Forecasting the housing market: Presumption, projection and personal observation
Posted on April 18, 2008
Filed Under Statistics, Selling Real Estate, Buying Real Estate, Real Estate |
[This began as a one paragraph caveat to the next installment of For the Benefit of Mr. Git, but grew. I’ll post the latter later.]
I’m not an economist. If you want one, NAR’s Lawrence Yun was named by USA Today as one of the top five in the United States. His tables are elaborate, his analyses detailed and nuanced, his vocabulary what one would expect of a PhD, and his predictions right nearly half the time.
All I do is observe people. Numbers and their interpretation are important, but only as a reflection of how people behave. If you know people but not numbers, you’re going to be right much more often than if you know numbers but not people.
Broadly, economic behavior is based on these observable truths: on the consumption side, people want the most for the least. On the production side, people want to be compensated in proportion to what they produce.
Simple, no?
No. Forecasters get sidetracked by thinking too much and observing too little:
Presumption. This is the function whereas predictions are made based on the theory of how people behave as opposed to how they actually do. Marx, Engels and their generational acolytes were (are) famous for thinking wise suggestions from their intellectual superiors would be enough to encourage the masses to utopian bliss, the problem being given the choice of producing or living off the dole, without commensurate reward people will always gravitate to the latter. And without production, there’s nothing to consume. (See: Korea, North). That’s still not sufficient to keep the anointed from trying, because they know: “If only people would behave as I instruct, the world would be a better place!”
Note presumption creates fallacious inference as well. If people don’t think or behave as the elite predict, there’s necessarily something wrong with the people, not the theory. They must be, say, bitter, so sink into opiates to compensate: Religion. Hunting. Xenophobia. Racism. To the elitists, it makes perfect sense, and the real danger is that when in power they craft policy on those same false presumptions.
What that means to real estate in the present tense is this: We have elites everywhere designing laws to correct errant behavior in the buying and selling of homes, behavior it should be noted was the result of laws designed to manipulate behavior. Bad borrowers and bad lenders are looking to be validated, so instead of the market going through a painful but relatively quick adjustment, if implemented it will be longer, ultimately deeper and much more likely to reoccur.
Projection occurs when forecasters are so wrapped in their own circumstance that they create, consciously or unconsciously, their own wished for result and dismiss all contradictory evidence. As I’ve said before, both the NAR and bubble bloggers are supremely guilty, but we all are to a greater or lesser extent. Being right is something we need to be, and admitting we were wrong is one of the most difficult things we do.
All of which is to say: In the buying and selling of real estate, collect as much information as you can from sources you trust, then use your own powers of observation. Whether a good market or bad, no one - not Lawrence Yun, certainly not bubbleheads - can tell you with any degree of certainty what a specific home today is going to be worth in six months or a year.
No one knows your situation as well as you.
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8 Responses to “Forecasting the housing market: Presumption, projection and personal observation”
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Mr Yun has consistently been wrong about this housing downturn as was his predecessor Mr Lereah.
Considering him one of the top economists for accuracy is laughable.
So far the bubbleheads have been right and significantly more accurate in their predictions ,where the NAR have been wrong every single step of the way without fail.
On the article - peoples behavior is certainly a important factor in the market - but a persons needs and desires cannot override the basic financial reality of life.
I’d love a personal Gulfstream instead of suffering through the TSA and commercial airlines - the the reality is I can’t afford one.
At this point the economic reality of the debt loads is what’s going to drive the market down - house prices have simple got to fall until people can afford them again.
The reality of the debt load was suspended via liar loans, I/O and neg amortization mortgages with unrealistic teaser rates - with the banks failing that’s gone - the ponzi scheme is collapsing.
One thing I would like to say -
The demonization of Realtors and mortgage professionals by bubble bloggers is wrong and abhorrent. A good Realtor can save a client literally tens of thousands of dollars during a RE transaction. The problem has been that a lot of people jumped on the bandwagon for the “Easy money” over the last few years and have given those who actually earn their commission a bad name. It’s unfair to paint all Realtors with that brush.
With the wealth destruction that’s coming a lot of people are going to point fingers at the industry professionals - this is grossly unfair.
The buyers signed their mortgages and knew what they earned and what price the asset they were purchasing was.
FWIW - a history of NAR statements Vs Case/Schiller
http://tinyurl.com/38w8ee
>peoples behavior is certainly a important factor in the market - but a persons needs and desires cannot override the basic financial reality of life.
Behavior is governed both by desire and constraint.
I’m certainly not going to defend the numbers put out by NAR - they make all realtors look silly - but I’d be very wary of anything you read on bubble blogs. I haven’t found too many moderators or comnmenters that aren’t sufficiently steeped in projection that they’re able to articulate what little they actually know.
Agreed on novelty loans, which is actually what I started to write about…
You could say that people’s desire has been driven well beyond their financial constraints over the last 4 years due to real estate being seen as a “Can’t loose investment” - it was certainly marketed as such.
Now that that process is in reverse it could well drive perceptions and thus demand the other way.
Do you think a significant forward demand was absorbed over the last few years with the go-go sales figures or do you think demand is still high if credit was loser?
[…] Forecasting the housing market: Presumption, projection and personal observation, by Jeff Kempe. […]
>You could say that people’s desire has been driven well beyond their financial constraints …
You could say that; it just wouldn’t be accurate. Desire is a constant, the restraints were removed.
Desire was inflated. And the real estate industry was there with the pump.
His tables are elaborate, his analyses detailed and nuanced, his vocabulary what one would expect of a PhD, and his predictions right nearly half the time.
So is a coin toss.
One of your most valuable points was in the recognition of human behavior. This is, of course, why the elitists prefer to either ignore, or deny the results of Reagan’s (and now Bush’s) income tax cuts. How in the world can income to the Treasury increase when tax rates are cut?
Human behavior. Funny how we choose to work harder if we’re ‘allowed’ to keep more of the fruits of our own labor.
Marxists have found that 100% of nothing is still nothing. Elitists have yet to learn that lesson. They will learn one thing for sure — American has elected their last elitist president for quite awhile.