Nearly 90% of consumers recently polled say they are not interested in buying a home any time soon. A joint poll of the Associated Press and AOL indicated that the recovery of the housing sector will not be any time soon if the retail American consumer has anything to say about it.
60% of those polled stated that they were DEFINITELY not going to buy a home anytime soon while just 0ver 10% said they would be looking to purchase a new home in the near future.
You don’t have to be a mathematical genius to see that there is a tremendous amount of inventory available for a very slim and decreasing demand. If supply and demand ideology is true, then it is safe to say that there are going to be an overwhelmingly increasing number of unsold homes.
Since unsold homes equates to unearned commissions, what are the majority of real estate agents going to do? Earlier this year, we wrote what was viewed as an inflammatory article announcing the NAR Going Out Of Business Sale. Doesn’t sound too far fetched anymore does it?
Don’t Believe It’s A Going Out Of Business Sale…Then Somebody’s Lying To You!
While this news of prospective buyers not wanting to purchase any homes is somewhat disconcerting, it’s not the main reason to be alarmed. It’s merely a by product of a continued misunderstanding of the simple economic precept of supply and demand.
Many current home sellers do not understand it, and many listing agents do not understand it. It is my opinion that if this theory was more understood and accepted, then it is possible that the housing market would not be in the state that it is.
The Laws of Supply and Demand represent the cornerstone of economics and these laws are the basis for a free market economy. DEMAND is based upon how many buyers are interested in acquiring a certain product or service AND how much of that service or product they are interested in consuming. The latter part of that statement is often overlooked.
When planning to bring a product or service to market it is prudent to have a good understanding on not only the consumer’s desire for a product, but also knowing how much of that product the consumer is willing to…well consume.
When you go to a movie, you come to the theater and take a seat and wait for the film to begin. As you sit with your popcorn and soda, you see the room begin to fill up. The theater owner knows there is a certain part of the neighborhood that will be interested in a certain film, what is harder to forecast is how many of those in the neighborhood are actually willing to purchase a ticket at that particular time and in the near future to see THAT particular film.
In real estate, with a tremendous amount of inventory, there are less and less buyers willing to even purchase a home and the Realtor working in that particular market can not determine which home any prospective buyer will purchase at any particular price at any given time. The irrefutable laws of supply and demand are working negatively on the pricing of inventory in the real estate industry.
While certainly there are SOME buyers out there looking for homes in any given market, and that is a given, what has now been determined by the latest AP/AOL poll is that the market of available buyers willing to consume at the present time and foreseeable future has dwindled considerably.
The “law of demand” is important for those in the real estate industry to understand. This basis of enterprise states that the higher the retail or asking price of a good, the less consumers will DEMAND that product or service. In black and white this is an undeniable fact, point blank…the higher the price, the lower the quantity of the demand. Add in to the mix a perceived decline in value and you have a recipe for economic disaster.
In the present real estate market, there exists a declining consumer base willing to purchase any home, at any price at any time in the foreseeable future, while you have an incredible, growing supply of product flooding the market and FURTHER influencing prices downwards.
In is incomprehensible how any seller or any agent can be utilizing the obsolete CMA or comparable system of pricing homes on the market right now. Real estate seems to be one of the only businesses wherein price is not determined by an accurate and intelligent assessment of supply and demand. Why?
Real estate professionals are either not understanding the proven laws of supply and demand or are seeking to ignore them. The former is remedied by an actual study of economics and business, the latter spells certain supplantation for those unlearned.
Maybe the NAR should have saved the $40 Million it spent on the “Great Time To Buy Campaign” which was DOA when it was unveiled. While I agree it is indeed a great time to buy, the message was futile and lost. It should have been the “Great Time To Buy At A Price People Are Willing To Pay – No Such Thing As A Low Ball Offer – No Offer Refused Campaign”, maybe that campaign would have had some legs.
I am sure there are some top producing agents out there that will indeed weather this storm, but if approximately 90% of the consumers WILL NOT be buying a home in the foreseeable future, is the Great Realtor Famine upon us?
Other Posts you may find Interesting…
Eric Bramlett says:
What’s the typical % of people that say they “will buy a home in the near future?” What was that number 2 years ago, and how has it changed?
That would really tell me something…
April 16, 2008 — 3:42 pm
Craig Tone says:
A little doom and gloom never hurt nobody.
April 16, 2008 — 3:52 pm
Greg Swann says:
Seventy million households. Seven million transactions. That would be a great year.
Polls tell us absolutely nothing, since all that matters is what people do, not what they say.
The people who don’t get supply and demand write for newspapers. For now.
April 16, 2008 — 3:54 pm
Norm Fisher says:
You folks will be doing cartwheels down there before too long if one in ten people are actually serious about buying a home anytime soon.
April 16, 2008 — 4:05 pm
Bob Lipply says:
I guess it depends a lot on what part of the country you will in. I feel very fortunate and optimistic living in an area where people relocate to.
