I have been wanting to discuss a horrifically misleading article for a week now: Americans Shun Cheapest Homes in 40 Years as Ownership Fades.
It is an object lesson in how an industry spokesgroup, engaging in biased analysis, used poor econometric models to create misleading data. That led to others making bad assumptions based on that data, which in turn leads to an unsupported conclusions. To wit, that home prices are now cheap (they are not) and home ownership is being shunned (it is not). Thus, the end result is a misleading Bloomberg.com article on residential Real Estate that is unfortunately based on these terribly flawed NAR metrics.
The reality is quite different than the spin. No, it is not, as objective data reveals, especially cheap.
This flawed data/PR flack/spin approach is how the NAR manages to get a false and misleading claims printed in major US media on an all too regular basis. “The most affordable real estate in a generation” nonsense in Bloomberg is only the latest hoodwinking they have pulled on journalists. Recall back in 2009, the Wall Street Journal and IBD were both snookered by the NAR’s seasonal adjustments (we discussed this here, here, here, and here).
Given the NAR’s track record when it comes to data analysis, anyone who makes any sort of purchase based on NAR spin is a fool who will get what they deserve.
All of this leads to our present discussion of Home Affordability. Back in 2008, I wrote an analysis of the Realtors’ model titled “NAR Housing Affordability Index is Worthless.” As you can see from the chart below, during the entire boom period of 1996-2006, there was but ONE MONTH where the NAR index said homes were not affordable. Indeed, that chart period extends from 1985 to 2008 — there was but a single month of over-priced houses.
How on earth did home prices NEVER become UNaffordable during the greatest run up in housing prices ever in the United States history? What sort of model refuses to allow homes to ever be perceived as unaffordable? We could only get that sort of thing from an industry source.
What? The NAR making things up? Providing skewed and biased information that might lead people to be interested in buying real estate?
But, if you do think it’s possible – check out the full article.
That said, I’m not sure why this matters…. isn’t unaffordability a sign of good financial health? I seem to recall that everyone was a lot happier back in 2006 when housing was unaffordable. Therefore, there’s only one way to restore happiness in America…