Despite a Nationwide Meltdown, Industry Says Now Is the Time to BuySAN
FRANCISCO (AdAge.com) -- The housing bubble has burst. Almost
three-quarters of a million Americans are in foreclosure. The median
price of a single-family home recently fell for the first time in at
least 40 years, and many are predicting it'll drop further in 2008.
But none of that stopped the National Association of Realtors
promulgating a $40 million ad campaign urging Americans to think of
buying a house as a get-rich opportunity. "We believe there's a
psychological block" to buying a home due to negative media coverage of
the subprime crisis, said Frank Sibley, senior VP-communications and
conventions for the National Association of Realtors.
The campaign features two spots, "Open House" and "Moving In." In one,
a woman who appears to be a real-estate agent walks through a
well-appointed home declaring that home-buying "opportunities have
never been better." For those "on the fence" about buying a house, the
National Association of Realtors "wants you to know that a home isn't
just a great place to raise a family; it's also the key to building
long-term wealth," she says.
Selling homes
In the second spot, which shows a family carrying boxes from a van into
a house, the agent says that those who have bought a home are "making a
good move for your family and toward building long-term wealth." Ads
include claims that, on average, the value of a home nearly doubles
every 10 years, and 60% of the average homeowner's wealth comes from
home equity. The ads drive viewers to the website,
HousingMarketFacts.com.
On the site, an "equity estimator calculator" suggests a $20,000 home
down payment turns into $124,600 in 10 years for a 623% return. The
website includes the same claims as the two spots and adds a few more
noting, for example, that that prices have risen an average of 6% every
year. Like each of the spots, the site does come with a small warning
-- that local market conditions can vary and consumers should seek
counsel from a local real-estate agent.
However, in the light of the current market the "housing-market facts"
could also be read as a historical look at an overheated market rather
than a good predictor of what's to come. Gary S. Becker, a Nobel
Laureate, author and economic professor at the University of Chicago,
said the ads leave out important information that consumers need about
home ownership. "It's a risky investment -- unless borrowers recognize
that, they could be misled," he said.
Mory Brenner, a veteran consumer-debtor attorney who now writes on debt
issues from a consumer point of view, put it this way: "Were the ads
trying to lead you down a road with blinders on? I thought so. I found
it objectionable and a little offensive," he said. While without
patently false statements or data, Mr. Brenner said the ads "are
misleading and not especially forthright and, in a way, the way we got
into this situation [the subprime-mortgage crisis] in the first place."
He chided the association for not producing a campaign more befitting
its station. "They're not some [real-estate agent] on the corner," he
said.
Betting the farm
Others were concerned about the premise the Realtors put forth in the
ads that housing values are going up. Patrick Newport, an economist
with Global Insight, an economic-forecasting firm, said: "In a lot of
markets, housing prices are dropping, and in some markets -- such as
Florida and California -- they are dropping a lot. If you buy a home,
you take on a big risk," especially if national housing prices drop
10%, as some predict, or if you lose your job and are unable to make
mortgage payments, he said. He added that in many cases, "renting may
be a much better deal than buying a house."
Greg Daugherty, executive editor, Consumer Reports, said he understood
that the Realtors are trying to make their case to stimulate business
for their members. But "generally speaking, we don't think people
should look on their house as an investment," he said. "Even if you
double your money over 10 years, it's not a huge return compared to the
stock market," he said, citing Consumer Reports studies that back up
that point. "If you need a home, it's always a reasonable time to buy
one. But consumers should not look at buying a home as a
get-rich-quick, or a get-rich-ever, scheme," Mr. Daugherty said.
Jeff Lancaster, a wealth-management adviser in San Francisco and
Silicon Valley, said the ads are sweeping some important facts under
the rug. "I don't think, in general, advising people today to buy homes
for financial reasons is good advice. There's very good reason to
believe the price of residential housing in most communities in this
country will be lower a year from now than it is today," he said. "You
could lose money."
Next pitch
Mr. Lancaster, a principal in Bingham, Osborn & Scarborough, also
noted some practical problems with the wealth-growth claim: As soon as
a home appreciates in value, the bank holding the mortgage starts an ad
blitz for a home-equity line of credit, oftentimes leading consumers to
spend that money. "We know a lot of homeowners are not responsible
because they've been encouraged [to be less than fiscally responsible]
by their bank," he said.
Mr. Lancaster, Mr. Becker and other critics of the commercials thought
the association should give some thought to placing a warning in the
ads similar to those for pharmaceuticals or financial-investment
companies, or a responsibility message similar to those from beer and
alcoholic-beverage companies.
But a National Association of Realtors spokeswoman said the ads don't
need any disclaimers. They emphasize the growth will come "over time"
and advise consumers to consider local markets and seek advice from a
real-estate agent. "They're there to help," she said, adding the
organization also can find houses to rent.
