“The Crisis is Over.”

“The Crisis is Over.”  No worries…  just like the band in the picture above.

Where was this headline?  Did you catch it?  I certainly didn’t.  It took me a pretty thorough search through my Google Reader to find it. 

Here is the quote, from Punk Ziegel financial analyst Richard Bove, as reported in this article in Reuters:

“I do, in fact, believe that the crisis is over. There will be more negative developments but they will be meaningless,” Bove wrote in a note to clients.  “This comment sounds ridiculous given the conviction on the part of most commentators that the worst is yet to come; the extent of the decline is unknown; and that the length of the decline is similarly unclear,” Bove wrote.

This isn’t some local Real Estate “expert” trying to sell of their existing lot of homes.  This is a qualified financial analyst from a very respected Wall Street firm.  Apparently Mr. Bove isn’t alone in his positive thinking.  After the influx in capital, and the government approval of that capital infusion, Fannie and Freddie’s stocks have both doubled in the past 5 days.  Wall Street obviously believes that between the government intervention, and the increase in liquidity, that mortgages are again palatable.

The housing market, and mortgages in particular, have been the whipping boy for the past 12 months.  The media scrutiny certainly is not to blame for the mess created in our industry, but the negativity for the sake of negativity, hasn’t helped pull us out of the morass.  If major industry publications don’t pump this headlines up into the “Top Story” like they have with every “The World is Falling because of Mortgages” headline, than they are certainly doing a disservice to originators, homeowners, and investors alike.

Statistics Can Be Misleading

Last week the Fed’s US Flow of Funds Accounts report was published, and according to that report, US Homeowner’s had the lowest percentage of equity in their homes since that data was collected. Obviously this information was received with open-arms by the majority of Real Estate blogs which are fueled by the pervasive negativity surrounding the Real Estate Industry. But new news suggests that things aren’t actually as bad as they seem.

What was wrong with the Fed report? Well, apparently their survey doesn’t take into account those homeowner’s who have completely-paid-off their mortgages! The article which I heard about here, is based off of a survey done by the Consumer Finance Monthly research group at Ohio State University. According to their data, homeowner’s have closer to 70% equity in their homes which is much better than the originally reported 47.9% by the Fed.

While skeptics will point to the rather small scale survey that was done by Ohio State, the fact that true Home Owners (those people not owing a dime) aren’t even considered in the Fed report, is horribly misleading. Certainly adding that 40% of the population who owns their home outright (in this study) would skew the results in a much more favorable light.

Much like popular weight loss supplements that point to the thousands of people who lose weight using their product, statistics can be used to paint very different pictures. In the end, it is important to have a healthy skepticism of statistics, and the skeptics themselves.