Friday, June 15, 2007

Lawrence Yun is bad with math

What a flaming idiot. In recent commentary for a NAR's online real estate journal, TCLY had this gem of wisdom:

The word “correction” is a misnomer applied all too frequently in a misleading way. What homeowners and homebuyers are monitoring is principally where home prices have been and where they are headed. Nationally, the median home price rose 1 percent last year – that on top of the 53 percent rise during the five-year boom from 2000 to 2005. This year, the national median price is expected to fall 1 percent.

By any standards, it is an extreme stretch to call it a correction when a particular asset price rises better than 50 percent and then retreats one percent. Even a relatively large price decline of 12 percent in Sarasota cannot reasonably be considered as a correction when its local market had a 150 percent price increase during the boom. Let’s see, that is 150 steps forward and 12 steps backwards.

Take a look closely at Mr. Lawrence Yun's comparison about steps. If someone is on a stairway and at step 100, then you have a 150% increase in the number of stairs climbed. That would take them to step 250. Then suddenly they fall 12%, which would take take them back to stair 220. Which would represent an increase of 120% (from the original 100 stairs).

According to Yun, they would take 150 steps forward and then 12 steps back which would put the on step 238 (250- 12). 238 does not equal 220. Mr. Yun comparison is deceiving and bad with math.

Or heck, more importantly, how about this simple math: Buy a home for $500,000, it falls 12% in value or $60,000. You're screwed.


David said...

Thanks for finishing my post Keith!

buzz kill said...

Millions of people have been playing the appreciation game for many more years than you might suspect. For many, every dime they have is in their house. Yes, they have ridden housing up 100% or more, trading up, or helocing for money to live on. It will only take a 1% decrease and a tightening of lending standards and they are screwhoohooed.