April 16, 2008 — 4:26 pm
Barry Cunningham says:
Hmmm..interesting points all.
“Polls tell us absolutely nothing, since all that matters is what people do, not what they say.”
Greg..you are such the Bohemian…guess that’s why I like the BHB
April 16, 2008 — 5:48 pm
Greg Swann says:
> Greg..you are such the Bohemian…guess that’s why I like the BHB
I hold all testimony in doubt. It need not be misleading, but it often is.
A good measure of supply and demand in residential real estate would be the prevalence of significant buyer’s agent’s bonuses.
When builders owned a lot of spec inventory, they were offering 6%, 8%, 10%, 12%. Right now in Phoenix, 3% is common, with a hint at 4% or 5% now and then. Conclusion: Not much excess inventory.
In resale, you see small bonuses, but, just as often, I’m seeing 2.75% or even 2.5% as the co-broke. This may mean the listers are trying to list at 3% total and still leave a little meat on the bone to be gnawed. It doesn’t argue that there’s is a lot of desperate non-foreclosure inventory.
As I said, the houses we track as a bell-weather of the market are at 7.7 months, not a huge oversupply. It’s plausible to me that we are somewhere near the bottom of the market in Phoenix. We have a huge net inflow of population — and we’re just getting out of a very bad winter up North — so results will vary in other markets.
April 16, 2008 — 6:10 pm
Eric Bramlett says:
Statistics out of context or in the wrong context are misleading 99% of the time. Polls are misleading 99.99% of the time b/c they’re so easy to manipulate if you have an agenda when you create the questions…but the national media’s unbiased, right?
April 16, 2008 — 6:23 pm
Charleston real estate blog says:
Barry, to denigrate all real estate agents seems to bring you immense pleasure but your headline is factually incorrect.
As to the law of supply and demand, I clearly understand it and frankly, in my market, I have written often that prices should have declined with twice the level of inventory and 30% less transactions. Yet for the longest time, prices held steady and have only recently shown the slightest decline. The Charleston real estate market should not be confused with the dire situation in South Florida.
However, a poll that indicates 90% of the population is not interested in buying a home and that 10% of the population is interested in buying a home in the near future is quite in line with ordinary trends in real estate.
After all, 100% of all home buyers do not buy and sell a home every year. Most people actually live in their homes an average of 6 to 8 years. Using 7 years, only 14.28% should be interested in buying or selling in the next year so considering the current housing mess, 10% is not all that much lower.
I agree with your belief that there are too many real estate agents but not for the reasons you source. There were too many real estate agents during the housing boom and most didn’t have more than a few transactions at best and many won’t have any transactions during the currently more difficult real estate market.
April 16, 2008 — 6:42 pm
Eric Bramlett says:
10% to 14.28% would be right in line w/ roughly 30% less transactions. But hey “4.28% Less People Now Interested In Buying a Home” isn’t quite the headline.
April 16, 2008 — 6:51 pm
Barry Cunningham says:
Howard,
Please do not be like so many. The headline, is a question for you and others to answer and as such can not be “incorrect”. I think that if you read it as such you will certainly agree.
As for some feeling or pleasure in denigrating “all real estate agents” I think in reading the article in its entirety shows that not to be the case.
It’s possible that I should begin prividing disclaimers on each of my articles so that the reader does not take that inference. Maybe I should do so. Thanks for pointing out that it comes across that way.
Polls and statistics are meant for us to discuss and debate. They always look different depending upon which side of the fence you happen to reside.
I would imagine Hillary and Obama can validate that. However nonetheless, they are taken to show an indication of public perception.
Some here wish to place no credence in polls, which is an individual’s prerogative.
This is clearly an “if the shoe fits” proposition not by any means a “one size fits all” declaration.
April 16, 2008 — 7:07 pm
Charleston real estate blog says:
Barry, I was civil, others may not have been. Your premise is entirely too similar to the media reporting of all the bad news in the housing market but that is totally understandable since you are the media. Bad news sells.
April 16, 2008 — 7:11 pm
Dave Phillips says:
Anyone still on AOL has lost credibilty a long time ago.
With inventory levels so high, we seem to have a bunch of folks who will be buying sooner or later.
With that said, less members would be a good thing for everyone.
April 16, 2008 — 7:31 pm
Steve Trimboli says:
Tell me, how does Nearly 90% of consumers recently polled equal 90% of POTENTIAL BUYERS?
“It is incomprehensible how any seller or any agent can be utilizing the obsolete CMA or comparable system of pricing homes on the market right now. ”
— These are the listings that sit on the market for over a year!
Any effective agent will consider “solds” for pricing.
April 16, 2008 — 7:39 pm
Barry Cunningham says:
Steve and Howard,the methodology can be seen by actually reading the poll. I did not take it..merely reported it.
April 16, 2008 — 7:52 pm
jmac says:
Barry,
I really thought an out of the box person such as yourself would have realized the pure folly of the supply and demand argument by now.
