Economist as Pitchman

At the intersection of research, news, and sales

There are times I read an article and shake my head. There are columns that give me a sinking feeling that the author is fooling uncritical readers. And then there are the pieces that anger me because they're so shallow and biased that they threaten the writer's credibility.

CNBC's Diana Olick managed to hit the trifecta with her piece this week. Her premise is that because more people are renting, they are missing out on the current run up in home prices thus widening the gap between rich and poor. For her source she cites a new study by the National Association of Realtors. Hmmm ... imagine that.

Lawrence Yun, chief economist for the Realtors. is quoted: "Homeownership plays a pivotal role in the U.S. economy and has historically been one of the primary sources of wealth accumulation for middle-class families. Unfortunately, due to an underperforming labor market, insufficient housing supply and overly stringent underwriting standards since the recession, homeownership has plunged to a rate not seen in over two decades. As a result, the country has become more unequal as the number of homeowners has fallen while the number of renters has significantly risen."

The resulting sales pitch? Owning good, renting bad.

Ms. Olick peppers her yarn with statistics: "At the same time, the homeownership rate fell by 3.3 percent from 2000 to 2013, while homeowners gained more than $50,000 in household wealth, due to rising home values. Renters, who were likely already on the lower-income side, saw none of those gains. The newfound popularity of renting among young millennials may come back to bite them, as the gap continues to widen."

However Josh Zumbrun of Wall Street Journal points out that "for the wealthiest 1% of Americans, only about 9% of their total net worth is tied up in their home. That’s compared to 63% for the broad middle class." That's right: nearly two-thirds of the wealth for this group is tied up in a single, undiversified, immobile, illiquid asset.

Mr. Yun is right in one aspect: buy when prices are low and your the value of your assets will (at least on paper) become more valuable. But the myth of ever-increasing house prices has finally broken: from the end of 2006 to the end of 2010 household wealth fell $6 trillion as real estate lost nearly 30 percent of its value.

As I wrote previously, there's powerful pressure to stimulate the owner-occupied housing market from builders, real estate agents, mortgage brokers, lenders, and even home improvement firms. Homeowners themselves have a vested interest in price appreciation (though that's mostly paper wealth since homes become less affordable and less marketable to perspective buyers). At the same time state and local governments deriving tax revenue from property taxes want ever increasing home ownership and rising property values. (BTW – is it OK to plagiarize myself?)

In the end I guess I shouldn't blame Ms. Olick too much: CNBC touts itself as "First in Business Worldwide". Homebuilding is a business, selling real estate is a business, mortgage lending is a business. But if you take all trade association "research" at face value you end up as a shill for that industry.

Though I guess it may have been this way forever, news organizations use prepackaged facts that tell one point of view. It's like cheap food: processed and shrink wrapped. But it cheapens the product and cheats the consumer, leaving them undernourished and overweight.