What's needed: a money-back guarantee, a disclaimer or a warning label?
If a Ph.D. economist with the Fisher Center for Real Estate at UC Berkeley's Haas School of Business (whew!) says he expects the median price of Silicon Valley homes to drop as much as 25 percent by the end of next year, you'd be tempted to put off buying a home until the end of next year. After all, a guy like him should know. This is the word, straight from the ivory tower. Never mind what your agent says.
But when waiting those fourteen months actually costs you an extra 10 percent instead of saving you up to 25 percent, you might think twice before believing him again. Especially if he also said around the same time (January 2002) that "predictions...of a strong Bay Area housing market are optimistic" just as home prices began a five-month 17 percent run-up.
But you're a forgiving sort and, besides, you weren't ready to buy in 2002 anyway. No harm, no foul.
So you wait, because a guy like him should know. But two years pass and now prices are 40 percent higher. So imagine your relief when he's quoted as saying that "it is not surprising that the market is dying down". Just wait a little more, you think. Because a guy like him should know.
A year passes and home prices rise another 17 percent, lively performance for a market on its deathbed.
At this point you might be less inclined to think "a guy like him should know" and more inclined to think that a guy that wrong, that often, should find a different line of work.
But Kenneth Rosen is still at it, although now the media's given a warning label: "housing market bear".
Recently Rosen was quoted as saying that "some homeowners will lose one dollar for every four they have gained". Thanks for the all-points bulletin, Ken, but it's a bit vague. Are you talking about the speculators who got into Las Vegas just in time for that house of cards to collapse? Or are you talking about my buyers, the ones thinking of buying in an area where people might actually want to live, five years from now, even if prices aren't still going up like a rocket?
Alas, on this salient point Rosen remains as cryptic as the Delphic Oracle. But let's read the fine print in another press release, from PMI Group, claiming a 53 percent likelihood that home prices in the San Jose area will decline over the next two years. Note the implication of rigid scientific accuracy: not 55 percent, not 50 percent, but 53 percent.
But also note their disclaimer, not quoted by the press: "Statements...that are not historical facts or that relate to future plans, events or performance are 'forward-looking'...These forward-looking statements involve risks and uncertainties that could cause...actual results to differ materially from those expressed in this release". (I think we can thank the Securities and Exchange Commission for this illuminating disclaimer.) Combine this with PMI's admission that they based their forecast not just on a statistical model but also on "judgmental adjustments" (i.e. "futzing around") and you can understand why no one should ever try to take a housing market forecast to the bank.
But people do, and their reasoning is ironic. While it's easy to dismiss the market forecasts of agents and their trade groups as nothing more than self-serving sales pitches, the forecast of the Ph.D. economist may also be as much about selling as science. It may be less a scholarly attempt to inform the public than a reminder of the "publish or perish" mentality of the ambitious academic or, as a cynic might put it, "blind them with a blizzard of press releases and hope they remember my name and my employer's name but not my record".
What's needed? A money-back guarantee? A SEC-mandated disclaimer? Heck, I'd settle for "This forecast could be more for my benefit than yours, I've gotten it wrong before, and I might be wrong again".