One thing that irks me about my industry is how often I hear colleagues blaming the media for market woes. Like, everybody who’s a journalist works for some sleezy tabloid, and they all got together one day at some secret meeting and decided that the boom was over and that it was time to pop the bubble and ruin the real estate market for everyone, everywhere. Puh-leese!
While at NAR, I spoke at a concurrent gathering of the Newspaper Association of America about real estate blogging, how it affects my business and theirs. I wasn’t in front of the editorial people. I was in front of the business development people who sell brokers, agents and affiliates so many zillions of dollars each year in print and online advertising. I believe I was asked to speak as an example of the atypical Realtor, their fading customer, and yet, perhaps the future of real estate.
It was an interesting exchange. I expressed my disinterest in wasting any more money on print ads, given that 83% of people seriously interested in buying or selling are doing their research online, while at the same time expressing disinterest in overpriced banner ads that yield little in the way of trackable results. I implored them all to move to a Google Ad Words model that serves affordable, contextual text advertising that can be easily changed to improve clickthrough rates, charged on a per click basis.
But I also learned that in most major metropolitan markets, the most highly trafficked websites are those belonging to the dominate local newspaper. Why is that? Because they are a trusted source. Why are they trusted? Because journalists have their own set of standards and ethics to which they must subscribe to maintain credibility. For each published article, they are required to conduct diligent research, talk to multiple sources, check their facts and submit their work for editorial review. It’s not a perfect system, but it works most of the time.
The media didn’t conjure up this market downturn. And it’s not their fault that it continues. Sure, maybe they get excited about what they discover and sensationalize it some, just like we all did when the market was hot, prices were going up and everyone was making money hand-over-fist. No, the market evolved on its own based on many factors that we’ve all discussed ad nauseum on this blog. It is what it is. The media only harps on it further because it’s not over yet. As long as there is news they will report on it. It’s what they do. When there’s no more news in this arena, they’ll turn to something else.
I can’t tell you how many times I heard this in the halls at NAR… "The media is so negative. They’re scaring all the buyers out of the market." I’ve even heard this occasionally in my own brokerage. Some may even say this blog contributes to the so-called problem, as I freely link to negative media reports if they seem relevant to what I see in our local market, thanks to the input from our many readers.
Yes, there’s always more than one side to every story. And you know me… I will point out the bright side at the risk of being skewered, because it’s there. It’s a possible alternative. But to simply blame the other side, to brush aside the opposing opinion without really considering where it’s coming from, that’s just pure weakness.
Marc Davidson over at Inman News published an outstanding column on this recently. Hopefully they won’t mind the reprint:
"Media, media bo bedia,
Bonana fanna fo fedia,
Fee fi mo media — media!
Come on everybody, let’s play the blame game
The media’s effect on real estate was the conversation that rose
most audibly from the panel sessions, lobby meetups, parties and hoopla
in Las Vegas during last week’s National Association of Realtors show.
I couldn’t escape it. It popped up in nearly every discussion as an
element of accepted wisdom about the past, present and future of our
industry.
CNN, The New York Times, The Wall Street Journal, Fortune and the like are in devious congress, a cabal that’s intent on destroying the real estate industry as we know it.
I watch the news, read the articles and bear witness to my own real
estate investment woes. I too have participated in the blame game. But
as I sat at Gate B20 waiting for my flight home I started to think
about how ridiculous this proposition truly is.
Maybe it was the shear exhaustion of the conference that lulled me
in an open cast of mind. Maybe it was the two agents who sat beside me
discussing the dead real estate market to which they were returning —
the one the local press had "all but written the obituary for." Maybe
it was the fact that the security gauntlet I just passed through — and
the "Orange Alert" status in which we all live — did little to
dissuade me and 26,000 other real estate folks from traveling, living,
partying, working and embracing life this week.
Sitting there, inside the terminal, about to board a United Airlines jet, I began to think outside my own box.
Deflection
John Burroughs once wrote that a man can fail many times, but he
isn’t a failure until he begins to blame someone else. By that measure,
we are involved in a community failure. By assigning such power to the
media we’ve assigned an equal amount of weakness to ourselves.
There is no conspiracy in the media. No cabal. No calculated
destruction. I know of no summit that has taken place where editors
gathered to declare a jihad on real estate. The victimization we are
experiencing is self-induced, a product of our own failure to offer a
countervailing force of opportunity.
If the media can be blamed for anything it’s their penchant
for sensationalizing. But the only reason real estate is victimized by
this is because, unlike other industries that are scrutinized by the
press, real estate does little about it. Yes, you will say, "NAR has
spent millions on ad campaigns to get buyers off the fence and
highlight the opportunities that abound." Put yourselves in the
consumers’ shoes for a minute. Are ads like that really doing it for
you?
Fast Food. Tobacco. Domestic auto making. Music. The press covers
these industries with the same zeal and greater skepticism than real
estate attracts. I read tons of stories about the dangers of trans fat,
the backwardness of the major music labels and the evils of foreign oil
dependency, yet Americans still pound their Big Macs while driving
their gas-guzzlers.
What these other industries have and what real estate doesn’t are
well-oiled marketing machines. They have a consistent message that
deflects the heart attack in a box with a two-all-beef-patty jingle.
Carmakers goose us with an idea of style that makes us figure that,
hey, as long as the earth is melting, at least we’ll go out looking
sporty. Local governments have mastered the art of beckoning residents
to hurricane-prone, flood-worn and tornado-infested communities because
they can — for better or worse — reach a place in the mind that
triggers desire.
So if the American consumer is spooked by the media, what is real estate going to do about it?
Hey, let’s throw a party!
If you woke up the day after the NAR conference and read this headline, "30,000 Realtors whoop it up in Vegas while millions of Americans face housing ruin," what would you think?