The demand is down some. Others have pointed out the 14% figure and the reduction to 10% is in line with our current market conditions.
The supply side of the equation is skewered significantly and will remain so until new labels are created to accurately identify the status of homes on the market.
Now, I realize you are the high rolling investor type fellow. I also think you would agree that when they poll the consumers, they are focusing on those that will possibly purchase a home next year.
Here is some inside information that you may not have garnered from your investors. When people buy a new home, they usually either have to sell the one that they own or they are moving from a rental situation. Those that own and home and want to sell to move, usually wait until they have an offer to begin seeking a new home. Those that are on a lease, usually wait until there is about 90 days left before seeking a new home. Both scenario’s create the need to be able to have a firm move-in date on their new home.
That situation removes the majority of the “short sales” from consideration. If you pull those homes out of the potential pool of homes, well the supply dwindles significantly. In Montgomery County Maryland, over 75% of the homes under $400,000 are reported to be short sales. That leaves 25% of the inventory accurately available for timely purchase and possession.
Those numbers knock the hell out of demand.
As for the claim, you are hard on agents, I don’t think so. I really hope you keep right on with your rants. If they keep reading half baked and half truth blogs, they will not see the market for what it is. I won’t miss them.
Everybody running around claiming it is a buyer’s market. They better investigate the type buyer they are speaking of today. Investors have a great market. The average american in that 10% better not dilly dally or there won’t be many homes to choose from.
Just one fellow’s take on it.
April 16, 2008 — 8:23 pm
Sean Purcell says:
Barry,
You are a hoot. I am reminded of Mark Twain’s adage: “There are liars, damn liars and statisticians.”
I read the linked article referencing the polls on which you have based your …“if the shoe fits” proposition (and) not by any means a “one size fits all” declaration. It read pretty declarative to me but let’s not quibble. Instead, let’s have fun with numbers.
This poll actually states that 60% of those polled definitely will not purchase in the next two years (emphasis mine). On average a person buys a home every 5 to 7 years. To keep the math easy we’ll use 6 years as the norm. That means approximately 16.5% are buying in any one year and so 33% are thinking of buying in the coming 2 years. That leaves 67% not looking to buy over the next 2 years. Hmmm… the 60% number in the poll looks like demand is ahead of schedule. Maybe the numbers are off. In order to make 60% a bad number people would have to be moving more often than every 5 years. I will take that trade off every time, but let’s move on.
The poll also states that 25% of those polled believe home prices are going down; but 40% think prices are going up. Pretty good numbers for market demand, wouldn’t you agree?
The poll also states that 30% believe prices to be over-priced, 10% believe they are under-priced and 50% believe that pricing is balanced (in a sloppiness typical of most major media polls they do not account for the missing 10% in a poll with a +- of only 3.1%). They poll doesn’t tell us what the buyer/seller ratios are within those numbers, which would be interesting, but all in all I would call that pretty balanced supply and demand expectations. (By the way, the number of people who feel that housing is underpriced has, according to this same poll, doubled since this poll was last taken. Gotta love that trend.)
Finally, the poll mentions that the number of people with adjustable rate mortgages (ostensibly the proximate cause of much of the over-supply) is half what it was just two years ago. Very bullish.
Barry, I listen to your show and I know you are an intelligent, funny guy. I can’t help but think that you love to inflame real estate agents (who doesn’t). But it would be easier to swallow your “Aw shucks” routine:
if you were a little more balanced. Be a little less like the main stream media, which bears so much more blame than they accept for the current housing problems, and take a look at this poll from a positive perspective. That is all I have done.
Oh… one last thought. The poll states that only 75% of those polled were actually homeowners. I have to think that non-homeowners are negatively skewed (for obvious reasons) in their beliefs about the housing market, but research validity is a topic for another day.
Love ya, Barry. You are a real hoot.
April 16, 2008 — 8:53 pm
Barry Cunningham says:
Sean and Jmac..understand I am COMPLETELY BULLISH on real estate. It is IMO the best wealth building opportunity going.
You can look at the polling data anyway that you choose. It’s not my data but if you do not think it impacts the public then that is where you are making a mistake.
The Realtor response is absent and other than writing about it and drawing out comments, the consumer accepts it as valid.
Here’s a question…we’re all bloggers..why are’nt people writing more about these stats and letting people know that they may be suspect.
It’s easy to challenge my opinion, but they are not my numbers. How many polls, studies, trends and stats are realtors going to dismiss as being wrong.
Funny..not one comment mentioned the absurdity of the NAR advertising campaign listed in the article. If you are going to deny the media’s data are realtors going to accept NAR’s?
You have to understand my point of view. I am not a homeowner with 2.2 kids and a dog looking for the home for myself and the little woman to settle down in.
I am a hard line Capitalist Investor. My partners and associates are much the same.
As Jmac states, we are in the midst of a feeding frenzy right now. As he rightly points out..it is a great market for us.
