Prices are Dropping!!!
It’s here. It’s time. Brace yourself and be ready.
Builder sentiment. Mortgage applications. Price drops. Interest rates. Median Sale Prices. What do these all have in common? They are signs of the doomsday that has come. Market slowdown. Summer of Hell. Most significant contraction since 2006. Recession. Financial reset.
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Wait, hold on…. What? What did I just say? Was that an improversation?
If you haven’t noticed, news headlines are about clicks. They’re about relating with the questions everyone is asking. Clicky headlines are about reading people’s minds and connecting with their worries so that they will click on a link to learn more and see the article (and more importantly, the ads). Headlines are not about giving an accurate understanding of the truth. They are more often about speaking to (and kind of encouraging) the readers’ fears of worst-case-scenarios.
PLEASE HEAR ME: If you think the housing market prices are dropping like a rock, you do NOT understand the truth. You’re just listening to the headlines.
I’m not saying that all the headlines are lying exactly. I mean, I got you to read this article with that “Prices are dropping!!!!” headline. BUT, IF ALL YOU READ IS THE HEADLINE, YOU DON’T UNDERSTAND THE STORY!!! The story is always much more nuanced. Embedded in the details section of the story are the clues that point you in the right direction towards an accurate understanding of the truth.
So, in search of the truth, let’s walk through some examples of these tricky, clicky articles and come up with some helpful questions to ask about the articles we read as well as some interesting insights on the Oklahoma housing market along the way.
[TLDR graphic: List questions and list OK market insights]
EXAMPLE 1 (THE BAIT AND SWITCH): In a July 1st Forbes article entitled “Housing Market Predictions 2022: When Will Prices Drop?” (https://www.forbes.com/advisor/mortgages/real-estate/housing-market-predictions/)
We read the following gem of a quote:
“If you’re waiting for prices to suddenly plummet to what they were in the past, you’re making a mistake,” says Tabitha Mazzara, director of operations at Mortgage Bank of California. “The Fed has promised another interest rate boost. If you’re ready to buy, don’t wait because prices aren’t headed dramatically downwards to what our parents paid. Things might dip a bit, but there’s no cliff dive that’s going to happen.”
Wait, what? I THOUGHT THE ARTICLE TOLD ME PRICES WERE GOING TO DROP!!!
KEY QUESTION: Does the data match the headline?
ANALYSIS: This article isn’t even concluding what the headline suggests.
Economists at Realtor.com recently revised their forecast for median sales price appreciation on existing homes to 6.6% in 2022, up from their previous prediction of just 2.9%
EXAMPLE 2 (THE OVERREACTION VIA OMISSION): Sometimes an article takes a teeny-tiny bit of data and turns it into something that sounds much worse than it is…. For example, this article title from The Epoch Times:
“Over 40 Percent of Homes See Prices Drop in Multiple Local Housing Markets”
You would think “homes see price drop” would mean that homes are losing value, right? Think again!
In Provo, Utah, 47.8 percent of homes for sale saw prices go down in May, the highest among 108 metropolitan divisions analyzed by Redfin, the firm announced in a June 21 news release.
Tacoma, Washington, saw 47.7 percent of homes reduce prices; Denver saw 46.9 percent; Salt Lake City saw 45.8 percent; Sacramento, California, saw 44.3 percent; Boise, Idaho, saw 44.2 percent; Ogden, Utah, saw 42.6 percent; Portland, Oregon, saw 42 percent; Indianapolis saw 41.9 percent; and Philadelphia saw 41.2 percent.
In total, over 10 percent of home sellers dropped their prices in all 108 metropolitan areas. In 53 of those areas, more than 25 percent of home sellers cut their prices.
KEY QUESTION: Is this article leaving out information to make the data sound more dramatic than it actually is?
