Thursday, December 07, 2006

Yes, they ARE that stupid at the NY Times

Robert Musil confirms that no matter how bad you thought the reporting has been at the Times, it just keeps getting more clueless. Debunking the methodology of a story which claims that real estate prices have fallen far more than statistics indicate, Musil points out something that should seem obvious to anyone who wasn't dumb enough to work for the Times:
Auctions of houses of the type described in this article generally produce prices quite a bit lower than what could be obtained if the house were marketed in the usual way. That's why the "usual way" is "usual." So it is nothing short of idiotic for Mr. Leonhardt and the Times to look to such an auction in Naples, Florida for the "truth" and "reality" of the housing market in the "finding" that "on average, the houses that changed hands at the auction had fallen about 25 percent in value since 2005."

Here's a hint for Mr. Leonhardt and his handlers at the Times: Pretty much any competent realtor or probate or bankruptcy attorney will tell you that an auctioned house brings in about 25% less than the then-current market value of the home - although the statistical spread can be wide. This effect is not a secret. Many home buyers look to buy homes from probate sales, for example, even in the absence of an auction. But "normal buyers" generally don't go to such auctions - only speculators and bottom fishers normally go. One reason for that is that unlike normal real property sales such auctions allow for no financing or any other contingencies. In other words, don't even think about making a bid at such an auction and then going to your bank for the appraisal and loan and detailed home inspection. At an auction, you pretty much just write the check for the full purchase price on your way out the auction house door. That kind of thing tends to push prices down - and a 25% reduction on usual market prices is a pretty good result in a house auction.

Since the auction described by the Times yielded prices about 25% off year-ago prices, the auction appears to actually suggests that the Naples single family home market has not changed much over the last year. But Mr. Leonhardt completely misses all of that.


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