Latest Articles

2010-02-02 18:57:55

A Better Report for Home Consumers


As many of you know, we’re not fans of the Case-Shiller housing report. Aside from the relentless media spin about the tiniest blip up or down, the primary problem with the report is that its focus – home prices – is simply an incomplete picture of the housing market. To understand what’s happening in any commodity market – especially housing – much more context is needed. And don’t expect the local REALTOR’s analysis report to be any better: Few are worth the paper they are (still) printed on.

Thank goodness, then, for Hagerty’s Quarterly Housing Report.

Real estate professionals love to say that “all real estate is local.” Yet most real estate analysis contains very little local data. The traditional real estate “comparative market analysis” (CMA) is economically useless: Not only does it rely upon incredibly inaccurate and unverified data entered by agents barely conversant with their MLS software, such reports suffer from the biggest defect possible:

Lack of context.

Real estate agents can tell you how many homes are on the market. They can tell you the trends in new listing volume, sales units and homes that failed to sell on a given day. They can tell you how much a property sold for – even as a percentage of its asking price. And then they can’t tell you almost anything else that would be useful to purchasing and owning a commodity like a home.

Which is why they start talking about nonsense like school systems, parks, subways and other mundania.

Never have you seen a broker’s market report that contains a trend-line for local tax rates – a very important piece of information for owning a commodity that carries an annual “fee” attached to it. Nor do such reports show current rates and trends for other supporting costs, like local cable television, electricity, trash removal or any other “ownership load” related to the future requirements to service (ie., pay for) the home. In fact, it’s amazing that any decisions whatsoever can be drawn from the local real estate agent’s report, when so much contextual decision-making data is left unaccounted for.

Almost any other commodity purchase with an “ownership duration” requires contexts. Take the simplest of such purchases: a new car. Consumers don’t simply evaluate features or prices when comparing models. They examine “ownership” costs – like fuel efficiency, average repair costs, and even projected resales value. Their decision to purchase a model is based upon data points within a broader context.

Try to ask your REALTOR for your home’s projected resale value the next time you meet with her. Yeah, right.

Such lack of context and content is no longer acceptable to today’s housing consumer. Generation X is used to seeing the “full story” when it comes to purchasing anything of lasting value – whether it’s a laptop, automobile or home. They want to see the behind-the-scenes costs to construct, acquire, service, maintain and own the commodity. They understand that large purchase decisions don’t exist in a vacuum but a constellation of conditions.

They know how much it costs to run the television, not just purchase it.

Yet when it comes to buying or selling houses, so much contextual data is left unverified, or simply unmentioned, by the advisors to the consumer. That’s why new reports – such as Hagerty’s Quarterly Housing Report by James Hagerty at the Wall Street Journal is such a refreshing improvement. Certainly, it’s just a start. There are many factors left out – such as tax rates, energy costs and local tax impact. But the mere fact that it presents home prices and inventory in the context of unemployment and foreclosure rates – in one simple table – is a step forward in consumer education.

And makes Case-Schiller seem downright silly.

Ironically, real estate agents generally operate from the premise that people buy homes for “other reasons” than price. Countless stories (and industry cliches) claim that buyers choose homes for emotional reasons, like location or how it “feels.” Yet the modern consumer isn’t so fickle, or vacuous, as to simply fall in love with a home, regardless of price. Most certainly not during a recession. Consumers have been schooled to ask for “operating costs” – energy, taxes, water, repairs – and they understand the concept of “trade in” value for the future. They have lots of experience buying expensive items based upon the monthly fee – whether it’s data  plans for expensive smartphones or fuel economy for expensive hybrid automobiles. It is senseless to think such issues do not matter when it comes to purchasing a home, a commodity of far longer lasting value and higher cost.

Hagerty’s Quarterly Housing Report makes a start of positioning homes within contexts – beyond emotional data such as greenery or convenience to shopping. Even after the housing recession, local data on unemployment, tax trends, energy costs and other operating factors will be required reading for Gen X and Gen Y consumers. In a future of windmills and solar panels, maybe even weather patterns may become valuable context for the housing market.

It’s time for better reports for home consumers on what makes for a good decision in housing purchases. Case-Shiller’s focus on volume and price is outdated: It treats homes as if they were pork bellies or cell phone minutes without any other influencing factors. And traditional real estate market analyses must evolve as well. Buyers of the future won’t let their emotions carry them away – at least not so far, any more – especially when the market requires them to put real money down.

But that’s a report for another day.

(Matthew Ferrara is CEO of Matthew Ferrara & Company, a technology organization that delivers training, consulting and technical support to real estate companies worldwide, including their new "Support on Demand" REALTOR help desk service available at 866-316-4209.)   


Related Post

Industry, Education

Negotiating Tip 114: Retreat Negotiations

March 29, 2019

Industry, Education

Negotiating Tip 113: Activating Our Opponent

March 28, 2019

Industry, Education

Negotiating Tip 112: Misconceptions

March 27, 2019

2021 Real Town The Real Estate Network