Blaming the Media

Robert Toll of the Toll Brothers' home building firm blames the media for the poor state of the housing market:

“Perhaps as the presidential campaign heats up and moves to the front page, negative articles about housing will move off the front page,” he said. “Then, hopefully, the positive underpinnings of low interest rates, low unemployment and a decent economy will raise new-home-buyer confidence.”

That to me indicates that the market has a good deal further to fall. If this is the best hope of an industry insider, then he obviously doesn't have much on which to pin his hopes. If anything, the media's role in this has been the reverse -- as the bubbles was inflating, papers seem to have done a lot of cashing-in through ad-heavy and cheerleading-oriented special real estate sections that I think helped obscure how unusual the then-happening price trends were.

Comments

Thats a classic of disingenuity.

Posted by goethean | November 15, 2007 5:36 PM

Let's hope he's just a moron. If I were him, I would be advocating some tightening of lending standards in order to restore faith in the system. The higher the mortgage default rate, the worse for his bottom line.

Posted by bob | November 15, 2007 5:49 PM

I thought these guys thought the market cured all ills. Now they think that every downturn is due to bad PR?

Fact is, a lot of us can't afford to buy a house at current asking prices. It doesn't matter if the local paper tells us the market is surging or the market is falling - when we sit down and run the numbers, they just don't work.

And they won't. Until houses are cheaper.

Posted by Jinchi | November 15, 2007 6:07 PM

Mr. Toll is an idiot if he thinks the election campaign won't increase coverage of the real estate bust; the only difference is it will become the "Bush real estate bust" or the "Republican real estate bust".

"I would be advocating some tightening of lending standards in order to restore faith in the system."

Hypocritical attempts to grandstand a solution for a problem which no longer exists are the province of state attorneys general (e.g., Cuomo), not CEOs. Years ago, politicians were jaw-boning lenders to loosen credit to low-income borrowers (especially those in minority areas); now they want lending standards tightened? No worries: the market has already cinched them tight. Stand-alone mortgage companies can no longer securitize their loans now that the CDO market has siezed up, and they can only get wholesale lending for their highest-quality borrowers now.

Posted by Fred | November 15, 2007 6:08 PM

"Fact is, a lot of us can't afford to buy a house at current asking prices."

So rent until the cost of owning and the cost of renting a similar place converge. Problem solved.

Posted by Fred | November 15, 2007 6:12 PM

That's what we do Fred.

That's why the housing market is tanking.

Posted by Jinchi | November 15, 2007 6:14 PM

So rent until the cost of owning and the cost of renting a similar place converge.

Great idea, Fred! And to think, all this time before you had come up with such an innovative idea, Jinchi had been living on the streets, only commenting when he could find street corners where an open WiFi access point was available.

Posted by Tyro | November 15, 2007 6:16 PM

Yeah, the quote is a pretty good sign that things are still badly out of whack. If I can be a homeless man's Daniel Davies for 2 seconds and mention something I've seen a number of times at work...

Any time there's a real, substantitive problem with something and the parties involved are focused on marketing, positioning, 'perceptions in the marketplace' and so on, you're pretty much fucked.

It's one thing to have a troubled product--that's inevitable, sooner or later--but you can get to a whole new level of hell by denying reality and manning the p.r. barricades.

Keep renting...

Posted by bh | November 15, 2007 6:36 PM

What papers were you reading during the buildup of the housing market? The Arizona Republic, for instance, spent 2004, 2005, 2006, predicting that the housing bubble would implode in a Friedman. Of course, they turned out to be correct... eventually. Stopped clocks and all that.

Posted by Joe Strummer | November 15, 2007 7:12 PM

As to bh's comment, of course you can never predict a market's lowest point, but now would be the time to buy, especially in cities like Phoenix where there's tremendous excess housing on the market. You can find some sweet deals.

In DC, it may be a different question, although I doubt the housing market is ever going to get so low in places like Arlington and desirable places in DC would be affordable to someone making less than $150k a year.

