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NEWS HEADLINES

Crash, Boom, Feast, Famine; headlines are designed to get your attention. The discerning consumer will take the time to read further. The intrigued consumer will take the time to read further and look beyond what is being stated; unfortunately both classes of readers are in the minority. The majority simply sees the headline, maybe read the first two sentences, then move on.

We can’t allow ourselves to do the same thing. When a sensationalistic headline concerning real estate sales activity or house pricing comes to our attention, our role as REALTORS® is to properly interpret that information then communicate the real meaning or story behind that news article to our customers and clients.

For example, in this morning’s online Financial Post there is a headline “Economic shock could knock Canadian housing prices down 44%, Moody’s warns”. The headline in itself immediately causes great concern with anyone who reads it. However, as you read the story, it actually refers to the pressure being put on all rating’s agencies to accurately predict what is going to happen to specific market segments in the economy. Further down in the story, “Ratings agencies came under harsh criticism in the aftermath of the financial crisis of 2008 for what was perceived as a failure to predict the U.S. housing market meltdown that precipitated it. Since then, there has been an attempt to strike a balance of thorough analysis with timely analysis, according to Grant Connor, an associate in equity research at National Bank Financial who previously worked on structured finance at Moody’s.”

Further it states, “At the simplest level, a stress case scenario should represent a realistic worst case scenario,” Mr. Connor said.” and “Moody’s Investors Service is in no way predicting the extent nor the causes of a large scale house price depreciation in Canada,” spokesperson Thomas Lemmon said in an emailed statement. “Along with many other factors, the home price component of our analysis provides that in order to achieve our highest rating, a mortgage pool would have to be able to withstand a 44% downturn.” Moody’s is the second ratings agency in as many weeks to seek input on a proposal to change the methodology used to analyze securities linked to mortgages.”

Then, at the very bottom of the news article, “In addition, Moody’s does not seem overly concerned about an over-supply of housing with the possible exception of the condominium market.”

You can see in the story itself, Moody’s isn’t predicting a house price crash of 44%. They are asking for input on developing a stress test to better able predict what a worst case scenario could be if specific predicted factors were to fall into place that would therefore affect the market.

In other words, politicians, regulators and business leaders are looking for ways to shift the blame or point the finger at anyone else if another financial crisis were to happen.

The fact of the matter is that all markets are cyclical. That will never change. We know that prices go up and prices go down. Over the world’s history, everything trends up in response to population growth and the resultant consumer demand.

We have lived through the greatest economic boom the world has ever experienced with the baby boomer demographic. It is purely natural and painful that following such a long run of growth, there will be a long run of economic instability. Up and down cycles are directly related to each other.

The thing is we have to see beyond the headlines of the particular cycle we are in. Back in the last up cycle, 1998 through to 2008 the headlines were all positive, nothing could go wrong. Now since 2008 the headlines are exactly the opposite. In our own situation as real estate brokers we have to appreciate two main philosophies when it comes to how we conduct business and control our own business lives.

1. We are in control of our own destinies, no one else. So ignore whatever the headlines are, be they good or bad. Stay focused on your own business track, providing the best service you can.

2. In regards to real estate investing, counsel your clients and customers to buy or sell their real estate investment, principle residence or other property, based on their own personal circumstances, not on the media perception of the day that they will make a quick buck or lose a buck.

If we stay with these basic fundamentals, we, and our clients, will ultimately succeed and enjoy a positive lifestyle.

 

 

Elton Ash, ABR CRES
Regional Executive Vice President
RE/MAX of Western Canada (1998), LLC

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