As news swept across America this week that new home sales in January fell a breathtaking 16.6%, newsrooms at newspapers and TV stations swung into action. Pictures were taken of "For Sale" signs, local Realtors were booked for segments on strategies for buyers and sellers and economic analysts were quoted on how the miasma in the housing sector was threatening to envelop the whole U.S. economy.
Clearly, this will not help sales this weekend, or anytime soon, for that matter.
Alex Jones, director of the Shorenstein Center on the Press, Politics and Public Policy at Harvard University, says this is to be expected. "It's chicken and egg," he says. "When the news gets bad, it probably feeds the likelihood that things are going to get bad."
Unfortunately, no one has ever been able to quantify the effect negative news can have on a market. "There's no way to separate out the zeitgeist, the interest rates, the defaults," says Jones. That said, however, he adds, "I think favorable coverage of the real estate market probably helped the real estate market, and negative coverage has probably hurt it."
The news out of the mainstream press sharply conflicted with reports from the investment community, which viewed the numbers in a more positive light. Analysts pointed to the effects January weather had on traffic and looked at the sales numbers in the context of sales of previously sold-but-cancelled contracts, which had the effect of drawing down inventories.
"The industry ought to make every effort to make sure that the numbers are interpreted correctly," explains Jones. "No business welcomes bad news. When the reality changes, the news will change."