Posted by Joe Strummer | November 15, 2007 7:17 PM

You don't need to time the bottom of the market, you just need to buy when it's cheaper to buy than rent. That's what I did, and it's worked out pretty well.

Posted by Fred | November 15, 2007 7:36 PM

of course the comparison of renting versus owning takes into account all sorts of assumptions and projections, so it's not really that easy.

for instance, what value do you assign the security and piece of mind of owning? what rate of appreciation do you put on your property? what rate of return do you assign the opportunity cost of capital needed for downpayment? what expense do you assign dealing with a pain-in-the-ass landlord?

the calculation is useful but certainly not failsafe and indeed does need to assume some projections about the market.

but back to the post...Toll is probably right to a certain extent. media coverage helped promote the bubble and will help hasten the burst. however, the idea that the media is all to blame is absurd.

Posted by djslippyb | November 15, 2007 7:58 PM

Matt, I blame you.

Posted by Silly Billy | November 15, 2007 8:13 PM

Robert Toll of the Toll Brothers' home building firm blames the media

And, it's Bill Clinton's fault!

Posted by Robert Toll | November 15, 2007 9:18 PM

The LA County median home prices is $565K.
That is about 45K a year on a 30 yr fixed at 7%.

The median household income in LA County is a little under that 45K price tag.

Posted by nice weather costs more | November 15, 2007 9:19 PM

You are leaving out a component of the buy/rent price analysis: the future market value of your home in relation to your mortgage payment. In times of falling prices, your monthly mortgage payment is actually less than what you SHOULD be paying or you are in essence deferring rental payments to the future if you ever sell the home before the mortgage is paid off.
This is especially important as the economy continues to change, forcing so many of us to chase jobs around the country. Now, if you are in a job that is either steady (i.e. – doctor) or one where positions are open or available throughout the country in every location (nurse / teacher), then this is less of a component to your rent vs. buy analysis, because you can remain in your current property, and essentially, time is on your side in terms of market conditions.

However, if you are like my fiancé and I (i.e.- young professional and a graduate student), where you will have to move around, then the risk of price declines in your house versus the balance of your mortgage is MUCH more serious, because it can impact your credit. So even if in nominal dollars renting is more expensive on a per monthly basis, you need to add a risk premium for the risk of having a sizeable debt which will not be able to be covered by the sale of your house if you buy.

Posted by Brad | November 15, 2007 9:45 PM

Beyond the issue of the bubble itself, which is hard to measure in any market, Toll should be concerned about the sustainability of finance for the sector. Lending standards are no longer the issue. The issue is a financing model (banks turning into intermediaries for funds that chop up mortgages into many small slices) that is under pressure from a crisis in confidence in the rating system, the accounting, the controls and the wrong incentives for the intermediaries. It must be fun to skewer the media, but Rome is burning.

Posted by Dan | November 15, 2007 9:55 PM

I think we are also discounting the fact that CEO’s (like politicians, head coaches and other people in positions where their public comments must, even in the face of all evidence the contrary, not add fuel to the fire). If he were to come out and claim that he is highly worried about the ability of Toll Brothers to continue as a going concern or at least at the volumes investors are accustomed to, then frankly, then he may be being honest with the public, but is not upholding his position as an Agent of Toll Brothers.
Again – anyone who takes what a CEO says about anything related to the Company they work for or the industry they work in are idiots unto themselves. CEO’s at these large firms have two main uses nowadays:
- Provide a public face to the investing public;
- Utilize their positions and connections to develop advantageous relationships with either politicians, regulators or vendors/customers.

And this is also a big problem nowadays with CEO’s. They spend too much time selling, and not enough time doing what they should be doing, which is reviewing the Company’s risks. We see this failure however from President Bush to Merrill Lynch’s CEO who was recently fired.

Posted by Brad | November 16, 2007 12:31 AM

Why does this babble remind me of Ken Lay and his comments about the validity of Enron stock: "if only those nasty journalists didn't keep saying mean things about us, there'd be no problem!"

