Dubious real estate coverage
By May 2011
On 5 March at the third auction of a house in North Fitzroy, Melbourne, one bid was made. The house had been advertised at “$980,000+” and, after it was passed in at $960,000, the bidder went inside to talk to the vendor, ultimately buying the house for $1,030,000. At the first, unsuccessful auction in December 2009, the owner had hoped for $1.2 million. Three months later, the house was passed in again on a bid of $1,060,000. So the vendor had lost at least 30,000 ‘real’ dollars and nearly 200,000 ‘imaginary’ dollars, not to mention multiple auction costs. Despite this, he walked out the front gate smiling broadly. Across the road, a group of friends embraced him and slapped his back.
There’s been much discussion about whether the Australian real estate market is in a bubble or not. Yet as I watched the vendor celebrate, I wondered if there had once been a bubble and it was already over. But how could you tell? Australian real estate commentary has been so festive for so long that many Melburnians would be shocked to hear a three-bedroom inner-city house on a large block of land had languished unsold for fifteen months. What if a bubble burst and no one reported it – would anyone know it had happened?
Because bullish commentators have dominated real estate coverage for years, I was curious to ask some contrarian financial bloggers. I met with Leith van Onselen, an economist at an investment bank by day and the Unconventional Economist by night. Van Onselen, whose demeanour is equally cheerful and intense, started his blog after watching friends make real estate decisions that could be ruinous. He felt angry about it, wrote obsessively in newspaper comments sections, and went on (and on) to his wife. So in May 2010, he began blogging; by January this year he had 60,000 hits for the month. In late January, he and three other bloggers created a group site called MacroBusiness, which by March registered over 15,000 hits in a day. The blogs discuss economic metrics, report stories that don’t seem to make the papers and tend to a bearish analysis of housing. A recurring refrain from their readership is: I thought I was alone until I started reading this blog.
The passionate constituency rising up around MacroBusiness and similar blogs, such as Bubblepedia, are diverse – including renters, owners, developers and landlords. Many are galvanised by the belief that for a number of years, as van Onselen puts it, “much of the media has been trying to hide the slowing of the housing market”. The same conviction spurred another popular blogger at MacroBusiness, the anonymous writer of Delusional Economics. “I had an overwhelming urge to talk about things going on in the economy that were either not reported or only reported by vested interests,” he told me. Overall, the bloggers and their readers point to the preponderance of articles in which the only ‘experts’ who get a say are agents, bankers or mortgage brokers – that is, people who profit from the perception that real estate is doing well. Blog commenters recently expressed incredulity that not only is Enzo Raimondo, the CEO of the Real Estate Institute of Victoria, regularly quoted in place of an independent expert in newspapers but his column is classified as ‘news’ in the Age’s Domain section.
It’s not just the sense that vested parties get the biggest say that draws fire, it’s the critical undersupply of context for the commentary. In January, a celebratory article in the Gold Coast Bulletin described the sale of 34 Admiralty Drive, Paradise Waters, for $4.8 million, a result that was reported as pleasing to the CEO of Ray White Surfers Paradise. Yet, the Delusional Economics blogger discovered the surely displeasing fact that the same house sold in 2005 for $1 million more. An equally perplexing case of real estate ‘news’ was noted on the blog Tasmanian Real Estate Trouble. This blogger wrote about an article in the Advertiser that identified a young Adelaide woman as a “first-home buyer”. The woman is pictured beside a Brock Harcourts realtor’s board with a sold sticker and is quoted saying, “The great Australian dream is still achievable.” The article did not reveal that she is also an agent employed by Brock Harcourts.
Of course, you don’t have to be an economist to wonder why the sentiment of most real estate commentary is fundamentally pro property. Articles reporting that prices will never fall often include a ‘get in now before it’s too late’ message. Yet articles reporting flattened sales typically conclude that the time to buy must be now. Buying a house, after all, is not like trying a new cafe or seeing a movie; it is, by many orders of magnitude, the largest investment most people will make in their lives. With some relief, bloggers have noted examples of more qualified coverage since March when it became clear that both house sales and prices have recently slumped. They discussed one mainstream media article with great enthusiasm: on 6 March the Sunday Telegraph revealed that reported clearance rates, used to indicate market health in Melbourne and Sydney, are often not accurate and are manipulated by realtors – a contention that has long been made on the blogs.
Back in Melbourne, down the road from the third-time-lucky house, a billboard hangs on a graffiti-covered building fronting St Georges Road. Sixty-four apartments will be built at the site to be known as “Tranquility”, explains the board. As I read this, hundreds of cars cough along the road and trams rattle and squeal beside them. In less tautly leveraged times, real estate spin is a shared joke, such as the “renovator’s delight in an up-and-coming neighbourhood”, otherwise known to neighbours as an abandoned drug den. At least in this case there is an open gum-tree filled area next to the development site. Still, the doublethink required to read the spiel strikes me as more ominous than funny. Why must I believe that down is up? Who profits when the link between what my eyes see and what my mind believes, breaks? Of course, it’s one thing for a billboard to make claims that are one-sided, unchecked or verging on the fantastic, but it’s another for a newspaper to report them. At least, say the bloggers, it should be.