Last week, when I received an e-mail press release from the National Association of Realtors previewing their $40 million ad campaign with the slogan “It’s a great time to buy or sell a home,” I had to read it twice.

Was this a joke? Was there something I didn’t understand about the current market that would engender this kind of overweening confidence?

Now the association, like the majority of agents it represents, is known for its positive spin on the market. This is why its members pay dues to the association: to support, promote, lobby and boost real estate in all its myriad manifestations. Just as we don’t expect Merrill Lynch to recommend closing your stock trading account to buy a nice duplex around the corner, it’s unrealistic to expect real estate agents to recommend avoiding the property racket.

But this ad campaign seemed to come straight from the Mad Hatter’s tea party.

How can it be a good time both to buy and to sell? Isn’t that like saying it’s a good time both to buy Microsoft and sell Microsoft?

I know, I know, this isn’t a perfect analogy. Housing is far more complicated than stocks. A house is something you can live in, while it also functions as an investment (which may be good, bad or indifferent, depending on the home’s appreciation). Homes also cost a fair amount of money to own because of maintenance, insurance and taxes. And typically, houses are bought only by going into debt, which in turn gives many people a substantial tax break.

Still, even within the world of real estate, there are buyers’ markets, sellers’ markets and neutral markets — I’ve never heard of a great buyers’ and sellers’ market at the exact same time.

Targeting buyers

But the full-page ad that appeared in the Wall Street Journal and USA Today last weekend (along with more newspapers this week and TV and radio broadcast spots to come in the new year) does its darnedest to paint the perfect real estate storm. Below a classical drawing of a traditional home, the Realtors’ group stacks the “facts.” And although it invokes sellers in the first and last line, the ad obviously targets buyers who are waiting in the wings.

“Actually, right now may be one of the best times to buy a home,” the copy fairly purrs. “Consider these facts. …” What follows are all talking points that one would expect, with spin as thick as cotton candy on a stick. The ad’s first claim that “interest rates are near 40-year lows” is true — but, hello, this isn’t news. Interest rates have been low for nearly five years, and compared with last year (when the 30-year fixed-rate loan hovered between the high 5s and low 6s), today’s rates are actually a little higher. (For historical mortgage rates, check out HSH Associates Financial Publishers’ Web site at hsh.com/mtghst.html.)

Low rates here for a while

What’s more significant is that some analysts believe the Fed may start cutting interest rates to boost the economy early next year. But regardless of which direction they move, Fed chief Ben Bernanke hasn’t shown a propensity for radical departures, and most analysts predict that relatively low interest rates are not in danger of disappearing anytime soon.

The next point — “Large Inventory Won’t Last” — suggests it’s a wonderful time to buy a house simply because there are so many homes to choose from. Since the historically massive inventory of 4 million homes declined in September to a still massive 3.75 million homes, the association suggests that buyers should act fast before inventory shrinks even more.

“Expanded selection combined with low interest rates offers buyers an opportunity that may never be available again in their lifetime,” says the ad. But many real estate experts admit that the inventory glut won’t disappear overnight. And some think that despite the recent inventory decline, it’s just the beginning of seeing even more homes sitting on the market.

The association presses on with a paragraph titled “Prices overall have stabilized” — again, a statement that strains credibility. How do they know this? The group cites the 4.3 percent rise in sales in August as evidence that sales are picking up and so prices will follow.

The problem is that the sales jump may be momentary. Since the ad appeared, new data have come out showing that sales numbers again dropped 1.1 percent in September, amounting to 13.6 percent lower sales than September 2005. (The ads had to be rewritten for this week’s publication.)

The ad also trots out the fact that national home prices are expected to rise 1.6 percent in 2006. “As prices begin to rise again,” the ad intones. “buyers who do not act now could be making a costly mistake.”

But since when is 1.6 percent good? An average real estate market makes annual gains of 6 percent. And since current inflation hovers above 2 percent, a 1.6 percent gain actually constitutes a net loss.

More to the point, some economists not on the association’s payroll disagree that housing prices are on the rebound. As one example, Harvard economist Robert Shiller has argued that current real estate prices are not sustainable because they have long outstripped rises in rents and incomes. If the inventory grows in the coming year or even just stays the same, then prices may drop, making people who took the Realtors’ advice this month feel like pawns in a chess game.

