When real estate prices reach stratospheric highs, the doomsayers come out in droves to peddle real estate misinformation. This can be entertaining, but they occasionally cross the line. Not necessarily because they want prices to fall, but because they want the page views that presaging apocalypse brings. People are searching for “housing crash 2024” because they wonder if they’ll ever be able to afford a purchase, or if their current equity will drop into the negative.
These are ideal doomsayer feeding grounds. The same content producers will be predicting skyrocketing values once they see enough hope on which to feed.
Key Takeaways: Real Estate Misinformation and Market Realities
- Doomsayers exploit fear for clicks – Content creators predict housing crashes during high-price periods to generate page views from anxious buyers and homeowners searching for answers
- Zillow’s Zestimates are unreliable – Automated property valuations can be off by tens or hundreds of thousands of dollars, creating unrealistic expectations and pricing disputes
- House flipping isn’t easy money – TV shows mislead viewers by hiding the full extent of work, unexpected costs, and potential losses involved in real estate investing
- “All real estate is local” oversimplifies markets – While location matters, broader economic factors affect all markets, as seen during the 2008 crisis when even “recession-proof” areas declined
- Misleading headlines distort reality – Publishers manipulate program details (like changing “no income restrictions” to mean “no income required”) to create sensational but false stories
- Current market differs from 2007 – Unlike the previous bubble built on “liar loans,” today’s high-priced buyers generally have the income to support their purchases, reducing foreclosure risk
- Seek multiple credible sources – In an age of misinformation, critical thinking and diverse reliable sources are essential for making informed real estate decisions
Real Estate Myths
The “Zillow Effect”
Many homeowners and buyers rely heavily on Zillow’s “Zestimates” for property valuations. However, these automated estimates can be significantly off-base, sometimes by tens or even hundreds of thousands of dollars. This has led to unrealistic expectations and pricing disputes in real estate transactions. Zestimates are most accurate for suburban tract homes where only a handful of floorplans are used for hundreds of properties.
Flipping Houses is Easy Money
TV shows often portray house flipping as a quick and easy way to make large profits. They rarely show the full extent of work, unexpected costs, or potential losses involved, leading many inexperienced investors to make poor decisions.
All Real Estate Is Local
Coastal real estate agents would have you believe that there is a price force field surrounding their particular sales area. While location is important, this oversimplification ignores broader economic factors that affect all markets. During the 2008 financial crisis, for instance, even previously “recession-proof” markets experienced significant downturns. With that said, buying a property on the California coast at the 2007 peak and holding would still have made far more money than buying inland in the same period.
Misrepresentation of Rent Control Laws
In areas with rent control, there’s often misinformation spread about the extent of these laws. For example, claims that landlords can never raise rent or evict tenants under any circumstances are usually exaggerations or misinterpretations of the actual regulations.
Now Is Always the Best Time to Buy
This common realtor phrase ignores market cycles and individual financial situations. While I tend to agree in cases where you’ve found your dream home and plan to stay for a very long time, it’s often used as a blanket statement to pressure buyers. There are times when it’s a very bad idea to buy real estate as an investment.
Fake News
One glaring example of real estate misinformation is a 2018 article (now only available through a paywall) with a headline that screamed Freddie Mac Launches “3% Down” Mortgage With No Income Restrictions, incredibly loosely based on a program previously announced by that organization. The body of the article then went far beyond mere misinterpretation of the new program, stating instead that income was no longer required to obtain financing, while conveniently omitting crucial context.
Of course, the claim that you don’t need income to qualify for a loan with this program was a complete fabrication by the publisher, and they didn’t include a link to the Freddie Mac press release so their readers could easily find the truth. They took the phrase “no income restrictions,” which in this case refers to the income limits of the borrower (i.e., the most they can make and still qualify for the program) and changed it to mean that “no income is required.” Now that’s spin worthy of a figure skater.
The actual news, and the reason for the Freddie Mac press release, was that this program would now provide low-down mortgage access to many people who had previously made too much money to qualify. However, Fannie Mae already had a similar program, so even the real news wasn’t especially noteworthy.
Property Prognostication
How do we predict the end of times for the residential housing market? The unfortunate answer for the current market is we don’t. No one enjoys hearing this, but we can’t look at previous cycles to evaluate this one. For example, the 2007 peak. When a farm worker qualifies for a $720,000 house (true story), and when this writer was asked to “just put in at least this amount” in the income box of a mortgage application (I passed), it was obvious that something was very wrong. No hindsight needed.
That peak was built on a Swiss cheese foundation of liar loans, which is something that simply doesn’t exist today. The people buying property at $700+ per square foot have the income to support it—whether its value drops dramatically or not. In other words, for the most part, they aren’t risking foreclosure.
In an age inundated with real estate misinformation, navigating the market requires discernment and critical thinking. Rather than succumbing to fear-based narratives, it’s important to focus on understanding the factors driving market trends. Once empowered with that knowledge, you won’t need to take a YouTuber’s word that (for example) he is correctly interpreting historical data in making his predictions. Stay vigilant and seek out multiple credible sources.
A broken clock is right twice a day, so at some point in the future, the doomsayers may seem to have gotten it right, too. When that happens, consider shorting the housing market.
