The role of the media is to report news and opinions, not to make predictions and forecasts.
Predictions and forecasts are better left to the storytellers and the experts respectively. Specifically when it comes to important fields such as Real Estate, it would be ideal if media reporting were as objective and as analytical as possible, for the common good. Unfortunately this is not always the case, at least not when it comes to the general media. We would surely expect to see stories about Real Estate featured in the financial press, such as The Wall Street Journal in the U. S. A. , the Financial Post in Canada or The Financial Times in the U. K.
On the other hand, when a feature article on the real estate markets appears in general-circulation publications the likes of Time, Newsweek, MacLeans or U. S. News and World Reports we should take note because the story has begun to circulate well beyond the inner core of the usual financial circles. This may indeed reflect the fact that the general public may be about to imitate the ‘experts’. The interesting thing about such stories is that they invariably occur after a substantial price movement has already taken place or price tend, whether upward or downward, has initiated. The article may explain why prices have increased or decreased so much thereby reflecting conventional wisdom, and hence dispensing onto the general public some powerful reasons as to why they should buy or sell, as the case may be.
When market stories reach the front pages of general-purpose newspapers or the covers of magazines and publications, the implications are far greater than if the stories appear solely in the financial press. Independent studies have revealed, for example, that there is a significant correlation between Time cover stories and major trend reversals in both Real Estate and the Stock Market. According to statistical research, the appearance of the story breaks pretty close to the final peak. In the Stock Market, for example, when a bullish cover is featured the market usually rallies at an annualized rate of about seventeen percent for three months or four before the peak. Conversely, when bearish covers are featured, the decline begins within the subsequent couple of months.
Needless to say, the media has an impact on Real Estate as well, but only at major turns of the market. It would be unrealistic to expect a widely published story to signal a short-term turning point. This is so, because to make the front cover of a publication the article has to reflect news to which more or less everyone can relate.
Cover stories sometimes focus on interest rates. In March 1982, for example, an article entitled ‘Interest Rate Anguish’ appeared on the cover of Time featuring Paul Volcker, the then Chairman of the Federal Reserve Bank. Treasury bills were yielding 12.5 percent at the time, but a year later they had fallen to 8.5 percent. And so had mortgage rates. Likewise, cover stories that do not appear to have any direct bearing on Real Estate, but that refer to the general state of the economy can also help discern the markets’ mood. For instance, features about the President in the United States or the Prime Minister in Canada can often reveal how we think about ourselves. Covers reflecting upbeat and confident leaders typically reflect a similar mood in the country. The opposite is also true.
But here is where the analogy between Real Estate and the Stock Market diverge. If the nation, whether the United States or Canada, either directly or indirectly through its elected officials is reflected in a cover story as ebullient and confident, then expect the Stock Market to decline and Real Estate to pick up. On the other hand, if the story reflects a lack of national confidence and will tackle its seemingly insoluble problems, then expect Real Estate to decline and the Stock Market to pick up.
It must be said, however, that one should not rely on cover stories with mathematical precision. It is always important to examine the facts and to come up with various alternative forecasts, as cover stories cannot invariably be relied upon as exact timing devices, especially in Real Estate. They do, however, offer general indicators that give a good historical perspective of when an extreme has been reached, whether high or low. When all pieces are more or less consistent, it is possible to come up with credible scenarios and forecasts outlining with reasonable approximation the chances that Real Estate is about to reverse its prevailing trend.
Luigi Frascati is a Real Estate Agent based in Vancouver, British Columbia. He holds a Bachelor Degree in Economics and maintains a weblog entitled the Real Estate Chronicle where you can find the full collection of his articles on Real Estate Economics and Finance. Luigi is associated with the Sutton Group, the largest real estate organization in Canada, and is based with Sutton-Centre Realty in Burnaby, BC.
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