Or, if the writer spun the story of last week as "a massive gala in
Sin City hosted by the National Association of Realtors where tens of
thousands of real estate agents, blinking like Christmas trees,
congregated in sybaritic suites and carelessly gambled away the profits
from the recently ended real estate boom."
Given the condition of the market, that’s exactly what last week
could look like to the media. If such a story is written, we’d have
only ourselves to blame for believing that what we say, write, put
online, and do as representatives of this business goes unnoticed by
the public.
Beating the media at its own game
I have a vivid recollection of post 9/11. The airline industry was
decimated. Hotel rooms were collecting dust. Joke writers for Leno were
glued to news. The country was handcuffed and afraid to go outside
until first-term George Bush stepped up and told a frightened nation to
get on with their lives, to fly planes, book hotels and get back to
enjoying our American opportunities.
That is what a leader does. A leader gives marching orders that
stimulate positive action. This is precisely what is not happening in
real estate and why the media coverage of the market is getting so much
unwarranted attention.
Honestly, anyone can be a leader. Real estate is so local, that while it would
be great if NAR stepped up to the plate with a more convincing message,
people would be unlikely to heed it. But they do know who their local
Realtors and brokers are, and they are looking to them for reassurance.
Want to beat the media at its own game? Be a leader in your market.
There are a few out there. They are holding town hall meetings with
their customers, as one broker friend of mine has, where honesty about
the market is the order of the day. They are the agents who have
decided to turn off their lapel lights and turn on their imaginations.
They are the veterans partnering with younger agents to connect more
authentically with a new generation of customers.
They are telling a story of opportunity that makes griping about the media seem silly. You can too.
Marc Davison is a founding partner of 1000watt Consulting."
Derrick
how about admiting that gambling in a casino is VERY different than investing in the stock market over the long term.
Do you understand what zero sum means?
MikeZ
RE: “negative cash flow for the first several number [5-7] of years of ownership. Then maybe starting in year nine or so, break even turns into positive cash flow.”
Right about that time, you need new floors, paint, carpets, heater, appliances, etc.
Then the next time, you need a roof, maybe windows and doors, maybe a new AC/furnace, and maybe even a complete remodel (or at least bathroom and kitchen).
No remodel? Good luck renting a house with a 20-year-old kitchen and bathroom.
And renters are brutal when it comes to wear and tear. Things that last 20 years in an owner-occupied SFH last 10 in a rental unit.
I’ve played the landlord. In good times, with full occupancy and good tenants, rents cover expenses.
In bad times, you’re hemorrhaging cash. If you’re really unlucky, a tenant trashes the place.
I tracked every expense my first year as a landlord. When I ran the numbers, I was shocked how a simple trip to Home Depot each weekend added up to $10,000 over the course of a year.
Allen Murray
Mike Z….again don’t put words into my mouth. I think am now convinced that stocks in general performed better than housing over the past 60 years. I am also convinced that I will stick with real estate as my investment of choice, and am glad you are sticking with stocks. I feel better owning an investment I can drive by, live in, and depreciate. What I don’t understand is why all of you adamant stock investors are doing here on the real estate blog. Are you here to convince yourselves that you shouldn’t buy real estate? Are you looking to diversify into real estate, or are you just really bored?
Reno Ignoramus
I have never looked at it as an “either or” proposition. I have been invested in the real estate market AND the stock market for many many years. I think one should get as diversified as possible.
Derrick
Allen I think it was only a debate as to what has historically been a better investment. Nothing more nothing less. Since this is a Real estate blog and many consider buying a house an investment, Its only fair to talk about other forms of investment as well and how they compare to real estate.
I 100% agree with you RR It is very important to be as diversified as possible.That is the key to any successful Investor.
Here’s part of an article I found to be interesting about the differences.
“Shares of businesses return 7% a year over long periods. I’m subtracting for inflation, gradual price increases for everything from a can of beer to an ear exam. (After-inflation, or “real,” returns are the only ones that matter. The point of increasing wealth is to increase buying power, not numbers on an account statement.)
Shares have been remarkably consistent over the past two centuries in their 7% real returns. In Jeremy Siegel’s book “Stocks for the Long Run,” he finds that real returns averaged 7% over nearly seven decades ending in 1870, then 6.6% through 1925 and then 6.9% through 2004.
The average real return for houses over long periods might surprise you: It’s virtually zero.
Shares return 7% a year after inflation because that’s how fast companies tend to increase their profits. Houses have their own version of profits: rents. Tenant-occupied houses generate actual rents, while owner-occupied houses generate ones that are implied but no less real: the rents their owners don’t have to pay each year.
House prices and rents have been closely linked throughout history, with both increasing at the rate of inflation, or about 3% a year since 1900. A house, after all, is an ordinary good. It can’t think up ways to drive profits like a company’s managers can. Absent artificial boosts to demand, house prices will increase over long periods at the rate of inflation, for a real return of zero.”
Derrick
“But though stock returns have come from increased earnings, house returns have come from ballooning valuations, not increased rents. The ratio of share prices to company earnings (the price-earnings ratio) has remained relatively steady. It’s about 16 today, close to both its 1940 value of 17 and to its 130-year average of about 15. Not so the ratio of house prices to rents. In 1940, the median single-family house price was $2,938, according to the U.S. Census Bureau, while the median rent was $27 a month, including utilities. That means the ratio of prices to annual rents was 9. By 2000, the ratio had swelled to 17. In 2005, it hit 20. We can adjust for the size of dwellings, but it doesn’t make much difference. The ratio of single-family house prices to three-bedroom apartments is 19. In SmartMoney’s hometown of Manhattan, where more detailed data is available, the ratio of condo prices per square foot to apartment rents per square foot is 22.”