David Lereah on the Housing Market

David Lereah who is the chief economist for the National Association of Realtors (NAR) writes this in a recent NAR news release:

“The simple fact is we still have more buyers than sellers in most of the country,” says Lereah. “This supply-demand imbalance is continuing to put pressure on home prices, but we should get closer to equilibrium by the end of the year.”

This is changing as we speak. Inventory is growing in much of the country. By the end of the year price declines will be occuring in many of the bubble markets.

The home price-to-income ratio is alarmingly high, especially in California, rising from 23 percent in 2003 to 32 percent in 2004,”

In the past year, ARMs have made up 30 to 40 percent of mortgage loans, when they should actually be around 25 percent. “The increase in the use of adjustable rate mortgages at a time when fixed mortgage rates are at historic lows is troubling.”

It is indeed very troubling.

''Obviously, there are some local bubbles,'' Lereah says. ''But I tend to think that with most of the bubbles, the air will come out slowly, rather than popping.''

He is saying that there will be 'soft landing' in the bubble markets. This is a far cry from the position he took just a few months ago when he denied the existence of a bubble.

Relative to inflation, home prices will continue to experience above-average returns in 2005

Maybe, but that will be soley based on the first half of the year. Th last four months of the year the housing market will be either stagnating or declining. The bubble is about to burst. The continued price appreciation is unsustainable. Widespread price declines in the bubble markets are around the corner.