Whenever people discuss real estate, the stock market, etc. they tend to predict the future in terms of the extremes of the past. I myself have talked about how I doubt NY real estate prices will fall drastically because historically they have never declined by more than a small percentage (before adjusting for inflation).
But I wonder if there is a fundamental difference in today's world that makes all comparisons invalid: the internet.
Stocks used to be something that only wealthy people really had access to-- price quotes may have been printed in newspapers but the average person was unlikely to be able to obtain the kind of advice and research that a broker could provide. Today, anyone can open an account with an online brokerage and have access to incredibly detailed information about stocks, mutual funds, etc. More people own stocks and pay attention to the market, so more of a herd mentality can come into play if prices start to move in one direction or another.
Real estate is the same. When I bought my first co-op apartment in the mid-90s, my major sources of information were the classified ads in the NY Times and real estate agents (and the signs in their windows). I couldn't just go online and use search filters to see what was available and then view photographs and floorplans. Is this kind of information part of the reason prices have gone up? Does the typical home buyer know what is out there and feel more confident about bidding up the price of a home because they know it's the only one that has come on the market in months with certain amenities in a certain price range? Will prices stay more stable than they otherwise might because any property that goes on the market that looks like a bargain will immediately be spotted and snapped up? Or will people notice that there is suddenly more to choose from, and less desirable homes will start to stagnate at the bottom of the heap?
Some people would argue that when consumers have more information, prices are driven down, which might be true for cars, electronics, household items, etc. But I think real estate is different. Instead of taking a certain amount of power away from brokers, it may have just made their jobs easier. They don't have to expend as much energy driving people around to view different homes-- they can just post a listing, stand around at a few open houses, and let market data sell the home for them.
What do you think? Are there other examples of markets being affected by a democratization of information access?
Thursday, September 29, 2005
Information Access & the Economy
Posted at 12:11 PM
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1 comment:
Lots of people think the real estate brokerage business is headed for a drastic change, because of easy access to information on the internet. 6% is just too much. I read an article that said real estate brokers are going to go through what travel agents went through 10 years ago. So I do think the internet drives prices down.
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