"It's simple. It's just numbers."
This assertion, made by America's Number One Bubbler Blogger to modestly explain why he knows more than most of us about real estate, without having any business or academic experience in real estate or even in buying a home, always struck me as a prime example of the simplistic thinking favored by left-brained real estate voyeurs. It's simplistic because it ignores the X factor that makes the real estate market more than just numbers. It's also the curveball that these voyeurs so often can't hit when they come up to bat in the real estate marketplace.
Because "it's simple, it's just numbers" is naive, the naïveté of the dilettante, and while naïveté is charming in small children, it doesn't foster a mature outlook on the real estate market or, I suspect, on any market or, I'm certain, on life itself. And while the real estate outsider thinks numbers give him or her a quick and painless handle on real estate, markets-as-numbers reduces humans to automatons and fails to recognize whatever it is in us—free will, emotion, orneriness—that makes us human and markets markets.
But in my own naïveté, I was prepared to concede that "it's just numbers" might be a sensible, even essential, view if "numbers cruncher" was in your job description. Perhaps to the scientist in his lab and the engineer in her cubicle—at least when they had their minds on their work and weren't posting their real estate insights on company time—numbers spoke the whole truth and nothing but the truth, no interpretation or instruction necessary.
In other words, maybe there really were instances, not in the clangorous valley of the marketplace—and certainly not in the tangled swamp of the soft sciences—but in the cold clear air of hard science, when the data didn't lie, when they always spoke plainly and unambiguously. In other words, maybe "it's just numbers" wasn't always hubris—maybe what sounded like sophomoric generalization occasionally made sense. And as someone with left-brained inclinations and number-crunching tendencies myself, I wanted things to occasionally make sense.
But a recent conversation with someone who lives and breathes numbers in the workplace suggests that "it's just numbers" may be just one more example of the techno-worship that's gone on unchecked and by now largely unrecognized over the past 150 years or so. Perhaps not enough science and math instructors caution their young students that learning a formula or two isn't quite the same as penetrating the mysteries of the universe although, to be fair, humility is rare these days, online or off, no matter what the educational background.
Now I suspect "it's just numbers" may handicap even the job performance of the numbers-cruncher, because numbers so rarely give the whole picture. Any numbers cruncher who thinks they do is probably either stuck in a small cubicle or in the juvenile certainties of tenth-grade chemistry.
I came to this conclusion not, as is so common these days, by going online to share my penetrating wit and wild guesses about a complex nuanced topic, but by taking the bold and unusual step of talking to a real person(!), someone who'd know: a gen-u-ine de-luxe numbers cruncher.
One of my clients is an actuary. What's an actuary? According to the Casualty Actuarial Society, "Actuaries evaluate the financial impact of current economic, legal, and social trends on future events. The accurate and responsible matching of risk to price is the foundation upon which the financial integrity of the actuary's company or client rests. For these reasons, actuaries are known for their scientific approach and demanding standards."
Note the phrase "scientific approach". It's the approach so many left-brained voyeurs will tell you they bring to real estate.
My client is modest, and it was his wife who told me he's one of a handful of actuaries who've gained fellow status in CAS by passing a series of rigorous exams. He's also never mentioned that, according to his company's Web site, he's executive vice president of "actuarial, underwriting, product development and claims" for a major property insurance company headquartered in this area.
So my client is the real deal, a numbers cruncher par excellence. But he doesn't hit you over the head with it. He doesn't strike heroic poses, either in person or, as far as I know, online.
It must be fairly obvious that I've worked with this client for over a year without talking to him much about what he does. This omission breaks the first, second and third rules of agent-client bonding, but I'd figured that if I asked him I'd put myself in the same position I put myself whenever I ask an engineer client the same question: none the wiser and with an unmistakable blank look. But we were hanging out the other day, waiting for a home inspector who was running late, and I took the plunge.
"We review the data to see what next year's premiums should be", he said. I thought of the numbers crunchers called real estate economists who gather data, often sketchy and ambiguous, on real estate and then process them through economics' version of the car shredder, the algorithm. So I asked my client, knowingly, confidingly, "Do you have a proprietary algorithm you use?"
He looked faintly contemptuous and said, "Every insurance company has their formulas, and everyone has access to industry data, but there's a lot more to it than that.
"There's always an X factor we have to figure out.
"For example, let's say we're calculating what next year's car insurance premiums should be. We know that high gas prices mean people will drive less. If they drive less, the data tell us accidents will go down, so claims will go down too. So premiums should go down.
"But collision repairs get more expensive every year, because cars get more complex every year. They have more lightweight body parts that cost more to replace. They have more equipment, including safety equipment like air-bags. And every year they find more places to put those air-bags. Which is great, but when all those air-bags deploy in an accident, it costs a thousand dollars or so to replace each one. That kind of money creates a black market for stolen air-bags, and some repair shops replace bags with sub-standard components or nothing at all—who's going to notice unless there's another accident? So we pay for fraudulent repairs and end up getting bilked for thousands of dollars. So we look at the data and think premiums should go up.
"But on the other hand air-bags cut down the number of deaths and serious injuries, so that data tells us premiums should go down.
"But air-bags don't eliminate injuries and can even cause them, so premiums should...well, you get the idea. No one knows all the answers, so there's lots of subjectivity—educated guessing—going on. The insurance company that guesses best has the best year."
In other words, it's not just numbers, even when it looks like it is. Any time humans are involved, there's at least one X factor and probably more. And X factors make numbers anything but simple.