Why Real Estate Boards May Paint a Rosier Picture of Market Trends
When it comes to gauging the health of the housing market, real estate boards are among the most prominent voices. Their reports and press releases often set the tone for how the public, investors, and policymakers view the market. But these organizations, which represent a wide array of industry professionals, frequently present an optimistic outlook on market trends—even when underlying data might suggest otherwise. This tendency raises an important question: Are real estate boards sugarcoating market trends, and if so, why?
Do Real Estate Boards Really Sugarcoat?
Some definitely do sugarcoat. Here are some examples from MortgageSandbox.com.
Why Provide Positively Skewed Information?
The purpose of Real Estate Boards is to serve their members. For example, from their website, the Toronto Regional Real Estate Board (TRREB) serves real estate Brokers and Salespersons in and about the Greater Toronto Area” and their “mission is to be the primary real estate resource providing, preserving and advancing the professionalism and success of all Members through innovation and leadership.”
Notice there is no mention of serving the public or serving homebuyers, homeowners, or home sellers.
Real estate boards are not independent information providers with a mandate to provide factual and balanced commentary.
So, what do real estate boards tend to do when they report on market trends?
1. Bolster Market Confidence
Consumer Sentiment: A thriving real estate market fuels consumer confidence, encouraging more individuals to buy or sell homes. By promoting a positive outlook, real estate boards can help stabilize the market and maintain momentum, which is crucial in an industry where sentiment often drives decision-making.
Investor Confidence: Positive press from real estate boards can attract both individual and institutional investors. A robust market narrative can lead to increased property values, spurring further investment and driving economic activity.
2. Safeguarding Board and Industry Reputation
Maintaining Optimism: Real estate boards, by their nature, are proponents of the industry. They have a vested interest in being perceived as champions of a flourishing market. By glossing over negative trends, they maintain a reputation of steadfast support for the sector. From a reputation standpoint, it is difficult for an industry organization to deliver bad news about its industry without unsettling members or other key stakeholders, like lenders, local government, property owners, and local businesses.
Preventing Panic: Some feel that spotlighting negative market data or highlighting risks could trigger unnecessary panic among homeowners and prospective buyers, potentially exacerbating a downturn. the implication is that homebuyers and sellers are not sophisticated and easily swayed by headlines. Boards may choose to downplay these trends to avoid destabilizing the market. However, one could argue that if homebuyers and sellers are unsophisticated, then they will also be influenced by overly positive news, which could lead to excessive risk-taking, buyers overpaying for purchases, or sellers losing out on a good offer because of inflated perception of the value of their property.
4. Serving Member Interests
Boosting Commissions: For real estate agents, a booming market translates directly into more transactions, higher prices, and consequently, higher commissions. If real estate boards truly serve their members first, they may favour an optimistic outlook to support their members’ short-term financial interests.
Protecting Property Values: Rising property values are a boon for homeowners, who often form a significant portion of a real estate board’s membership. Boards may choose to highlight positive trends to reassure recent homebuyers that they made a wise decision and “talk up” property values for longtime owners who feel wealthier living in an appreciating asset.
Problem
While real estate boards play a crucial role in shaping market narratives, their inherently optimistic outlook warrants a degree of caution. Investors, homeowners, and prospective buyers are advised to consult a variety of data sources to obtain a more comprehensive understanding of market conditions. In an industry driven by perception, looking beyond the headlines is key to making informed decisions.
The challenge with these priorities is that they sometimes are in conflict with serving the best interests of home buyers, homeowners and home sellers. These individuals are making decisions where an incorrect assessment of market conditions could cost them tens to hundreds of thousands of dollars.
Buyers: If they are given the impression that the market is “hotter” than it actually is, they might offer above asking when they could buy the property for less than the asking price.
Sellers: If they are given the impression the market is “hot” when prices are trending downward, they might list their home for sale at a price that is too high. It might sit on the market while prices are dropping, and then they find themselves “chasing the market downward.” If they had priced appropriately in the first instance, they would have got a better offer.
Owners: Some people count on equity in their homes to finance their retirement or to help with the next purchase of a larger home. Misinformation could lead them to delay a decision to sell or cause them to sell into a market that is weaker than they thought.
Solution
Unlike real estate boards, which tend to provide reams of data and rose-tinted insights, Properti Edge is developing and refining data-driven insights, data visualization that speaks volumes, and unbiased reporting of trends. Finally, our forecasts provide the best, worst and most likely scenarios, taking into account known local and macro market risks.
