I was reading a good blog post over at Time: Busted Recovery: How Much is Housing to Blame? when I came across an out-of-character quote from Chris Thornberg of Beacon Economics, someone whom I normally find offers sage advice:
Still, Chris Thornberg of Beacon Economics says there is a little hyperbole when people say the economy can’t recover without the housing market. That’s because much of what we normally think of the housing market doesn’t produce a lot of economic value. “Realtors have perpetuated the fraud that selling homes back and forth between people is good for the economy,” says Thornberg. “I’m not convinced that does that much for the economy.”
His use of the word “fraud” set me off.
However I agree with what he is saying about housing and the economy – I do believe there is way too much hyperbole that housing must recover before the economy recovers. I think that the economy will likely recover before housing will and that housing will be a drag on overall economic recover. And we all know that all jobs created by the housing market during the boom quickly evaporated during the bust.
But this part…
“Realtors have perpetuated the fraud that selling homes back and forth between people is good for the economy,” says Thornberg. “I’m not convinced that does that much for the economy.”
Really? Fraud?
While I’ve been very vocal about the misleading comments about the credit crunch and housing observations coming out of NAR since the days of David Lereah and now with Lawrence Yun, it’s ridiculous to call it fraud. It’s called selling and spin. Big difference although they are also distasteful.
It is the job of Realtors to sell homes for sellers and help find homes for buyers. They are in the business of sales. Realtors are represented by The National Association of Realtors who are a trade group and the function of a trade group is to help their members be more successful and represent their interests.
I’ll bet every single trade group has similar pitches specific to their client’s needs. Attend plumbing convention and you’ll be told that PVC pipes enable our country to grow. Attend a snack food convention and there will be no discussion about eating too many candy bars. Attend a dental convention and you’ll hear all the spin about brushing and how bad candy is for teeth (but good for business).
I think the part many miss with the dissemination real estate information, is that a trade group as a source should not be presented in the media as an authoritative source on a topic. Yes they can attest to a condition that helps their members but we should never see them as a neutral go-to resource. Think Mortgage Bankers Association, American Banking Association, National Association of Homebuilders, etc. Massive spin for their members. It’s not fraud.
The blogosphere was particularly good at outing NAR’s former chief economist Lereah and current chief economist Yun’s usually absurd press releases and proclamations.
Up until recently, I don’t think the public realized that there was any difference in credibility in the analysis of the real estate market from NAR. That realization has propped up alternatives like Case Shiller and CoreLogic (although Case Shiller has many of its own serious flaws).
So despite the easy target, let’s raise the bar on the discourse. Realtor-bashing isn’t in style anymore. Realtors are simply doing their jobs and there isn’t some sort of conspiracy – they are too busy driving clients around looking at homes.
In fact, of all people that touched the home buying process, from rating agencies, investment banks, consumers, mortgage brokers, commercial banks and appraisers during the bubble, Realtors had little to do with the run up. They were order-takers in a nation gone insane.
Yesterday I had the great opportunity to moderate a symposium on mortgage liquidity with a pretty heavy panel of mortgage bankers and industry executives. I knew they would be guarded in their answers, as I asked about the new world of underwriting, the wind down of Fannie Mae and Freddie Mac, the tighter more expensive FHA, new federal regulation in the industry and a controversial new appraisal process. And they were guarded, until I opened up the floor to the Realtors, who hammered them hard on foreclosures, short sales, and mortgage credit for independent contractors like themselves. A Realtor from Wilmington, NC asked what are the plans for companies to put the shadow (foreclosed) inventory onto the market? Most agents believe banks are holding on to these properties to somehow game the market, but the bankers were firm in their rebuttal: Cara Heiden/Wells Fargo [WFC Loading... () 
] : "With respect to shadow inventory, we are not holding on to properties. On average we do hold the REO about 160-70 days, but once they're listed they're sold in 90 days and the reason that we hold them for a period of time prior to listing is so that we can get them in better shape for sale and uphold, to the extent that we can, market values. So we're not holding other than for the purpose of getting that property to a level that does help maintain market values whenever possible." Doug Jones/Bank of America [BAC Loading... () 
Seriously, we doubt realtors have that deep-pocketed a sense of humor, but the swell house at the end of Normandie Terrace closed on Friday, April 1 for just that, or $700,000 under the asking price of $9,500,000, well above the $6,000,000 they paid for it in 2000. Should cover the renovations they did, although it was probably on the market because the renovations they wanted to do were successfully rebuffed by downhill neighbors. It's still a great house- and forty-one days from listing to close of escrow. [