I look at real estate as a commodity and stats, and data mean everything. Many homes we buy, we purchase sight unseen. Yes, it is true, we don’t have the need for realtors but we occasionally use one when it helps us maximize profit.
One of the impediments to profit is the inexperienced and untrained real estate agent.
The fact that you are reading and responding to these posts put you higher up the totem pole of realtors.
Fact is, there are an overwhelming number of agents who just don’t get it. I understand that Greg and russell, and guys like that are trying to help some up their game but in all reality what percentage of Realtors are at the top of the food chain?
Jmac mentions that the numbers where he is are skewed because of so many short sale listings. He goes further to say that supply dwindles when you remove the short sales…hmmm…where do you think thos homes are going to wind up if the short sales are unsuccessful?
5%, 10%..20%??? That means there are over a million agents out there possibly acting as roadblocks.
Obviously I am not at all in an adversarial mindset with ALL realtors. That would be impossible.
What I do feel is important is to alert as many people as possible to the negative impact that the sub-par performers are having on the business.
Want to see someone who actually LOATHES realtors..go to Housing Panic. Now there is someone who despises realtors. He also has a huge readership.
To the contrary, I want to work with as many true professionals as I can.
April 16, 2008 — 9:27 pm
Sean Purcell says:
Barry,
You’re being disengenuous. If I had read the poll you had read I would have written the article I wrote in the comments (I have done so before – see The Press Becomes the Vaccine and Faulty Headlines and Defaulting Home Loans)
Come on… you had a position. It’s no fun when you don’t play the hand you dealt 🙂
April 16, 2008 — 9:47 pm
Brian Brady says:
Barry,
I love the title because it’s provocative. After reading the article it’s clear where you’re headed. I’ll take it one step farther:
Isn’t ANYONE upset at the real culprits for the oversupply of practitioners?
HINT: It’s the real estate brokerage and mortgage brokerage owners. The body-shopping that has happened in the first part of the decade has flooded the industry. Barry makes a good point; there isn’t enough business for everyone. The desperate make dumb moves and we all suffer for the bottom rung of our respective industries
April 16, 2008 — 10:11 pm
Barry Cunningham says:
Sean…I stand by my post.
“Disengenuous” ??? c’mon Sean…that’s a bit harsh. You may not like the numbers stated in the poll, you may not agree with them but nonetheless they are the numbers.
YOUR review of the poll was subjective, and manipulative and was spiked by your interpretation and opinion.
Those I used were direct from the polling data.
We can debate interpretation of polling data to no end. Politicical operatives have made careers of it.
However, I don’t have that kind of time nor inclination. Blaming the media is always convenient.
April 16, 2008 — 10:33 pm
Russell Shaw says:
What Sean said. I’ve never seen an area that had much greater than an 8% consistent average turnover per year. Therefore the only thing the “study” shows is that the person asking the questions did not understand what they were even asking about. In short, it is very poorly evaluated data.
April 17, 2008 — 3:05 am
jmac says:
Barry – Sorry that I didn’t chose to blast the dim witted folks at the NAR in your comment section. Anyone that reads my blogs on Active Rain or one of the outside blogs has been fed a steady diet of blasts at them.
The NAR…….let’s just keep this trail unsullied.
(and don’t get me started on the dips**t Yun)
April 17, 2008 — 3:29 am
Charleston real estate blog says:
Barry, forget about the level of consumer interest as it relates to the number of real estate agents needed in good times and bad. Instead think Pareto Principle.
April 17, 2008 — 3:41 am
Tom Vanderwell says:
HINT: It’s the real estate brokerage and mortgage brokerage owners. The body-shopping that has happened in the first part of the decade has flooded the industry. Barry makes a good point; there isn’t enough business for everyone. The desperate make dumb moves and we all suffer for the bottom rung of our respective industries
Brian – very well said. There is going to be a thinning of the work force and that’s actually a healthy thing.
April 17, 2008 — 4:30 am
Eric Bramlett says:
Barry –
I think you’re missing the point. We aren’t going after the poll b/c “blaming the media is always convenient.” We’re pointing out that the numbers you use as the base for your argument are:
1) inherently flawed
2) out of context
3) misrepresented in your argument
Your argument (crunched down to its base) is as follows:
If 90% of the public is not in the market to buy a home in the near future, then 90% of the buyers that were previously in the market are no longer there.
If 90% of the buyers previously in the market are no longer in the market, then there is a tremendous decrease in demand.
Most agents do not understand the laws of supply & demand.
Agents who do not understand the laws of supply & demand will ultimately fail, and will go out of business.
Your actual argument is a little hard to peg down, but that’s pretty much the gist of it – wouldn’t you agree? It’s been pointed out that your initial premise is not true – 90% of the public out of the market does not mean 90% of typical buyers going out of the market.
That’s why everyone is going after the poll. Because it’s fun to argue.
