Investorial

These days, water-cooler discussions at work may sound something like “I’m thinking of buying/selling my home. Is the real-estate bubble going to pop? Is there even a bubble?” Hmmm.. let’s just say that some regions are experiencing a state of instability in their real-estate market for the recent time period. How’s that for being politically correct?

No matter whether you think there is a real-estate bubble or not, you will find someone forcing you their opinion about the topic in the media — on the evening news, in your newspaper, on internet blogs. Everybody’s worried about buying and selling real estate! With all those noises in your head, why not step back from all that “marketing” or “fear-mongering” and discuss the media’s role / impact during these “bubbles”?

Stock Market Bubble
I belong to a generation more familiar with the most recent stock market crash than the most recent real-estate crash. The media has to share some responsibility for the stock market bubble’s build-up. Do you think the average working man wasn’t moved when he heard news about janitors becoming millionaires through company stock options? What is the purpose of news anyways? In most cases, the media was ill-equipped to truly cover the story and resorted to sensationalizing anything they could find. They had neither the expertise nor the desire to dig deeper into a company’s operations. The Dot Com public relations machinery was working overtime spinning press releases, getting interviews, and making the media dutifully present their side of the story.

The media was also evolving. CNBC, the financial equivalent of MTV, started gaining notice in the early 1990s and went international in 1995. Before CNBC, the average household regarded the stock exchanges as a mystical marketplace for the rich. Who’d have thought they could ever join it through anything other than a mutual fund? CNBC gave the average person the illusion that they could play on the same level as the institutional investors.

When the bubble bursted, there was a mad scramble. Though Alan Greenspan had uttered those famous words “irrational exuberence”, nobody paid attention. After all, good ratings is about giving the public what they want to hear, right? A centralized stock market meant that all interested players were constantly fixated. Like a bilemmic teenage girl watching the weighing scale, the market’s constant self-evaluation is defeatist in its nature when times are bad. The media simply could not compete with the speed of the market’s collective voting consciousness. Who wants to read about their stock falling 20% the next day in the newspaper?

All’s well that ends well. The market has climbed back up, and will forever be cyclical. CNBC is getting back its ratings again and Mad Money is the most popular financial television show out there… sigh.

Real Estate Bubble
On the other hand, the rise of the real-estate market was not the result of the media feeding an obsessed audience. Historically low-interest rates encouraged buyers to dig deeper into their pockets. Banks introduced innovative mortage strategies that appear to make it more convenient to own your dream house. I will also consider the popularization of “Rich Dad, Poor Dad” materials to have nudged the general public. Everybody and their uncles and aunts wanted to earn passive incomes through rentals and get rich quick by flipping foreclosed properties.

But for the most part, the traditional media outlets have stayed away from the housing market with the exception of infrequent reports comparing housing prices to previous years. Why did they stay away? Because real estate is boring! I’ll use this analogy for Americans. If the stock market was “televised basketball”, then real-estate was “televised soccer”. The media understood which game held the attention of its audience and basically left real estate investors on their own to promote the situation.

But lately, I’ve noticed a trend. What happens when “steady eddy” real-estate shows signs of becoming unhinged? That’s hot news material comparable to a celebrity scandal! We start seeing headlines like “The Housing Collapse Heard Around The World“. You start hearing about how sellers had to knock off $100,000 off an asking price of $1.6 Million in order to sell their house. The effects are just as polarizing as those headlines about millionaire janitors!

We Didn’t Start The Fire!
I’ve always liked the question of the chicken or the egg, which came first? Is there a bubble / crash because of the media? or a media because of the bubble / crash? For the stock market, the media focuses on hyping up but does little when it crashes. For real-estate, the media stands on the sidelines during a meteoric rise, and starts taking taking interest when there’s a possible downturn. Why can’t they be consistent? Sorry, my bad! The media ARE consistent …. at fueling the fire. It just so happens that the stock market burns brighter for ratings while its going up, and the real-estate market garners ratings when it goes down in a blaze of glory!

Related Posts:

• Bubble Watch: U.S. Real Estate
• Bubble Watch: Real Estate
• Bubble Watch: $45M GTA Home
• Bubble Watch: Real Estate Waiting For A Catalyst