One of these days the Audit is going to post a list of the 100 worst habits of the American business press, and featuring prominently at the top of that list will be the following:
1. Placing scary headlines prophesizing economic doom over stories that fail to even remotely make the case.
2. Taking whatever press release happens to roll off the fax machine that day and citing a sometimes exaggerated version of its contents as evidence of some larger industry trend.
3. Writing stories that suggest that the “investor reaction” (read: stock market fluctuations in a given day, or even hour) has any relevance whatsoever to the wider economy or business outlook.
There were whiffs of each of these offenses from a recent BusinessWeek online column in which writer Peter Coy predicted bad days ahead for the American housing market.
Seizing on a press release from the nation’s largest manufacturer of McMansions, Coy (or his editor) rings the alarm in the headline: “Housing: Red Alert, or a Wake-Up Call? Homebuilder Toll Brothers’ warning of a cooler market sent investors running. The end of the boom? Probably, so keep your eyes open.”
What inspired all that? A Toll Brothers press release that, as Coy correctly notes in the body of his story, states that the company remains “optimistic” though “we may be entering a period of more moderate home price increases.” That doesn’t sound like doom and gloom material to us, but apparently it does to Coy.
For starters, he explains, “investors took the [Toll Brothers] statements as a carefully worded clarion call — boom times for the housing biz are finally coming to an end.” This he backs up with the information that stock prices for a number of companies — Toll Brothers, Pulte Homes, Centex, Home Depot, Lowe’s, Ethan Allen, and Whirlpool — nosedived on the day of Toll’s announcement.
It’s not clear whether Coy actually asked “investors” (all of them?) whether they thought the housing boom was coming to an end, or whether he just inferred this from the performance of the stock market. Either way, he might want to ask them why prices for most of the stocks he cited shot upward the day after his column came out — and why they had taken a similar roller coaster ride a few days before the Toll Brothers’ press release landed on his desk.
Clearly, the stock market follows its own logic — or lack thereof. By suggesting that its day-in, day-out antics have anything to do with the value of a home, BusinessWeek is doing its readers a disservice.
But wait. Investors (writ large) aren’t the only people who think homeowners are in for it. Other people think so too. Most prominent of these, we are left to believe, is Coy himself, who manages to dig up some statistics to support his case. For example, home building and remodeling is running “way” above average, and home prices have risen “far faster than family incomes.”
Moreover, Coy notes, “a cottage industry” of doom-sayers has sprung up. Among these are a couple of researchers at the Center for Economic Policy Research, whose report contains additional scary statistics, duly cited by Coy.
All of which would have us hammering “for sale” signs in front of our homes, except for a couple of things. The first is that statistics on the so-called “property market” say very little about the future value of a given home. Not only is the national real estate market so segmented that there is no national real estate market, but the same segmentation exists even within local markets.
As the New York Times’ real estate section pointed out on Sunday, the market value of studio and one-bedroom apartments in New York rose 11 percent from July to September, while the value of larger apartments fell 16 percent in the same period.
The other reason Coy fails to convince is that there are an equal number of people and statistics assuring us that the housing boom can continue indefinitely. For example, Coy’s column contains a link to another column, posted by BusinessWeek on the same day, that tells us homeowners have nothing to worry about. And while Coy says home prices are rising “far faster” than family income, we are left wondering what difference this could possibly make, given that the column quotes a securities researcher as saying that even now the ratio of home prices to per-capital income is “only a bit” above the long-term average.
Coy wraps up with a rhetorical ruse that is used far too often by journalists. It goes like this: Insert “balance” by noting that some people disagree with your thesis. (In the trade, this is known as the “To be sure …” paragraph.) Counter those people with the information that other people agree with your thesis. (Known as the “nonetheless” paragraph.) End story with quote from one of those people.
Thus, we are told that some analysts see steady days ahead for the housing market. Why are those analysts wrong? Coy never says. But, he assures us, the “pessimists still are convinced a real fall is coming.” And, says one analyst (in the penultimate paragraph), there’s going to be a “meltdown.” The end.
The irony, of course, is that if there is a meltdown, doomsday columns like Coy’s will be partly responsible.
Paul McLeary is a former CJR staff writer. Since 2008, he has covered the Pentagon for Foreign Policy, Defense News, Breaking Defense, and other outlets. He is currently a defense reporter for Politico.