April 17, 2008 — 6:04 am
Eric Bramlett says:
Sorry…it’s early. The last 2 lines of the argument should read:
Agents who do not understand the laws of supply & demand in a market w/ drastically decreased demand will ultimately go out of business
Most agents do not understand the laws of supply & demand, therefore most agents will go out of business
April 17, 2008 — 6:24 am
Barry Cunningham says:
Eric..you are making my head spin. Bottom line, really does not matter how it is spun, there is a decreasing number of buyers for an increasing amount of inventory. I’l let you, Russell and the others determine in your markets what that ratio is.
In any event, the fact remains, regardless of how it is spun, the law of supply and demand and it’s foundational place in business is not being applied as it should.
If there is a decreasing demand, and an increase in supply, the prices should go down. That is irrefutable.
In your market, or Russell’s market, or JMAC’s market, or howard’s market…the ratio may vary.
The point of the article I wrote is that point which concludes that those in this business who choose to ignore this economic cornerstone will be doomed to failure.
Understanding that there are some Sellers who are unreasonable, I would not take the listing. I don’t need the practice.
Additionally, in a price corrected market, based on the laws of supply and demand, homes will sell, and are selling, at a frenzied pace.
What was supposed to be an exercise in analyzing how supply and demand affects pricing and sales in an individual market, turned into challenging the actual poll which is, in my mind, missing the boat.
April 17, 2008 — 7:34 am
Eric Bramlett says:
How is that missing the boat? It’s the central piece of evidence you used to base your entire argument on, and it’s suspect.
April 17, 2008 — 7:37 am
Michael Cook says:
Barry,
Quite a misleading post since at the peak only about 15% of people polled ever plan to buy a house. While that is a noticeable decine, it would not suggest 90% of realtors exiting; however, it does suggest some serious supply demand issues. That 5% decline represents about a 30% change in consumer sentiment. While no one knows what that will actually transfer to in numbers of actual purchases because people never do what they say they will do, it does suggest an extend market slow down.
This, of course, should suggest some realtor exiting, but more likely it will result in the lower quality realtors taking second jobs and simply doing a worse jobs with the listings they have. The higher quality realtors will really shine because they will be the only ones selling houses. They can afford to be picky with the listings they take because they have a track record of selling houses. In theory this should be good for the good realtors and really bad for the average / bad ones. Unfortunately in the end, they will all survive and perhaps come back in greater numbers at the first sign of sunshine.
April 17, 2008 — 7:39 am
Michael Cook says:
Sean,
For the record your article on defaulting home loans is way off base. Unlike this scenario, even a very small change in defaults can have a very big impact on lending and the real estate market. The way the mortgage back securities markets work, a 1% increase in defaults could literally spell disaster for the market. Its the very reason why subprime lending, which makes up a very small portion of all loans begin the domino effect of what we see today.
April 17, 2008 — 7:45 am
Barry Cunningham says:
Eric,
I understand your position. We disagree.
The poll, regardless of your belief in its accuracy said that only 10% of those polled are interested in purchasing a home in the near future. That means that 90% are not. No misrepresentation and no wrong foundation as to what I wrote. Not out of context, and if it is flawed..it’s the pollsters who provided bad data (if that’s what you choose to believe).
You wrote : “then 90% of the buyers that were previously in the market are no longer there.” I did not say that. I don’t think the poll did either.
You also wrote that: “It’s been pointed out that your initial premise is not true – 90% of the public out of the market does not mean 90% of typical buyers going out of the market.”
What initial premise? It’s a stat from the poll. Nothing was pointed out as being wrong..pointed out by who?..It’s poll data..take it up with the AP or AOL Money and Finance.
I did not create the data.
My argument is simple and has been stated…not sure what you are injecting into the equation but it is clear that supply is rising and demand is decreasing..substantially.
If you have a problem or disagreement with the fact that the AP/AOL poll clearly states that only 10% of those polled are interested in buying a home then that’s your decision to discredit the poll and refuse to accept the data.
I accepted the data, wrote as to what it CLEARLY said, did not inject a lot of manipulative hyperbole, and came to a reasonable conclusion.
In an effort to reach clarity..are you disagreeing that there is an increasing supply and a decreasing demand?
April 17, 2008 — 8:00 am
Eric Bramlett says:
And one other point….your title clearly misrepresents the data.
The AOL poll in no way indicates that 90% of the buyers are going away. That much is very clear.
April 17, 2008 — 8:11 am
Eric Bramlett says:
And to reach clarity…I feel that there has been an increased supply & decreased demand. In my market, and briefly looking at numbers in most other markets, I feel that the demand has leveled off, and the supply is in the process of leveling off.
April 17, 2008 — 8:18 am
Bob Wilson says:
Barry, the problem is the title. The poll doesn’t say 90% of buyers.
Title aside, the poll means nothing because all real estate is local. It is like the political polls that have x% voting for the GOP candidate and y% voting for the dem candidate – but the popular vote doesn’t count. What matters is the electoral vote determined by 50 states.
