Real Estate Chronicle

When market stories reach the front pages of general-purpose newspapers or the covers of magazines and publications, the implications are far greater than if the stories appear solely in the financial press. Independent studies have revealed, for example, that there is a significant correlation between Time cover stories and major trend reversals in both Real Estate and the Stock Market. According to statistical research, the appearance of the story breaks pretty close to the final peak. In the Stock Market, for example, when a bullish cover is featured the market usually rallies at an annualized rate of about seventeen percent for three months or four before the peak. Conversely, when bearish covers are featured, the decline begins within the subsequent couple of months.

Needless to say, the media has an impact on Real Estate as well, but only at major turns of the market. It would be unrealistic to expect a widely published story to signal a short-term turning point. This is so, because to make the front cover of a publication the article has to reflect news to which more or less everyone can relate.

Cover stories sometimes focus on interest rates. In March 1982, for example, an article entitled ‘Interest Rate Anguish' appeared on the cover of Time featuring Paul Volcker, the then Chairman of the Federal Reserve Bank. Treasury bills were yielding 12.5 percent at the time, but a year later they had fallen to 8.5 percent. And so had mortgage rates. Likewise, cover stories that do not appear to have any direct bearing on Real Estate, but that refer to the general state of the economy can also help discern the markets' mood. For instance, features about the President in the United States or the Prime Minister in Canada can often reveal how we think about ourselves. Covers reflecting upbeat and confident leaders typically reflect a similar mood in the country. The opposite is also true.

But here is where the analogy between Real Estate and the Stock Market diverge. If the nation, whether the United States or Canada, either directly or indirectly through its elected officials is reflected in a cover story as ebullient and confident, then expect the Stock Market to decline and Real Estate to pick up. On the other hand, if the story reflects a lack of national confidence and will tackle its seemingly insoluble problems, then expect Real Estate to decline and the Stock Market to pick up.

It must be said, however, that one should not rely on cover stories with mathematical precision. It is always important to examine the facts and to come up with various alternative forecasts, as cover stories cannot invariably be relied upon as exact timing devices, especially in Real Estate. They do, however, offer general indicators that give a good historical perspective of when an extreme has been reached, whether high or low. When all pieces are more or less consistent, it is possible to come up with credible scenarios and forecasts outlining with reasonable approximation the chances that Real Estate is about to reverse its prevailing trend.