Median prices are already falling. In Q4 2005, the median sales price for a single family home in the US was 225,300 which declined to 217,900 in Q1 2006. These are numbers from the National Association of Realtors where he is their chief economist.
Now he says the housing market is just taking a breather. "We're going to drop significantly, but it's not a balloon bursting," Lereah says. "This is a soft landing for the housing markets." He expects total home sales to drop to 6.62 million in 2006, from 7.07 million in 2005. Meanwhile, he thinks prices will continue appreciating this year, but only by around 5%, compared with 12.5% during 2005.
Is David Lereah calling us housing bubble bloggers and people like Robert Schiller, John Talbott , Paul Krugman and Warren Buffett doomsayers? As a professional misleader, David Lereah is becoming more confused and defensive. Keith, of Housing Panic wrote "Boy, this guy changes his tune every day, sometimes within the same session. I think what's happening is he's having a tough time staying 'on message' "
Why do you think prices will continue rising?
The economy is growing and there are job gains, so consumers have the financial wherewithal to purchase homes. Sure, the rise in rates has been inhibiting buying recently. A lot of the boom markets that boomed over the last several years are cooling off and home sales are dropping. But if the economy were in a recession, this would be worse. And mortgage rates aren't rising too high -- they're only going up to 7% by the end of the year.
What supports the housing markets are income gains, job creation, consumer confidence, and mortgage rates. We have all of the above still supporting us. Meanwhile, the demographic trends are wonderful. You have boomers buying homes and retirees living longer. The boomer children are now first-time home buyers. Everything still points to strong demand for home buying.
Are you worried about the drop in non-owner-occupied real estate values in certain cities, such as San Diego?
That's not going to spread. The health of a local economy tells us whether a real estate market is in good shape or bad shape, and most of those are very healthy. If you go to Miami, Washington, Chicago, or Los Angeles, those are healthy economies, and they're not going to be affected by what happens in San Diego. And prices are too high in San Diego because it's not an affordable city. The economy there isn't thriving, so it's hard to keep up there right now.Why do you think mortgage rates will go to 7%?
I don't see the Fed taking rates up higher. They have to worry about the housing markets and the economy slowing too much. Even though there's a little pressure on them from inflation, it's still under control. With the exception of oil, I don't see a scenario where rates can go higher.... But if the price of oil goes up from where it is today, it's a risk for every sector of the economy, not just housing.
Do you think the housing market could ever crash?
I'm getting tired of all these doomsayers. We live in houses, and our houses are not going to crash. This isn't the stock market.... Local economies are relatively healthy. There's job creation -- this isn't a scenario where bubbles burst. Can there be one or two or three or several local markets where prices actually go down? Yes. But to generalize for 30 markets or the whole real estate marketplace -- that's absurd.