balanced market, you’re right that costs get pushed through, but in an unbalanced market with substantial new stock, it doesn’t matter what someone paid for it.
Hoping rents will rise because someone paid a lot for something is like buying a stock at an inflated price and hoping company earnings increase because you bought it for so much.
Good luck with rising rents…as I see it, we got plenty of rental stock to go around, and with rents a little over 2X the national average… they might have some room to move, but not much. Renters have a much easier packing up their stuff and moving out of state if expenses get to be too much.
“Hoping rents will rise because someone paid a lot for something is like buying a stock at an inflated price and hoping company earnings increase because you bought it for so much.” -John Doe
I watched one 3 bd, 2 1/2 bath townhouse that was up for rent in Jan at $3200, then in March it was down to $3000, and in May down to $2800. Of course, during this whole time the sucker-owner was carrying it along. Didn’t catch the finale, but now I see several other 3 bd 2 1/2 bath houses going for $2200.
The townhouse owner probably couldn’t afford the negative carry costs and tried to get it in the rent. Too bad his/her foolishness cost them months of rental income.
Just because some desperate sucker still owes $650k on the house and is asking that price, doesn’t mean the house is worth a penny over $500k. Certainly NOT if no one is buying it.
When reality hits and the first negative-equity homeowner accepts defeat, the whole house of cards comes down. And it is likely coming very soon…
“So I don’t see any validity in any of your arguments so stop spreading false information. Not buying now is only going to make this more expensive, buy at $600k 6.5% payment=$3800 or $540k 9% payment=$4400 your choice ;-)”
Another clueless realtor or industry insider clinging desperately to false hope. I too am an industry insider, an owner of a brokerage for 5 years, in the biz for 15. But unlike you, I am realistic and truthful. Your argument is lame. You probably picked this one up in one of your spin indoctrinations. I’ll use your example of 600K @6.% against the 540K @ 9% so I can educate any unexpecting “sheople” stumbling on to this site and buying into your pointless crap. For my money, I’d take the 540 @ 9%. Why? According to your numbers the descrepency is $600 more per month for the cheaper house at the higher rate. But what you fail to explain is that a rate can be changed at a future date by refinancing. You can never alter the purchase price once you buy. So I save $60,000 by buying the cheaper house, pay the higher payment short term, and refi doiwn the line at a lower rate and sit pretty. But what if it takes some time for rates to come down? At $600 a month more per month, that would be $7,200 more per year in payments on the cheaper house. If it took 5 years for rates to come back down (it never takes that long) you would still be way ahead purchasing the cheaper house. Take your $7,200 more per year and multiply it by 5 and you get a $36,000 more made in payments over that period of time. But you have to remember that you gained $60,000 on the reduction in purchase price on the cheaper home. $60,000 betterin price - $36,000 more in payments = $24, 000 to the positive for the cheaper house at the higher rate. You’re still way ahead on the cheaper house at the higher rate. Your argument sucks!
Now, everyone knows that rates are not going to hit the rate you claim, it’s just another RE scare tactic. In fact, they’ve stabilized and even dropped over the last few weeks. I called out on another site that a pause by the Fed would actually hurt realtors who’ve been using the “buy now before the rates go up” crap. But I think I’ve just successfully exposed that nonsense just doesn’t work on paper.
You’re going to have to do better than that, I’m afraid.
this is an interesting blog. I’m a potential buyer who is waiting for prices to become realistic. By realistic I mean someone earning 60-80k family income can afford a decent 3 bedroom home in a decent neighborhood. Is that ever going to happen in SoCal? If so, am I going to be waiting for years for this to happen? I know we can’t predict the future but what is the general feeling on this… how much is this thing going to come down?
