Paper Economy - A US Real Estate Bubble Blog: The Daily 2¢

Monday, November 05, 2007

The Daily 2¢ - New Campaign, Old Scam

There just doesn’t seem to be ANY limit to the depths to which the truly underhanded National Association of Realtors (NAR) will reach in attempting to protect their own self interest.

Their new ad campaign, which apparently replaces last year’s ads promoting the absurd notion that “It’s a Great Time to Buy or Sell a Home”, shows (see ad above) what looks to be a 4 year old in a backyard swing with the title “Buying a Home is a Great Way To Build Long Term Wealth, There are Some Other Important Dividends Too”.

Along with the ludicrous “tug at the heartstrings” comes some “facts” to back up their claims ranging from “the value of a home nearly doubles every 10 years” and “the average homeowner has 36 times the wealth of the average renter” to the pièce de résistance… “the best way to evaluate your situation and options is to contact a Realtor”.

They are truly a desperate and reprehensible outfit.

What’s going to be next year’s campaign?

Possibly a cute little puppy being held firmly around the neck with snub nose pressed to its head and the tagline “Buy a home or this bitch dies!”

At this point, I wouldn’t be too surprised…

Am I alone in thinking that NAR’s attempts to persuade unsuspecting people into “investing” in a depreciating asset as large as a home, simply to serve the interests of their organization and its members is tantamount to fraud and should be prosecuted?

Labels: economy recession, housing bubble, mortgage meltdown, NAR, national association of realtors

16 Comments:

They are used-house-salesmen - you can't prosecute them for their spin, but you should warn your friends about them.

By Peter T, at 11:16 AM
You beat me to it - I was going to pick apart this ad too.

One of the most glaring problems with the ad is the implication that buying a home makes you rich - this gets the cause and effect backward. People are able to buy homes because they have wealth (the no/low-down buyers of the bubble excepted), they don't have wealth because they bought. The net worths of owners are higher than renters, on average, because for the bulk of history you had to bring a sizable down payment to the table, and therefore only those with the higher net worths were capable of buying. Of course, that doesn't apply to the past few years, but most people did not buy in the last few years.

By bostonbubble, at 2:56 PM
Also... check out their radio and TV ads running in Boston (and probably elsewhere):

http://www.bostonbubble.com/forums/viewtopic.php?t=514

This quote in particular is stunning: Buying a house is the best investment anybody could ever make.

How is it that the NAR/MAR can get away with offering investment advice like this when those involved with practically every other legitimate investment vehicle are perpetually paranoid about any statement that might be construed as promising future performance? I am surprised that they haven't been sued yet. I am also surprised that they are still offering unreserved investment advice now that the liability of being wrong should be more obvious with declining prices and hordes of former clients losing everything via foreclosure.

By bostonbubble, at 3:00 PM
> How is it that the NAR/MAR can get away with offering investment advice like this when those involved with practically every other legitimate investment vehicle are perpetually paranoid about any statement that might be construed as promising future performance?

My 2 cents on it: The NAR is not a direct agent of any investing person and has therefore no duty to any customer either: Customer protection laws don't apply, because they don't have customers. I could run a website claiming that gold will go up (as many are actually doing), as long as I don't offer financial services. It's freedom of speech. The only service the NAR offer (indirectly) to customers is the MLS (for which they were under investigation for antritrust practices by the Justice Dept.).

By Peter T, at 5:40 PM
peter t, I don't think the lack of customers necessarily saves the NAR. Many financial companies sell products only through intermediaries like brokers, and have no retail customers at all. Others only provide infrastructure and services to the brokers, and have even less relationshp with end investors. None of these companies would escape liability if they ran an ad saying, "hedge funds are the best investment."

I think it's simply a matter that no one has looked at the available statutes to see whether they're adequate--yet.

Perhaps some calls to the Mass. Attorney General's office?

By Sold At The Something, at 9:05 AM
I'm also curious how they came up with that 10% increase in sales in 2007 Q3 vs 2006 Q3, especially given the 19% plummet for Massachusetts in just September. I realize their number is just for Greater Boston, but 1) that is a massive difference and 2) the towns in Greater Boston that I remember (e.g., Arlington) have all had a declining volume of single family home sales.

