How Liquidity Instigates Panic

Clickbait is not a modern phenomenon. To attract traffic, outlandish tweets, social media posts, or headlines are nothing new. Newspapers splashed controversial or titillating headlines across the front pages to attract buyers and subscribers long before clickbait became a thing. In other words, the media, influencers, and talking heads love to stir up controversy and often induce anxiety and panic because it’s good for business.

As recently as the COVID pandemic, you saw the internet and social media stoking fears and inducing panic.

Fear is the go-to strategy out of the media playbook because fear is contagious.

It’s a common individual emotion but can quickly be shared and become a social emotion that circulates through groups and influences our reactions to certain events or stimuli. If someone runs maniacally down the sidewalk of a zoo yelling, “the tiger is loose!” that fear will spread quickly, and soon a stampede for the exits will ensue – and that’s before anyone sees the tiger. Fear is good for business.

My tiger story brings up another point. It’s usually enough for just one person or small group to start shouting and making waves to induce widespread panic before the facts are even explored. Was there an actual tiger, or was the person hallucinating? With the public, it’s usually to panic first and asks questions later.

So what is the media fear-mongering these days? That the real estate market is cratering.

Here’s one such headline:

“Real estate stocks crater as new fears of a prolonged US housing market slump trigger wave of job cuts.” businessinsider.com.

The consequence of these headlines is for the public to generalize the real estate market as a whole and that everything is cratering. The problem with these types of clickbait is that the authors will pick and choose alarming statistics in one particular segment and imply that the same developments are happening throughout the entire real estate landscape. In other words, a stall in residential housing also implies a stall in commercial.

These are some of the alarming points highlighted in the businessinsider.com article intended to stoke fears in the entire real estate market.

  • Real estate stocks Redfin and Compass have both dropped roughly 25% over the last five days.
  • Both companies announced layoffs this week as the US housing market stalls under pressure from rising rates.

Wall Street loves liquidity, and they leverage it to induce panic because it’s good business. That’s why it stokes fears without offering all the facts. So, while one headline grabs all the attention, it doesn’t paint the entire picture of true market conditions. Wall Street headlines have lately focused on homebuilders and building permits to indicate the health of the real estate market when in fact, that’s just one segment of a huge asset pool.  

The truth is, many economic drivers that affect housing and housing starts don’t affect other segments in the same way. Sure, mortgage rates have skyrocketed year-to-date, rising from just over 3% in January to 6.38% in June, according to Mortgage News Daily data. This has undoubtedly put a dent in home sales, but nobody talks about the effects of potential home buyers being priced out of a home – that being said, many will stay in or turn to multifamily for their housing needs. People still need a roof over their heads.  

Amidst the gloom and doom in the housing market, headlines like the following get overlooked:

“CRE activity is growing, as is demand for commercial financing.” –rejournals.com.

Dive a little deeper into the rejournals.com article about CRE activity growing, and you’ll discover that much of that growth stems from multifamily. It makes sense that as single-family homes are becoming less affordable, more people will turn to multifamily for housing. The same phenomenon occurred during the Financial Crisis in 2008.

Wall Street has never been about facts. It’s always been about emotion and capitalizing on herd behavior and the madness of the crowds.

Liquidity has everything to do with Wall Street’s tactics. Investors can move in and out of stock positions at the click of their phones – now even for free on the trading platform Robinhood – which means massive movements can be induced from simple headlines, posts, or comments.

It’s good business for the media, and it’s good business for Wall Street. For the investor, it’s good to dive into the facts before judging one real estate segment or another.


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Logan Freeman

Building generational wealth with alternative investments