The ad then invokes the recent words of former Fed chief Alan Greenspan: “Most of the negatives are probably behind us.” What’s interesting about this quote is that it appeared in two different articles in two different forms. In a Reuters piece, which the group cites, Greenspan goes on to make more rosy predictions vis-a-vis real estate. In an Associated Press article on the same day, however, Greenspan is quoted as saying: “Most of the negatives in housing are probably behind us but we still have a way to go” before hitting bottom. Greenspan also reportedly said, “We have too much inventory still.” (I couldn’t figure out whether these comments were made at different events or came from the same Washington speech.)

Greenspan’s policies

In any case, at this point it’s hard to see Greenspan as a disinterested observer. After all, it was his policies that helped feed a real estate mania that spread like a plague over the land. By keeping interest rates historically low and encouraging buyers to consider risky adjustable loans even when there were signs that people were overborrowing to buy homes they could not afford, he has a stake in everything turning out OK. (Last week the Wall Street Journal Online reported that the president of the Federal Reserve Bank of Dallas voiced a rare critique of Greenspan’s policies, claiming the Fed kept interest rates “too low for too long” in 2003-04 because of faulty data that underestimated inflation.)

Wrapping up its analysis, the ad assures readers that real estate is a “safe secure way to build long-term wealth,” adding that median home prices have risen 88 percent in the last 10 years and that since the “number of U.S. households is expected to rise 15 percent in the next decade,” it will create a commensurate demand in housing.

The problem is, as every real estate agent will tell you, the market is cyclical. The 88 percent rise represents a historically unprecedented up cycle. No one with any credibility is predicting that the coming decade will see real estate gains like the last, so why reference it?

As for the population increase, some areas may indeed need more housing, while others may not. Some areas may have been overbuilt by new-home developers. But the idea of an average 1.5 percent increase in households per year nationwide, some of which will be absorbed by new housing, shouldn’t necessitate a radical run-up in real estate prices.

Finally, like the nattering host of a home-shopping channel pressing the audience to “act now,” the ad closes with, “Don’t Delay: Now is a great time to buy or sell a home.”

Marketplace realities

Still feeling confused, I called the association to get a more thorough explanation of why it launched this campaign.

“We believe people aren’t aware of the realities of the marketplace,” explained Steve Cook, vice president of public affairs. “There’s been a lot of negative media coverage and a lot of people are missing the boat.”

“In the sense of buyers, right?”

“In the sense of sellers, too. They are related. Sellers need buyers and buyers need sellers. They both need to work together.” Well, yes, that’s true of all markets at all times, but it shouldn’t be construed to mean it’s an ” ideal time” for buying and selling. Cook then suggested that because inventory is constricting, it will probably become a better market for sellers.

“But then it will become a worse market for buyers,” I ventured.

There was a pause on the other end of the line. “Well, yes, but the most important thing is that interest rates are at all-time lows — that’s good for both buyers and sellers. Like the New York Times said, the stars are aligned.” Actually it was the New York Times quoting a Realtors’ group spokesman, but let’s not quibble.

Bottom line: Nobody panic! Stay in the game.

Fair enough. Though I think there are signs of a significant market decline, I’m not running for the hills. I’m not planning to sell my house because I’m too lazy, I like my neighborhood and, frankly, the equity gains feel a little like funny money. My family needs a place to live, and taking into account the high transaction costs, the cost of renting, etc., with my luck, I’d probably lose money if I attempted to time the market.

Who’s really suffering

All of my admittedly pathetic reasons for remaining comfortable with my overpriced home no doubt contribute to the truism that real estate is less volatile than many other markets. And if I had the money and I wanted to buy a house or needed the money and wanted to sell my house, I would do whatever I had to do. Buy or sell. But that doesn’t mean “now is a great time.” Nor would I would be terribly reassured by this ad — if anything, it would make me more nervous.

The reality is that, nationally speaking, prices for existing homes have not dropped terribly far, but sales have — new-home sales dropped more than 14 percent in September compared with last year, while existing-home sales fell 14.2 percent. When sales drop, who’s really feeling the pain? Real estate agents. It was thus inevitable that someone would lampoon the current Realtors’ ad as a desperate appeal for clients. On one Boston.com real estate bulletin board, the scathing parody appears with an Edvard Munchian face of horror looming in front of the house.

The headline?

“It’s a great time to generate a commission.”

E-mail Carol Lloyd at surreal@sfgate.com.

Source:

http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2006/11/12/REGO4M9UTU1.DTL