By bostonbubble, at 9:21 AM
bostonbubble,

My post didn't do the subject justice as I didn't attempt to refute ay of their ridiculous claims so thanks for adding you insights.

I think you are dead on, NAR is essentially offering investment advice without any of the disclaimers that would be required by law for other asset classes.

I think it really needs to be addressed somehow... Any attorneys in the audience?

By SoldAtTheTop, at 9:55 AM
Hold on a second... I just realized the ad running in Boston adds some additional text. Check this out:

http://www.gbreb.com/gbar/documents/NARFALL07.pdf

That's where they referred to a 10% increase in sales in Q3 2007.

They also claim that "home values have increased an average of 13.8% per year over the past 10 years."

Way to cherry pick the time period. The same thing applies to their 30 year sample where prices doubled every 10 years. Not only is that severely distorted by the recent bubble, it also represents a whopping single mortgage cycle. That is a woefully short time period to extrapolate from. If you go back to 1890, like Shiller did, you find that house prices have risen roughly with inflation over the last 100+ years (which is still not a huge sample size).

By bostonbubble, at 10:07 AM
sold,

You wrote that financial companies cannot say "hedge funds are the best investment", even if they
> sell products only through intermediaries like brokers

or
> only provide infrastructure and services to the brokers

While the NAR doesn't fall into the first category, they seem to fall in your second category. If you are indeed right about prohibitions of giving such general investment advice, a legal examination of the NAR's claims would be in order.

By Peter T, at 10:13 AM
It's funny. Most professional organizations exist so that it's members will possess the education and skills required to perform their job while adhering to a certain set of minimum standards of care. Apparently the NAR exists mainly to serve it's own interests and dupe unsuspecting buyers into purchasing homes in a down market.

By Anonymous, at 11:37 AM
I got a good hearty laugh on Sunday morning while reading the globe. Talk about cherry picking data.
I still think these BS ads are more of a hindrance than a help to sellers. Unless you live in a cave in Afganistan you have to know that the realestate prices throughout the country are in a downward trend.
I also saw similar ads in the USA today. If one person buys a new house based on those ads, then the ads did their job. If you resisted the emotionaly tinged message and still waited to buy, you did your homework.

By Divadkire, at 11:42 AM
bostonbubble,

WOW!

I didn't realize they put that part in there for Boston... they are true scum...

I hate to say it but there is apparently NO LIMIT...

Unbelievable... just unbelievable...

I just don't understand how this is legal...

By SoldAtTheTop, at 11:47 AM
I suggest you econo-heads do some work to show precisely how the realtwhores goosed the statistics.

Then we go to the consumer complaint division of the AG's office.

Let's do it, people

By soldatthesomething, at 9:30 PM
soldatthesomething, for me at least, the biggest issue is that they are saying that past performance implies future results. It's not so much that they "goosed" the numbers - I assume that they can back up the numbers (though the 10% increase in Q3 still strikes me as incongruous). The problem is that they conclude from the numbers that buying a house will make you wealthy. This is a problem because 1) the numbers are insufficient to support that hypothesis and 2) past performance is no guarantee of future results, as practically everybody else who pitches investments will tell you.

By bostonbubble, at 9:54 PM
You are all so quick to jump on the "shame on NAR" bandwagon. Your fingers should be pointing more at the lax underwriting guidelines that heralded in the amazing mortgage deals that spurred the rush of buyers, whereby pushing prices up. Despite your feelings, the OFHEO (www.ofheo.gov) that tracks property appreciation actually has data as far back as 1972. And, yes, appreciation in some areas of the country does average between 8%-10%.

By Anonymous, at 11:00 PM
anon,

I host the complete set of OFHEO HPI series as well as the S&P/Case-Shiller series here at the blog so I'm well aware of the trends.

8%-10% annual appreciation over any sustained period would be considered exceptional growth and would likely correspond to a cyclical expansion.

Over longer periods though, residential real estate will keep up with and beat inflation by roughly 2-3%.

It's a good inflation hedge and reasonable long term asset and store of value but average annual growth of 10% is not typical on average.

Also, make sure you are looking at the "sales only" OFHEO series as the traditional series are distorted a bit by re-finance data.

The tools are:

OFHEO HPI Tool

S&P/Case-Shiller/Futures Tool

By SoldAtTheTop, at 11:26 PM