A poll on real estate sentiment in Austin or Seattle would vary dramatically from on in S. Florida, SoCal or most of Michigan.
April 17, 2008 — 8:24 am
Barry Cunningham says:
Eric…thanks for your clarity but it is quite euphemistic. tomato, tomatoe…only 10% of those polled, indicating a representative sample of the american consumer, are even thinking of buying a home in the near future.
Let me say that again…only 10% of those polled, indicating a representative sample of the american consumer, are even thinking of buying a home in the near future.
however you care to look at it, whatever spin you choose to make, whatever local asterisks you want to put on it..it is clear that 90% have no interest in buying.
That being said, the supply and demand issue remains and SOME realtors will be lost in the fallout.
It’s not whether or not you agree with the poll…many choose not to be confused with fact, it’s what you do to ensure that your business is affected as minimally as possible by the data.
Mr. Cook..all I can say is I have no idea what you are talking about. You wrote : “That 5% decline”..what 5% decline are you referring to? The 5% that someone here commented on and submitted as fact?
April 17, 2008 — 8:32 am
Eric Bramlett says:
Barry –
You’re exactly right – 90% of American consumers are not interested in buying in the near future. You say “tomato/tomatoe” but your headline was very sensational, and it implied that 90% of buyers in the market will go away.
Please don’t take this as a personal attack – you seem like a really nice guy…I just have a problem w/ your headline here, and your argument here. (We can talk about the problems I have with your other headlines/arguments another day.) 😉
April 17, 2008 — 9:01 am
Michael Cook says:
Barry,
Taking it back to simple math, at the peak the poll was reading 15% of people were interested in buying a home. This was at the beginning of 2006 I believe, I would have to go back and look it up. Now a reading of 10%, represents a difference of 15-10=5%. The actual percentage change represented is about 30% (5/15=30%). Not hard math, but certainly worthless, since, again it has been proven people do not do what they say.
Facts are your subsequent conclusions were misleading, but not all together wrong. To make your case without citing at least a past trend in the data is either lazy or ignornant (no offense). I think that is why you are getting all of the comments here. Again, I agree with the fact that we should see some realtors drop out of the market, but unfortunately we will not because the barriers to entry are simply too low. This fallout will only serve to decrease the quality of representation as some realtors spend less time and money on listings.
As always, I appreciate the writing, but you definitely missed the mark on this one.
April 17, 2008 — 9:40 am
Barry Cunningham says:
eric..no attack taken…looking forward to speaking with you more in the future.
April 17, 2008 — 9:58 am
Barry Cunningham says:
Michael..what poll are you referring to? Unless you are quoting a AP/AOL Money Finance Poll, you are not comparing correctly. Incidentally, I don’t care about a previous poll…we are in the here and now.
I will ask you what I asked Eric.
1. Did the poll say that only 10% of buyers would even be interested in buying a home any time soon. …Yes it did.
2. Does the poll indicate that since only 10% would consider a home that 90% would not..Yes..it does.
3. Is the supply of inventory growing…Yes it is
4. Is the pool of available buyers decreasing? Yes it is.
Case closed, no misrepresentation ..stroy states as the datas from the poll indicates. I am not interested in past performance. I am talking about the market as it exists today. It’s not lazy, it’s not ignorant..it’s REALITY.
The comments here take opposition with the presentation of fact but nonetheless it is FACT. We have an increasing supply of inventory and a decreasing supply of buyers indicating the irrefutable laws of supply and demand are at work negatively influencing the value and price in real estate.
It does nothing but serve to avoid the acceptance of this fact by suggesting that the data is skewed or that the pollsters spun it or my title question was misleading.
Substitute a myriad of numbers for the 90% number if it makes you or anybody else feel better but the same questions provide the same answers.
We have increasing supply and declining demand. Prices need to be lowered and should be contiually lowered until an equilibrium point is reached and consumers realize a more comfortable opportunity cost.
Much of the argument here is like standing in the path of a roaring wildfire and wondering how it started..does it matter?
April 17, 2008 — 10:14 am
the naked realtor says:
Barry,
Again with the increasing supply? It is smoke and mirrors. There is a decreasing supply of readily available homes. The glut of hopeful please-buy-me-before-foreclosure houses on the market are an apparition. They will be for sale in the future at a reduced price. Bank owned properties are non-performing assets and they are priced to sell. Short sale acceptance decisions are made by those in charge of delinquent accounts. Two different animals.
The real increase in supply will begin later this year and into next year when the lenders begin their fire sale of foreclosed upon properties.
Then the market prices will come down and as they are sold off, the needed adjustment will be complete.
The poll you mention is nice but not relevant. If 25% of the people questioned planned on buying a home, it would only increase the actual pressure on the sellers market we are in.
April 17, 2008 — 11:37 am
Jeff Kempe says:
Whew! Barry, you’ve come to the right (but not terribly earth shaking) conclusions – prices have to come down for sales to tick up; tens of thousands of agents have left the business and more will follow – but the way you got there was, well, odd.
