A conversation I have been having somewhat frequently in real life, primarily because others bring up the topic, is whether the housing market is good or bad for buyers at the moment. There are a lot of real estate permabulls according to whom housing prices, just like stonks, only ever go up and then there is the more conservative camp that considers housing to be in a bubble. Currently, I prefer not to take out a mortgage. I have zero interest in ever putting myself at the mercy of some banker who could simply raise interest rates down the line and take the house. This is obviously not a dog-whistle. Yet, the engineered boom/bust cycle of the economy works exactly like that: cheap money spurs consumption. After a while, money supply gets restricted, unemployment goes up, and that is also when the banks try to take land, property, real estate, i.e. everything they can get their grubby hands on.

The argument of the permabulls is that housing prices still go up. In some markets, they may even be at an all-time high. Yet, the reason is that currently it is mainly the very wealthy that still buy and sell real estate whereas the middle-class sits on the sidelines. It is therefore highly dishonest to claim that you should buy now, no matter how high prices and mortgage rates may be.

I would not have made this post were it not for a great illustration via two YouTubers I follow. The first is ClearValue Tax. This highly successful channel is run by a somewhat autistic Asian guy who believes statistics and numbers, and bases his analyses on what he reads and sees on TV. A recurring feature of his channel, for instance, are summaries of the market updates of the US Federal Reserve. Unfortunately, this guy is very smug, a common trap “intellectuals” fall into. In a recent video on record-high housing prices, he dryly remarks that he does not consider this a housing crash “but that is just his opinion”.

The problem is that his view is very narrow, but it is not clear to me whether he simply plays up a persona or whether he really believes what he says. Yes, the average housing price goes up, but the housing market is not very active. Obviously, his blind spot is that the market is not very healthy and that many properties remain unsold for a long time. Around where I live, within about a one-hour drive, for instance, there are currently several hundred houses for sale, and some of them have sat on the market for one to two years. One house I know of, because I happen to drive past it semi-regularly, has had multiple home stagings and a string of real-estate agents.

A more realistic view is provided by Michael Bodenaro. Sure, you can criticize him for being a “doomer” but he also bases his views on data. Yet, he uses data that is closer to the source than the aggregates the Asian autist above works with. He has several videos on the real-estate market online. Interestingly, he used to work as a real-estate agent, so he has relevant domain knowledge. The most important point he makes at the start of the video below, pointing out that very few people are buying homes anymore.

In particular when someone tries to bamboozle you with data, you need to be very careful. Of course, averages can be very useful if the underlying economic reality is relatively consistent. However, if you refer to averages, you should probably also look at the data that is being averaged. It makes a big difference if the average is low and there were two million transactions or if the average is quite high when there were only 50,000 transactions. (I use these numbers only for the purpose of illustration.)

A related example can be found in stock prices. Some people only look at the price chart, but it is also relevant to look at transaction volume. One implication is that if transaction volume is low, the price-finding mechanism can be distorted and you may not be able to sell your assets when needed, or buy at the price you see. I learned this lesson many years ago when I wanted to buy shares in a Chinese ETF, at market prices, and it took two or three days for the order to be fulfilled. A price chart without a corresponding volume chart is not very helpful. To give you another concrete example: If you sit on a pile of stocks of some company that sees low trading volume, you wanting to sell may even push the price lower. I have seen this even with a company that had a market valuation of a few hundred million euros. The problem was that most shares were held by investors and the public was not very interested in buying. They often have multiple days in a row without any trading activity at all.

Statistical averages are a relatively simple example. Nonetheless, I hope it illustrates how people can easily arrive at completely opposite conclusions, even assuming no ill intent. In the real-estate example, I am leaning towards the position of Michael Bodenaro. He is also closer to the ground. This reminds me of something else: a while ago I read a management book, written by the CEO or CFO of a large company. He made the point that you should not trust the numbers your organization provides you with. Instead, you also need to get some ground truth and visit offices, factories, and warehouses yourself. In the worst case, people are downright misreporting numbers, in the best case, they merely provide a positive spin. I even know of a case where a disgruntled employee meddled with the data reporting system of a larger company, and it took weeks until people figured out that something was wrong, but the investigation was started within Engineering. The business executives, on the other hand, blindly trusted the data they were given. It is easy to see how this relates to clown world: do not blindly trust government data.