“Capital Insights” with Jack Kern: NAR Proves Renting is a Better Alternative

Probably the best commentary I’ve heard when listening to the housing economists from the National Association of Realtors comes from Forrest Gump, who said:

“Stupid is as stupid does.”
Forrest Gump (c) Robert Zemeckis, Paramount Pictures 1994

And now the proof:

Jed Smith, managing director of quantitative research at NAR was recently quoted as saying, “There is a slight trend showing that people are beginning to realize that houses are a good buy right now.”

Meanwhile, Lawrence Yun NAR’s chief economist is quoted as saying, “Pending home sales have a long way to go for there to be a meaningful increase, but recent increases in shopping activity are hopeful indicators that we’ll see additional sales gains…it will take a few months before we could see this turn up in measurable sales contract activity.”

It’s nice to see that voodoo economics has made a comeback at NAR. I guess wishing and hoping has its place beyond the third grade, especially if you’re an industry economist or part of the housing lobby.

How about this one:

“This is the time to buy, if you can, and you have the intention. Even the most pessimistic economists agree that a recovery is likely to happen by the second quarter of 2010 and that prices are going to be higher in five years,” according to Jed Smith.

I guess it’s important that miserable little distractions, like, well facts don’t get in the way of what NAR is trying to accomplish. Take for example the assertion about the recovery happening in 2Q10. With record unemployment, huge underemployment, uncertain fiscal stimulus and falling corporate profits and exports, and massive layoffs, who wouldn’t want to run right now and buy a house? NAR seems to lack the initiative to propose a balanced policy and keeps spewing this foolish line of non-reasoning.

A first year finance student, or a fifth grader can easily see through the flaws in NAR logic. (I’m not trying to insult 5th graders. Have you seen them on Are You Smarter Than A 5th Grader?)

Rental is doing fine now because it works. The collective wisdom of anyone who follows housing markets, and certainly the average Joe and Jane all recognize an irrefutable truth: that as long as homes are losing value, why buy one? That is the substance of the argument, and you’ll hear plenty of industry luminaries telling anyone that will listen that waiting for a new cycle is the best solution. There is no pent up demand, and with the inability of most to come up with a 20% down payment and a 720 credit score, there are going to be lots of house languishing on the market for a long time to come.

Prices up in 5 years? Only if inflation grows being the Federal Reserve soft targets. Recovery by second quarter, 2010? It depends on how you measure recovery.

And that will make all of the difference.

(Jack Kern is the managing director of Kern Investment Research and a frequent critic of unbalanced housing policy. Opposing viewpoints are welcome as long as they don’t disagree with the contents of this column. He can be reached at JKern@KernIRC.com and 301.601.1900.