1. Polls at their very best are snapshots in time; at their worst – as Eric and Mike have pointed out, this is among them – they’re inaccurate snapshots in time. People will tell a pollster what they think the pollster wants to hear, what they think will make them seem the least foolish, what is a reflection of the last headline they read, or a combination of the three. As Greg said, what people say and what they do can be entirely different things. (See: Green marketing.) To forecast the future based on polls just doesn’t work.
2. Related, your underlying assumption is that the trend line is static. Not the case: markets can change almost imperceptibly from bull to bear – and vice versa. (See below)
3. “Supply and demand”, alone, paints an incomplete picture. Important in the housing market are the origin of the supply and the inspiration behind the demand.
4. Supply comes from three sources: New construction, resales, and distressed properties (REO, foreclosures, short sales). During the runup, especially in areas of unrestricted growth, new construction was a high percentage, pulling up the prices of resales in the process. Note new construction has a planning time of at least a year, and once specs hit the market they stay there until sold. With resales a significant percentage are elective; at least here, those who don’t have to sell now, aren’t. With spec construction basically halted in most markets, that inventory, through auctions, incentives, and builder reticence to go below cost essentially past tense, is slowly being absorbed. Now a higher percentage is in distressed properties, pulling down the price of resales, and opening the market to buyers.
5. Demand is inspired not only by price, but by the availability of capital and market inertia. Again, in the runup, as many have pointed out, if you could fog a mirror you got a mortgage. Now with the secondary market still hugely skittish, many lenders have gone to the opposite extreme, and, at least here, we’re having a record number of sale fails. So: Many buyers are sitting on the side because they either can’t get financing, or they think they can’t get financing. Brian and Dan will have a much better handle than I on whether or when that might change.
Psychologically (inertia), where three years ago there was a buying frenzy because people thought “If I don’t buy now, I’ll pay too much later!”, now it’s “If I do buy now I’ll pay too much!”. I’ve seen buyers look through the front door of homes that were legitimately 10% under the rest of the market and refuse to put pen to paper because they were convinced prices are going to drop further. That will change, as it has five or six times in the last fifty years; when is the question.
6. So my prediction: George Will wrote a column a couple weeks ago that put things in perspective. As long as politicians leave the market alone and allow it to adjust, prices will continue to drop and buyers will reenter. It starts with REOs and foreclosures – people tend to think if someone else is losing, they must be winning – and, as sales increase, will pull the rest of the market with it.
And in about eighteen months, you’ll be writing a blog post lamenting the entry into the industry of too many of the unwashed…
April 17, 2008 — 11:58 am
Sean Purcell says:
Michael
I do not intend to hijack Barry’s well crafted instigation, but I must address a critique you gave me. You say even a very small change in defaults can have a very big impact on lending and the real estate market. You base this conlusion on the idea that a 1% increase in defaults could literally spell disaster for the market but I see not evidence of that. As a matter of fact a 1% would not be noticeable. Now if you mean an increase from 3% to 4% (an increase of 33%) you may have a point; but we saw nothing like that. The stats from the article I was parsing very clearly stated that foreclosures were only 1/3 of 1%. MY POINT was that this is well below past records and not an overly dramatic development given the number of people that had been put into homes.
MY POINT was the same I am making here. Papers like to stay in business and they do so, generally speaking, with bad news headlines. They rarely let the facts of the story get in the way of their sensationalistic headlines.
As for the sub-prime leading the way in the current debacle that is a post hoc ergo propter hoc argument. The subprime lenders were first because they are the lenders of riskiest loans. The trully problem loans came from much larger lenders in my opinion (Countrywide, WaMu and World being 3 great examples) all of whom are now out of business or nearly so. This was predicted by myself and others for most of last year and is not surprise.
If you really want to nail down a culprit we should be looking at the people trusted to evaluate mortgage backed securities for investors. These rating agencies have gotten off virtually scott-free when in fact they were asleep at the wheel.
It is easy to blame lenders but lenders simply made loans in order to make profits. That is not only their purpose but their responsibility. If others are willing to pay for the loans created they are, by definition, the correct financial move for the company. If the ratings agencies had been accurate rather than asleep, ratings would have dropped, investors would have declined and the lenders would have stopped making such loans or at least changed the U/W to a degree that investors would have come back. This is basic economics.
Barry made a data interpretation, much as the local paper did, that cast the market in a bad light. This is typical of mainstream media (and not necessarily Barry) and we should point it out every chance we get.
April 17, 2008 — 3:11 pm
Sean Purcell says:
Barry,
Sorry I was out this morning. I missed much of your debate and I do love it so. 🙂
You may not like the numbers stated in the poll, you may not agree with them
I love the numbers in the poll. That was my point. The numbers are positive
YOUR review of the poll was subjective, and manipulative and was spiked by your interpretation and opinion.
