The NAR’s sunshine boys
Daniel Gross pointed out the obvious in this recent Slate column about the National Association of Realtors: You can’t trust anything their forecasters say.
Within the fraternity of financial and fiscal forecasters, the seers at the National Association of Realtors—longtime chief economist David Lereah and his successor Lawrence Yun—may be uniquely ill-equipped to deliver sobering forecasts. They work for a trade group whose mission is to buck up the spirits of real-estate brokers. And real-estate brokers—who live to sell, promote, and market—are constitutionally disinclined to hear anything but good news.
This is apparent to anyone who follows developments in the housing industry in the business press, yet the business press continues to report their meaningless sunshiny accounts of the economy as though it constitutes news, discrediting other analysts across the board. Journalosts could get much more reputable numbers from the National Association of Home Builders, a trade association rather than a sales association, with less of an agenda in its forecasts.
Since economic analysts have such strong incentives to be optimistic—it’s what clients generally want to hear, and optimistic forecasts foment increased confidence, which tends to feed on itself—a knee jerk pessimism is almost de rigeur for economists who wants to establish their independence. Nothing but innate contrarianism gives incentive to be negative. As a result, bearish views on the economy always seem to be more credible, regardless of the underlying economic data. Of course the data itself can be made to tell whatever story is preferred, if analysts are suitably unscrupulous and the reporters gullible enough. That’s why CEPR economist Dean Baker will never run out of material for his blog, Beat the Press, which recounts examples of shoddy or biased economic reporting—usually this is a matter of failing to give reference points for figures presented for shock value, or neglecting to adjust for inflation, or cherry-picking data, or presenting predictions as facts, or cheerleading for the Dow or the S&P 500 as though investors’ fortunes were synonymous with the fortunes of the economy at large. But like the NAR, the business press has the interests of its readers at heart, and seeks to keep them cheerful and reassured.
Comments
Demand for economic analysis should grow, but the increase in the number of economist jobs will be tempered as firms hire workers for more specialized jobs with specialized titles. Many workers with economic backgrounds will work in related occupations with more specific job titles, such as financial analyst, market analyst, public policy consultant, researcher or research assistant, and purchasing manager.
Comment by beneficial association — February 15, 2008 @ 11:43 am
CALLING BS ON REALTORS: A QUANTITATIVE STUDY:
And now I have come across another reason to forego an agent and go FSBO (For Sale By Owner).
In their study, “The Value of Information in Real Estate Transactions,” Steven D. Levitt(University of Chicago and American Bar Foundation, author of the bestselling book Freakonomics) and Chad Syverson (University of Chicago and NBER), looked into the behavior of real estate agents to try to figure out whether they were doing the best jobs they could for the clients who were paying them. Their conclusion:
“Our favored interpretation of the data is that the combination of real estate agents’ information advantage and the form of the commission received combine to create distortions from first best. Homeowners are induced by their agents to sell too quickly and at a price that is too low.”
The study is 34 pages long, but in a nut shell, they compared what happened when an agent sold a home for a client against what happened when an agent sold his own home. They found that:
“agents sell their own homes for 3.7 percent (roughly $7,600) more than they sell their client’s homes, and leave their (own) houses on the market roughly 10 days (10 percent) longer.”
So if we do a little math, hiring an agent will cost you a 6% fee, and another 3.7% because the agent cares more about moving your house quickly than about squeezing the most out of the deal for you. That is a hair less than 10%. On a $500,000 home that means your agent costs you almost $50,000, and on a $1,000,000 home, that is $100,000. If you don’t have much equity in your home, that $50,000 might come in handy for something else.
Comment by Russ DoGG hates realtors — February 16, 2008 @ 1:48 pm