Go over to thehousingbubbleblog.com and read the quotes from the Realtors' Association people--it's a hoot. Like Larry Kudlow, but with real estate. (Bubble? What bubble? No, real estate is fine and dandy and sure to appreciate!)

Posted by grumpy realist | November 16, 2007 1:32 AM

Two years ago, I can't remember seeing tv commercials telling me what a great time it is to buy a home. Now these commercials are all over basic cable. Perhaps there is an inverse correlation between amount of Realtors' tv commercials and health of housing market.
I wonder how much Countrywide is spending on advertising at the moment.

Posted by idiot box | November 16, 2007 3:38 AM

Same thing could be said during the internet bubble and all of the "day -trader" courses and seminars being offered.

In fact - I think I am going to judge when to get out of a market/investment strategy when I start to see the same shady, snake-oil, used-car salesman pitching the next big thing.

Unfortunately, the next big think I have a feeling is going to be in China, which kind of leaves us out, huh?

Posted by Brad | November 16, 2007 6:47 AM

This is the standard Bush response.

Obviously, its false. The media botched this issue more than one can imagine. I point it out all the time, but if you turned on CNBC at any point a year, 15 months ago, when it was clear the market was running out of steam and headed off a cliff, every single analyst they had on was talking about how there is gonna be a "soft landing", how "we've hit the bottom", "next year (2007) will be up again", etc. Everyone makes fun of Dan Leahrah with good reason, he's a clown, but don't forget, before he did his carnival act on TV someone working for that show had to decide to put him on.

It's bad out there. It's bad out there and Toll knows it because his company isn't making any money. Nobody wants his shitty McMansions anymore and that has nothing to do with the media. All the companies that was holding the paper tied to his shitty McMansions are losing tons of money and that has nothing to do with the media.

Posted by Joshua | November 16, 2007 10:23 AM

"of course the comparison of renting versus owning takes into account all sorts of assumptions and projections, so it's not really that easy."

It's not rocket science at all.

"for instance, what value do you assign the security and piece of mind of owning?"

What peace of mind? If by peace of mind you mean you'll be immune to rent increases, this is true, but you won't be immune to property tax increases. Mine just went up about 25% in the last year. So I'd leave this one out of your equation.

"what rate of appreciation do you put on your property?"

If you buy a place when the costs of ownership (with a traditional fixed rate mortgage) are less than or equal to the costs of renting, you will probably get an appreciation at least equal to the rate of inflation over the long term. That's been the historical trend (by definition, if the cost of buying with a traditional fixed rate mortgage is less than or equal to the cost of renting, you are not buying at a cyclical peak). To be conservative and not overly pessimistic, I would assume that if you own your place for 5 years or more you will get back about what you paid for it.

"what rate of return do you assign the opportunity cost of capital needed for downpayment?"

Call it a wash. If you keep your money in a money market fund, after taxes, your return on the money will probably be about the rate of inflation over the same time period.

Posted by Fred | November 16, 2007 3:28 PM

"You are leaving out a component of the buy/rent price analysis: the future market value of your home in relation to your mortgage payment. In times of falling prices, your monthly mortgage payment is actually less than what you SHOULD be paying or you are in essence deferring rental payments to the future if you ever sell the home before the mortgage is paid off..."

Brad,

I can't say what you've written here makes sense to me, because it doesn't, but if your concern is that you might have to move in the near future, remember my starting premise: buy when the cost of owning (with a traditional fixed-rate mortgage) is equal or less than the cost of renting. In your case, I'd make one adjustment to that: buy when the cost of owning not including the tax benefit is less than the cost of renting. If you move, the house/apartment will no longer be your primary residence, so you will no longer get the tax benefit. But if your ownership costs are less than or equal to the cost of renting without taking into account the mortgage interest deduction, then you should be able to rent your place out at a competitive price and that rent should cover your cost of ownership (mortgage, maintenance and taxes).

Posted by Fred | November 16, 2007 3:44 PM