It seems a few folks at Advertising Age were burned by the ongoing subprime market fiasco. Or, perhaps the articles produced by Bob Garfield and by Alice Z. Cuneo were a ruse to bring attention to an ad campaign recently produced by the National Association of Realtors (NAR). This campaign consists of two separate ads, where prospective homebuyers were encouraged to "invest" in a home. Garfield and Cuneo didn't like the ads. In fact, Garfield doesn't like the idea of adding real estate to a diverse portfolio. Why?

The point of contention centers on an ad campaign produced by the NAR, which supposedly cost $40 million. I haven't seen these spots, so I'll rely on Cuneo's reporting to supply information. One spot, supposedly, is called, "Open House," where a woman who appears to be a real estate agent walks though a home as she states that home buying "opportunities have never been better." The second spot, "Moving In," shows a family moving into a home as the agent states that those who have bought a home are "making a good move for your family and toward building long-term wealth."

Frankly, I would find those spots unobtrusive sales tactics that I've heard many times before. But, Cuneo and Garfield find particular offense in the way that the NAR presents their 'facts.' Both ads drive traffic to the Website, HousingMarketFacts.com, where readers learn the following information from the NAR (with my remarks in parenthesis):

1. Over the past thirty years, homes have risen 6 percent annually (I won't argue with that - have you seen the price of homes lately - even during this 'subprime meltdown'?)
2. On average, the value of a home doubles every ten years (I can't see this one?I need proof. Based upon the prices of my parent's homes over the years it seems the prices have doubled about every twelve years, not ten - but I could be wrong.)
3. 60 percent of the average homeowner's wealth comes from their home's equity (yes, but a homeowner must be paying on the equity, not just on the interest).
4. The average homeowner's net worth is $171,000 - that's nearly 46 times that of a renter's, who has an average net worth of $4,800 (Net worth is the sum total of a person's assets minus liabilities. If a person is sitting in a home worth $150,000 and he owes $150,000 plus interest, then that homeowner's net worth is somewhere in the minus field unless other assets remove that liability).
5. Homeowners benefit from the power of leverage. At an annual appreciation rate of 5 percent, a 10 percent down payment on a home will return 94 percent after 3 years. After 5 years, the rate of return increases to 225 percent and after 10 years, 623 percent (This is where the problem really lies for Cuneo and Garfield - the numbers are based upon historic figures, much like the stock market).

Cuneo points out that the ads carry the same small disclaimer as the Web site, where the figures shown have been extracted from historic figures and that local market conditions can vary and that consumers should seek counsel from a local real estate agent. Cuneo's objection is that these historic figures were based upon an "overheated market." What I found disturbing is that Cuneo didn't put dates on this "overheated market." When did it occur? Frankly, I've seen homes quadruple in price over the past forty years. Is that Cuneo's time frame? Or, is she talking about the period during this century when McMansions became the home to build, if not to occupy? Homes aren't the only commodities that have been overheated in the past half-century, so be aware that this writer's focus seems slanted.

I lent a very critical eye toward Garfield's editorial, as it seemed radical in the light that he mentions only once why he's spouting his vitriol through a link back to Cuneo's piece. Frankly, after working in the advertising field for years, I can't buy his attitude even if he's correct about many points. It was an advertising agency, after all, which created the real estate ads in the first place. That ad agency didn't quibble about taking their piece of the pie, I can assure you. Notice that Garfield never mentions this piece of information.

So, whom do you believe? Do you trust the real estate agent, the mortgage lender, the bank, or the advertisers? I don't trust any of them, but I have some money sitting in a bank earning very little interest (thanks to recent interest rate cuts). So, I'm looking at real estate as a means to diversify my portfolio. After all, Donald Trump does it. Why shouldn't I?

So, a week ago I called a mortgage lender and got the ball rolling. That was well before the articles mentioned above appeared in Advertising Age. Next week I'll fill you in on the scoop, and hopefully I can bring some middle ground to this issue.

Until Then,
Linda Goin