My numbers come straight from the linked article. There is nothing subjective about it. Now you may not like what the numbers were, but they are right there in black and white for all to see.
Those I used were direct from the polling data.
Yes, you have repeated this a number of times. Yet I have reread the article and no where does it say:
Nearly 90% of consumers recently polled say they are not interested in buying a home any time soon.
Which I cut and pasted directly from your article. What it does say is:
just 11% are certain or very likely to buy soon, down from 15% two years ago. (emphasis mine)
This is the definition of interpretation and opinion. Are you trying to tell us that if 11% are certain to buy that means 89% are certain not to? What if they had asked if the pollees were likely to buy? Would the number have crept up? What if they has asked if the pollees were likely to buy as soon as the market appeared to bottom out? What if they had just simply asked the pollees if they were certain not to buy? All good questions, but we will never know. The only thing we do know is that 11% are certain to buy. What the other 89% are planning is anybody’s GUESS.
Barry, you made your guess and used it as a headline (much as mainstream media does to sell papers). You are not mainstream media (and I mean that as a huge compliment), you are simply a very intelligent person who likes to stir the pot. I would venture a guess that you are not at all concerned by your own headline. I would imagine that you, like most of the savvy investors I work with, see the current market like a kid in a candy shop. And I do believe we can agree on that characterization.
Keep up the great writing Barry… you obviously know how to touch a nerve.
April 17, 2008 — 3:28 pm
Barry Cunningham says:
Wow..you guys don’t like polls…touches some nerve I guess…I better find the numbers for the Associated Press and AOL Finance.
In my business and marketing classes in college and in my executive management training at Disney, we were instructed as to how to use polls to our advantage, not to discount them in their entirety.
I have never seen polls dismissed so easily in any other business. So this is quite surprising. If polls are so useless, then why are they taken?
I understand the perspective of those who have commented herein and it is obvious why the dismissal of polls takes place.
I have enjoyed this discussion and I have gained insight into the minds of how some..notice the word..SOME, real estate agents think and perceive consumer oriented data.
For that alone this discussion was meritorius.
April 17, 2008 — 4:31 pm
Greg Swann says:
> If polls are so useless, then why are they taken?
In order to lend the color of science to tendentious claims. This is the motivating rationale behind all of the so-called social sciences.
Amending this: The most important thing almost none of us learn in school is how to recognize a specious argument. This requires study and effort, and there is still no guarantee that you won’t be gulled. But if you understand the means by which demagogues try to manipulate your behavior, your mind is that much better defended. This has nothing to do with real estate — or no more than it has to do with anything else.
April 17, 2008 — 4:46 pm
Jeff Kempe says:
>If polls are so useless, then why are they taken?
So people can use them to their advantage.
April 17, 2008 — 4:48 pm
Sean Purcell says:
Barry,
In my stats classes at Princeton (I know… it’s no Disney) we were taught how to analyze a poll (or any statistical representation) to discover any logical fallacies. More importantly, we were taught to analyze the analysis of polls, which is what has been done here. No one is dismissing the poll, only your take on it.
To answer your other question, most news polls, IMHO, are taken to justify a preconceived point and not to discover anything.
April 17, 2008 — 4:51 pm
Barry Cunningham says:
Hey Shawn,
You wrote:
“I would imagine that you, like most of the savvy investors I work with, see the current market like a kid in a candy shop. And I do believe we can agree on that characterization.”
Most assuredly we can agree on that!!
April 17, 2008 — 6:28 pm
Barry Cunningham says:
sorry about the spelling Sean..I goofed
April 17, 2008 — 6:29 pm
Michael Cook says:
Barry,
I cannot even continue the discussion because there is obviously a lack of understanding of Statistics 101 going on here. Your “facts” are correct (e.g. you did type the poll numbers correctly), but that was about as correct as you got with the stats portion of the article. I thought that the numerous loud and soft voices pointing that out would sway you to at least critically evaluate your position, but alas, it looks like you have chosen to retrench. Good luck with that.
Sean,
I did mean a 33% increase, which would be a 1% difference. We can discuss further in a different forum. I agree with you on the media point, but some times they are right to react the way they do. Call it luck, call it knowledge, but their reaction to the subprime was quite correct.
April 18, 2008 — 10:38 am
Refinance ToolBox says:
Barry,
I work with people pretty much every day that illustrates the supply and demand in housing mentioned. There are actually a large number of interested home buyers out there, but is it really “demand”. I define demand as both a willing and “able” buyer. By my definition, housing demand is at the lowest levels that I have witnessed. I have no official count, but my best guess is that 80% of the first time home buyers that I pre-qualify do not have the sufficient requirements to buy a home (at least in the price range they are seeking). So yes, there are willing buyers, but no, most are not able. Funny thing is, with the lax lender guidelines of previous years (what got us in this mess in the first place), these now declined buyers would be picking up the keys to their new home.
April 19, 2008 — 11:12 am