Extrapolating The Ridiculous

If there’s one thing that just bewilders me, it’s when I listen to someone explain why they think or believe a certain outcome is inevitable by way of extrapolating previous data points, then bringing them into the present as if they still have the same meaning.

Today, there is probably no other topic other than employment that is the front and center concern for most families or entrepreneurs – than housing. Can they buy? Can the keep? Can they sell? All of these are kitchen table dramas or sleepless worries for a great many in today’s economy. Even people who seem to have a solid footing are nervous and concerned.

I blame most of this consternation felt by a great majority directly on the very people whom one would think has a clue: People that are paraded across the financial media as “experts” in housing.

I am near flabbergasted by what I hear as “data interpretation and insights” from an unsettling amount of them. The extrapolations, the reasoning, and more just leave my mouth agape. No wonder people are turning away from watching many of these shows for information. (Reports show viewership down 50% or more for a great many. I wonder why?)

Some of the most ludicrous arguments I hear as of late is by none other than the so-called “smart crowd” in the business media today. Although I could probably write a book on differing topics of sheer babel that’s argued as “informative.” I’ll just use housing as my latest reference or example.

I was listening to a program where the subject of housing was being discussed in an “oh so serious” manner and form. The guest was touted as someone whom should be listened to. During the discussion facts, figures, and more were thrown out like deli meat building a sandwich. Slice of this here, slice of that there, little dressing here, you get the picture. All of which in the end was to build this great delectable for our consumption. Problem for me? It was all made with imitation or inferior slices.

One of the arguments for why this person believed he was more correct in his assumptions than most others was (I’m paraphrasing): “Look when I bought a house interest rates were at 11,12, 13% or higher. And that didn’t stop us from buying. So going from 3, 4, or 5% is not really any issue in the bigger picture. We’re still at historically low rates.” Hard to beat the logic in that statement right? Well…

Here’s the issue. Who cares what interest rates were for housing in the late 70’s or 80’s. It’s a data point to be argued by people in love with data for data sake.

Many people who purchased in that time frame have done 1 or 2 things: Took advantage of falling interest rates and lowered their debt or time burden as to the money owed. Or, they took advantage of the lowering of rates by refinancing scaling down their payments but (and it’s a very big but) moved up in debt, duration, and house size. And the great many of those are now over-housed and, upside down in value.

One thing this data slice of humanity is not going to do now or, in the future is anything remotely similar to what they did then. Period. So as far as counting anything from this data point as beneficial to the analysis is foolhardy at best. The vast majority will be downsizing or adding more inventory (whether voluntary or involuntary) for years to come. And that will be a negative for housing – not positive.

Today’s home buyer lives in a world of sub 5% interest rates. And, they are faced with a factor which is the diametric opposite of people purchasing just a few years back.

How many remember when they first purchased a home, sitting across from a realtor or mortgage originator when they said, “If rates go down you can always re-fi!” Easily justifiable in one’s mind when rates are 11% or higher. However, that’s far from today’s reality.

There’s really no room to go down from where we are now. More than likely – this is the best anyone may ever see again. So that little incentive to buy a little more house than one might be able to really afford, where it seemed so justifiable almost yesterday, is gone.

In today’s marketplace one will be lucky to qualify for anything within their range, let alone above. And, I do mean lucky. Just ask anyone trying to qualify today.

Let me ask you this question fair reader. If I used the above’s logic and extrapolation process. Then we should conclude desk top computers are about to surge in price and sales volume because, like many, when I first bought, to get on the internet we had to use dial-up. And, today, internet speeds are now faster than ever before.

Sounds logical but, in reality – you know it’s ludicrous. However, it’s this type of gobbledy goop that is repeated over, and over again across the financial media landscape.

Another lynchpin that was used to further back up the thesis on why housing is about to zoom higher was the oh so beleaguered reference of – house formation. And, if you want to extrapolate data points in one example then, you had better be able to make the same argument using it in another.

Let me use this exact data point these wizards use to back up their theory, as to back mine.

House formation for the people driving markets when interest rates were double digits and falling is different today and meaningless because: They were considered adults in every form of society at age 18 – 21, while behaving and participating in the economy as the term adults infers. Many even before.

That is not the prevalent thought nor the behavior pattern in the economy of today’s society, let alone the very attitudes of today’s 26+ aged adolescents. (You can read an earlier article I penned on this very subject here)

In the time frame used to extrapolate out to what should be taking place in today’s economy people were getting married, working in the beginnings of what would turn out for many into career positions. Having multiple children, buying their first homes, creating what we now know as suburbia, and much more. All while in their early 20’s at this point in time.

Today – that process is as foreign to a 26-year-old as it was to a middle school-er when interest rates were double digits. It’s not a dig at today’s “adults.” Society is telling them such and, backing it up by continuously throwing some lame brained science study as “proof.” (Maybe from the same people organizing today’s economic classes? But I digress.)

If one was to look at the real world data surrounding them, and use their own brains as to extrapolate what they feel or know in their gut. They would instinctively realize things have changed. Why it’s no longer an infrequent sight to see more 50 or 60-year-old men with elementary school children than they do men in their 20′s. Remembering it’s also this very group that made up the data when interest rates were multiples higher.

To this point alone one must ask: Precisely how the data of previous house formations applies in a blanket fashion here as to extrapolate the past into present? Or, how one can extrapolate the prior data in linear fashion as these “experts” do for today’s 20 something when it’s not only not uncommon rather, it’s far more common to see people single – never having been married – or quickly divorced within 2 years (and still single) well into their early 30’s and longer?

This societal factor seems more the norm today than the outlier. Again I ask: Tell me where the house formation coefficient is and works here? It doesn’t. At least not in any way remotely useful in today’s “expert” analyst’s dribble.

Maybe the financial or business media today should try to extrapolate something using this idea…

Has it occurred that possibly the reason for their ratings and viewership falling at a rate that would make a cliff diver blush is for the very reasons that entrepreneurs (you know, the ones that are actually driving this economy) are realizing there’s nothing prescient or cogent worth listening to or, watching on these shows any longer?

Or is the data too corrupted as to extrapolate that one out?

© 2013 Mark St.Cyr