Our friends at reason.com shine the spotlight on this dubious topic; realtor advertising claims – an excerpt:
A recent newspaper included a glossy magazine with an article urging me to run out and buy a house — fast!
“Thanks to historically low interest rates, affordability is at an all-time high,” the article said. “I highly recommend taking advantage of this opportunity before conditions change — although interest rates are still hovering just above their lowest rate, they will start to climb. In this climate, it’s absolutely crucial that you’re prepared to move quickly.”
This article was written not by some journalist but by the president and CEO of Douglas Elliman Real Estate, Dottie Herman. Nothing against Herman or her company, but the article, and the lack of scrutiny it received, highlight one of the puzzling aspects of the financial crisis and its aftermath — bankers were hit with new regulations and called before congressional hearings, but the real estate industry has escaped largely intact.
Herman’s assessment of housing “affordability” should be taken with a Everest-sized mountain of salt. The New York Times reported back in January of 2009 that the National Association of Realtors had declared “housing affordability was at an all-time high in December.” That was December of 2008 they were talking about; it’s now 2013, more than four years later, and the real estate industry is telling us again that “affordability is at an all-time high.”
Similar skepticism should be applied to her predictions about interest rates. Federal Reserve officials reportedly don’t expect to raise them until 2015. Even then there will be strong pressure from Treasury not to raise them much, because doing so would wreck the federal budget by increasing the government’s borrowing costs. If Dottie Herman really knew what’s going to happen to interest rates, you’d think she’d be trading bonds rather than selling real estate.
Her article bases the affordability claim on an example of “assuming a 30-year fixed mortgage with 10% down.” If these houses she is hawking are as affordable as she claims they are, you’d think the borrowers might be able to scrape together a 20 percent down payment.
There may be some formula by which housing affordability is at an all-time high, but to New Yorkers who have seen the nominal prices of houses and apartments double or triple or more in the past decade or two, this is the sort of claim that will elicit a chuckle, if not a snort or an eyeroll.
So is the admonition to“move quickly.” Most real estate brokers are paid by the deal, not by the hour, so if the buyers rush forward with “the strongest offer,” as Herman advises, it makes things easier for the brokers. If you are a buyer, though, you may get a better deal by being patient and waiting the seller out.
If this were a oil-company executive talking up his own interests, or a banker, the press or politicians would be tearing his claims apart. But for some reason, the real estate brokers get a pass. Maybe, as others have suggested, it’s because everyone’s mom’s friend seems to be a real estate broker, while Wall Street bankers or derivatives traders seem to be more remote and better paid.
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