ANALYSIS: This sort of news cycle trickery is about what is not said rather than about what is said. All of the statements above are true, but because of what they leave out, they don’t tell a complete picture. A more accurate headline on this data set came from the original Redfin article that was quoted:
“More Than 40% of Home Sellers Are Dropping Their Prices in Salt Lake City, Boise, Sacramento and Other Pandemic Hot Spots” https://www.redfin.com/news/price-drops-increase-may-2022/
Here are three examples of this deliberate omission of critical information in this article:
- “Prices drop” is used in the title instead of the original “Home Sellers Are Dropping Their Prices.” This may seem nitpicky, but this article’s data references price decreases of listings. Those are NOT the same thing as an individual house selling for a lower price than it had previously or for a lower value than it is worth, which is what “prices drop” implies to the reading public. Price decreases of listings are a normal part of a balanced real estate market in which home values are going up.
- Their cherry-picked data sounds more shocking than reality. By looking at the data set in the Redfin article, we learn that in 2021, over 10 percent of home sellers dropped their prices in 91 of the 108 metropolitan areas. So, the fact that there have been listing price decreases in “all” (only 17 more metropolitan areas than it did in the busiest time of 2021) isn’t nearly as substantial or shocking as that stat sounds at first glance.
“Pandemic Hot Spots” is one of the most important details in the original Redfin title, but it is nowhere to be found in the Epoch Times article. The biggest changes in the rates of price decreases have come mostly in overcooked markets where appreciation has been 60% or more since 2020, compared with the national average of 37%.
For all my Okies wondering where we fit: We were mentioned on that same data table and have much less to worry about.
Oklahoma is not as overcooked with our price increases, and so our rate of price drops has barely changed. Great news for us! But not the message you’d get from just reading the headline of The Epoch Times article!
EXAMPLE 3 (THE JUMBLE OF DATA CONFUSION):
As a published scientific author myself [[[link]]], I can tell you that the story that gets told with data is very often not the story that flows from the data. Sometimes articles are designed to be jumbled heaps of confusion. Sometimes even scholarly articles in journals are really just a bunch of loosely connected statistics that even a professional with a Ph.D in their field could barely interpret (and oftentimes the author doesn’t understand). This type of writing is a trap that makes an argument sound intelligent because it is loaded with data. But it’s all so unhelpful… and usually scary…
KEY QUESTIONS: Do I even understand the data? What jargon do I need to look up in a dictionary real quick to understand? Can I break apart the jumble piece by piece for me to make sense of it? Is there a clear, connected argument within the data?
ANALYSIS: This sort of article works well because it makes the reader feel too dumb to decode all the information, so they are left with just accepting the conclusions because the data sounds smart. Enter the most confusing article on the list: “ALERT: Full-Blown Panic Now As Economic Collapse Is Accelerating” from King World News.
The following is how the article begins:
Panic In Global Currency Markets
July 12 (King World News) – Peter Boockvar: There is of course going to be a lot of focus on these sharp FX moves and its impact on corporate profits but I want to highlight that what should also be paid attention to is to what extent company floating rate debt has cost them. Now just as some companies hedge out their FX exposure, many hedge their floating rate position via swaps or even replace it with fixed but others don’t and that is going to cost them. In Pepsi’s earnings release today, they said the stronger dollar cost them 200 bps on after tax earnings per share.
Not exactly the smoothest and clearest of arguments. The article actually begins mid-thought by referencing “these sharp FX moves” as though that had been discussed in the previous paragraph. Enough for anyone to be terrified (“Panic in Global Currency Markets”), but not enough information for any normal reader to be helped to a better understanding. In the midst of the numbers and data about foreign exchange rates and the “economic collapse” that is unfolding, you, poor reader, may be forgiven for missing this important detail:
With the sharp rise in mortgage rates, expectations for home price gains are slipping to 4.4% one year out vs 5.8% last month. That’s the slowest since February 2021 and it is a cooling that the housing market needs.
DID YOU CATCH THAT??? THE ECONOMY IS MELTING…. Wait… did that say “home price gains?”
Yes. Even the doomsday article said that home values were still expected to increase by 4.4% over the next year, AND that is a good thing for the market because it is a cooling that the housing market needs! I agree with this point completely! Buyers have been frustrated out of their minds for the past two years, and so the market needs to drift closer to a balanced market between buyers and sellers so that the transactions are less like a root canal!
