Applying the Heisenberg Uncertainty Principle to the Residential Real Estate Market

Applying the Heisenberg Uncertainty Principle to the Residential Real Estate Market

Over my rather lengthy career in residential real estate brokerage, I have become amused by the prognosticators who profess to have a crystal ball that allows them to predict future movements of the residential real estate market.  Whether PhDs or taxi drivers, everyone feels qualified to make a projection as to the direction of the real estate market in the next six to twelve months.

“The market is coming back in 2009, count on it” says one expert. 

“We believe the market will turnaround in 2010” is the pontification of seller clients who have held the line on the list price of their home. 

Just about ever body has two cents to throw in on the debate of the markets direction.

Werner Heisenberg developed a theory of quantum mechanics in the 1920s that may have some application to understanding today’s real estate market.  In what is a gross understatement of Heisenberg’s principle of Uncertainty, certain physical properties/variables can not be known exactly because it is impossible to know or measure the position of one property/variable and to simultaneously know the velocity of the other property/variable.

Economists can with accuracy measure where the residential market was from a historical perspective.  Looking back say three to six months ago by examining the number of homes sold in a historical period or by examining any number of data available to researchers is reasonable and provides valuable information about where the market has been.  The tricky part is the simultaneous calculation of the markets direction in the future!  The “velocity” component of the market becomes virtually unknowable because we can not “stop” the market and take accurate measurements of multiple variables including home sales, foreclosures, inventory etc,

I do not suggest there are no informed opinions about the direction of the market for the second half of 2009 or even for 2010.  What I would propose is that “experts” who barrage the media with claims of fool proof knowledge of the direction of the residential real estate market are practicing what is more or less modern day alchemy.

Buyers and sellers (and their advisers) need to make decisions based on data at hand and not based on what I see as speculation.  More buyers and sellers would reach point of a meeting of the minds necessary for a transaction to occur if we remove some of the baggage added to today’s real estate market by “experts” pontificating the future of real estate in the national media. 

But then my job is not to sell advertising on TV or newspaper ads. Those folks who provide the experts with a media platform to pass along their real estate pontifications have a different opinion, probably based on the revenue from ads and commercials.