If prices go from $600k to $400k, that is still way to expensive for most of us yet it represents a 33% decline which is by historical standards is a HUGE crash! I’ve been told such a crash cannot occur with the current strong wage growth. True?
if you can’t afford it now, what choice do you have anyway but to wait? rates and prices will be what they will be no matter what you and i do or say. waiting may be hard but wait you must. try to remember all the arguments when nasdaq was at 5,000 that it was a new economy, new paradigm, and the old fundamentals didn’t matter anymore.
nasdaq closed today, more than 5 years later, at 2147, almost 60 percent off its peak. (it bottomed at about 80 percent off its peak.)
in japan they had a real estate bubble in the 80’s. it burst and prices fell 50 percent and stayed down 50 percent FOR TWENTY YEARS. in early 90’s, los angeles real estate fell 50 percent. yes there was terrible aerospace job loss then but this bubble is much bigger than that one. plus, massive job loss for housing-related sectors is coming (agents, brokers, construction workers, etc.). more than half the jobs created in california this decade have been real estate related. if you can’t afford the current prices you are lucky because you will avoid the mistake of buying now that some people who can afford it will make.
“I’ve been told such a crash cannot occur with the current strong wage growth. True?”
What strong wage growth? “I’ve been told” is the worse part of your statememnt. Do some research, my friend. There are a lot of sites currently on the internet that will break down for you that over the last 10 years wage growth hasn’t kept pace with inflation. Take out real estate, and you have nothing. We’ve been riding a liquidity bubble that just happened to channel it’s way through housing. The boom of the last 5 years? Never really happened. A 30% correction? If that’s all it is, we’ll be lucky.
Oh, if you can’t afford a house, you can’t afford it. Your choices are move or rent, period!
Great Article:
http://news.yahoo.com/s/weeklystandard/
20060822/cm_weeklystandard/homesafe
http://news.yahoo.com/s/weekly.....d/homesafe
The author of that Yahoo/Weekly Standard study is a consultant to Freddie Mac. You think he’s unbiased? Ha!
“Bidding wars still in Manhattan”? He must be talking about Manhattan, Kansas, because I know a ton of people in NYC and all they keep talking about is how the real estate market there is DEAD. People are taking $200,000 of their asking price and their properties are still not selling.
Anyone who thinks real estate is only going up from here, please buy today. Please.
“Anyone who thinks real estate is only going up from here, please buy today. Please.”
I couldn’t agree more. Go out and buy your house. That way we can cull out the rest of the idiots and get on with business at hand. Kind of an economic-Darwinism. So go out today and jump on your “opportunity” of a lifetime and suck it up with the most insane toxic loan you can find. Your going to do it anyway, regardless of what logic and common sense tells you, so get on with it. Hey, being that we’re at the top of the market, you can always say you went out on top! Good for you!
- Consumer spending is going to come to a grinding halt.
- Interest rates going up
- RE and Constructions jobs which represent the majority of job growth in recent times is simply going to vanish in LA/OC.
- ARMs are going to be resetting.
- Real estate Inventories are skyrocketing.
- Oil prices are going up
…yet some clueless idiots are predicting soft landing? Where are these “experts” living, on Mars? Give me a break! It’s so obvious that the party is OVER and all the recklessness and mind numbing stupidity of the past several years is finally going to catch up to us. The next few years is going to be very UGLY!
Great analysis. Now I’m not sure who I despise more, Watts or or that scumbag shyster Lareah. I guess even though Lareah backpeddles on his earlier comments and contradicts himself at every turn, its better than outright lying. Watts just made #1 on my list of douchebags. He even ranks higher than any polititian in history in my book.
I am actually grateful to the shyters like Watts and Lareah. The more suckers and idiots they convince to buy now, all the harder the landing and all the more buying opportunity for those who understand logic and common sense and waited on the side-line until the bottom fell out.
nnvmtgbrkr, well done response to the RE blather. One additional aspect is that buying at the higher price locks the owner into a higher property tax. In a falling market this is just one more fundamental reason to wait rather than “buy now”.
[...] Burn in Hell (April 2006) Gary Watts Pulls His Head Out Long Enough to Stick It Back In (July 2006) Gary Watts And The Incredible Logic Shrinking Machine (August 2006) Gary Watts… Ignorant Optimist or Deluded Sociopath? (October 2006) Gary [...]