So no, we shouldn’t panic. The housing market is not collapsing.
Example 4 (Bad News for Everybody):
Most news is not bad news for everybody. Bad news for some is often good news for others. If you had decided to wait to buy a home back in 2020 until the market crashed, the fact that we are up over 30% in the last two years is really bad news for you. But an increase of 30% is incredibly good news for homeowners.
To continue with the King World News article, it transitions into a great example of this, quoting a twitter thread from an analyst of new construction:
Serious Problems In The Housing Market…
1) Atlanta builder: “Someone turned out the lights on our sales in June!”
2) Austin builder: “Sales have fallen off a cliff. We’re selling 1/3 of what we sold in March and April. Trades are more willing to negotiate pricing since market has adjusted significantly past 60 days.” …
11) Greenville builder: “Traffic has slowed from red hot. Feels different for sure, but it’s more like a normal market.”
KEY QUESTIONS: Who is happy about this data? Who is upset about this data? What are you needing data for?
Are you considering buying land for building homes to sell? Are you negotiating prices with an electrician on your construction? Or are you just curious about your home value? Your purpose has a huge amount to do with which data is meaningful for you and whether it is good or bad news.
The data from Atlanta: the number of new-build transactions has decreased. That’s bad news if you own stock in a publicly traded building company OR if you are a framer, electrician, roofer, plumber, or other tradesman who is counting on the work from new construction for your livelihood because there will be a lower number of new homes built in response to this.
But that news doesn’t mean home prices will decrease, so if you’re a homeowner that is not necessarily cause for worry. It may just mean your home sells a bit slower (though still for a good price), and you have enough options to choose from on the purchase that you can actually buy something (which for most people is great news, and the whole reason they haven’t listed and sold yet).
The data from Austin: lower sales for builders. Bad news for builders and tradesman. Builders are expecting to negotiate costs back down with their electricians and concrete contractors. Not clear if it’s good or bad news for the average homeowner.
The data from Greenville: the commentary was “ we are back to normal.” NOT, “The sky is falling.” No need to panic.
Example 5 (Bad News for Everywhere):
This mistake is similar to Example 4, but is location-focused rather than people-focused. The news that Californians are leaving the state in droves is bad news for the Californian economy. But it’s great news for the economies where those Californians are moving to (including Oklahoma!).
Consider the article from the Phoenix Business Journal entitled, “Is a housing crash imminent? Here’s how far home prices have dropped in the Valley amid a cooling housing market”
If you just read that first question in the title, you probably conclude “A HOUSING CRASH IS IMMINENT!” But real estate is highly local. Any discussion of a “real estate crash” is so broad and universal as to be unhelpful in answering questions about your specific house [[[(see my article about the 1980’s crash and how Oklahoma was the opposite of the national market in 1984 and 2008)]]].
A much more helpful analysis can be found in this Fortune article from July 24th entitled, “Falling home prices? This interactive map shows the statistical odds of it occurring in your local housing market”
Here is a photo of the graph from the article:
Notice the something interesting that I see? Phoenix is given a “Very High: Over 70% chance of a price dip” rating (because, according to the Redfin data discussed earlier Phoenix increased 62% in the last two years… twice the increase that Oklahoma City had).
BUT WHAT ABOUT OKLAHOMA CITY???? We are given a “Very Low: 0%-20% chance of a price dip” rating. Why? Because we only increased by 32% in that span of time, which is below the national average of 37%. As crazy at it has felt, Oklahoma City has been nowhere near as crazy as many other markets have been, and so we don’t have significant reason to be concerned.
Don’t be duped by the headlines. They just want your clicks. Go ahead and give them the click, but hunt down the hidden data so that you can make decisions based upon truth instead of fear and plan well for your future. Because after all: our own personal actions have WAY more impact on us and our families than the national economy does. Instead of being paralyzed from action by fear of the national economy, be prepared by the truth to take the best action you can take right away.