“Great deals out there” is a 1,006-word commentary written by Jennifer Podmore Russell, the head of a Vancouver real estate market research firm. The stated goal of the article is to provide “simple facts” related to the Vancouver real estate market so consumers will be able to “sort through the fact and the fiction in the months ahead.”
The commentary is built around three “truths” about the housing market. In short, these truths are:
- Declining demand has led to purchase incentives;
- Buyers have more time to research and reflect;
- It’s impossible to predict the market bottom.
These truths aren’t controversial, though some may take exception to nuances like describing purchase incentives as “great deals” as the author does. While some may disagree on the greatness of “free” cars and improved finishings, it’s moot because of the larger, more urgent problems with the article.
The problems have to do with assertions put forward, without evidence or context, as facts. There are four assertions so unsubstantiated I dare to call them falsehoods. Quoted directly, they are:
- We also have to realize that this is a very different decline than in the past;
- As the financially motivated exit the market the aggressive pricing will settle;
- Most of us will only be affected by this correction psychologically as it is human nature to monitor the value of our homes;
- Perhaps the greatest advice one can receive is that there is never a bad time to start building equity into a home.
On the first point, Podmore Russell provides no evidence. The statement stands alone as its own paragraph. On what basis is this decline “very different” from other declines? Markets are a function of supply and demand. As demand decreases and supply increases, prices fall significantly. This is what is happening in Vancouver. How is this different?
The assertion that aggressive pricing will settle is also unsupported. Aside from the obvious question of what constitutes “aggressive pricing,” how can the author be sure prices won’t continue to fall? Again, it comes down to supply and demand.
More baffling is the assertion that the correction is mostly “psychological” with little external impact. By the industry’s own data, MLS residential sales in 2007 produced $1.3 billion in B.C. household income. This works out to around $13,000 in household income for every home sold, or one full-time job for every four sales. These figures were touted by the industry when times were good. Are they mythical now that the market is in decline?
The last point, on home equity, reads like something out of an Empire Strikes Back re-write penned by Bob Rennie. Rearrange the words and it’s Yoda. It’s extraordinary to think this is “the greatest advice one can receive” when the advice fails to mention risk tolerance, opportunity cost, price-to-rent ratios or the amortization period of the loan.
It’s one thing to get started on home equity when prices are in reasonable relation to local incomes, and you have a substantial downpayment. It’s quite another to buy at prices grossly inflated from historical norms, do so with little money down, and call it a successful step on the road to home equity. These are not irrelevant considerations, yet they are absent from the great advice.
But perhaps the final sentence is the most telling: “Chances like this only come around once each cycle.” The question I ask is whether a home purchase should be predicated on “chance” rather than a comprehensive assessment of the market and one’s situation. I prefer to leave chance at the casino.
To assert facts is to be able to substantiate them. Podmore Russell’s commentary fails the test. It purports to be factual when, in fact, its most important statements are speculative. Like the expert hype of the boom era, the commentary asserts its authority by virtue of the writer’s status as an industry official. Rather than separate fact from fiction, the article contributes to the noise.
Photo credit: Alfred Hermida