Tuesday, September 19, 2006

Lereah's Latest Musings

David Lereah, the chief economist of the National Association of Realtors (NAR), was in Saratoga Springs yesterday for the annual statewide industry update, talking to Realtors from across New York state.


"The housing boom ended more than a year ago, but sellers are having a tough time accepting that fact, says David Lereah, chief economist at the National Association of Realtors. The result has been tumbling sales as buyers stay on the sidelines.”

“The expansion that began in November 1991, when mortgage rates fell into single digits, became a boom following the 9/11 terrorist attacks, when trillions of dollars left the stock market looking for a safe haven in real estate, Lereah said.”


Mr. Lereah talked about the current 'correction' that the housing market is experiencing.

“This correction is different from any others because it wasn’t triggered by a recession, high financing costs or job losses. With unemployment below 5 percent, mortgage rates still below 7 percent and a growing economy, ‘all you need is a price correction, a price adjustment, to bring the market back,’ Lereah told the crowd.”

“The transition to lower prices is already under way nationwide, Lereah said, and will result in a more balanced market than the one that has been dominated by sellers. He said the Capital Region experienced ‘a moderate boom’ without the extreme price run-ups or overbuilding seen in parts of California and Florida. As a result, ‘you don’t need as much of a price correction,’ he said.”

“Lereah predicted prices will drop nationally over the next six months, and that each percentage point drop ‘will bring thousands and thousands of buyers back into the marketplace.’”

Source: (Times Union 9/19/06) Hat Tip: Ben Jones' Blog for finding this gem. Back in October of 2005, in his infamous anti-bubble reports, Mr. Lereah said that prices will not experience a 5% price decline unless there are high interest rates and or large job losses. For metropolitan Sacramento, CA their anti bubble report (pdf) stated that:
The local housing market will experience a price decline of 5% only under extreme unlikely scenarios. For example, mortgage rates rising to 7.8% in combination with 25,000 job losses could lead to a price decline.

Neither of those things happened in Sacramento and yet prices are down 5%. Now Mr. Lereah claims says that "This correction is different from any others because it wasn’t triggered by a recession, high financing costs or job losses." This 'correction' was primarily triggered by the excess that resulted from the speculative episode. The fundamentals become totally disconnected from reality.

10 comments:

  1. “The housing boom ended more than a year ago, but sellers are having a tough time accepting that fact, says David Lereah, chief economist at the National Association of Realtors.


    WHAT A LAUGH!

    ReplyDelete
  2. more MSM love:

    your david lereah site gets mentioned on salon.com:

    http://www.salon.com/tech/htww/

    ReplyDelete
  3. “Lereah predicted prices will drop nationally over the next six months, and that each percentage point drop ‘will bring thousands and thousands of buyers back into the marketplace.’”


    keep dreaming lereah. 1% decline.

    wasn't he saying no declines just 6 months ago!

    why believe this @$$ now?

    how about 30-40% declines you schmuck!

    ReplyDelete
  4. Are You Missing the Real Estate Boom?: The Boom Will Not Bust and Why Property Values Will Continue to Climb Through the End of the Decade - And How to Profit From Them by David Lereah (Hardcover - Feb 22, 2005)


    Hahaha It's on record Lereah you can't hide.

    ReplyDelete
  5. the quote does bring up an interesting point.

    normally, with a change in prices, you would expect to observe a change in demand (former students and/or teachers of economics will note this as moving along the demand curve, rather than a shift in the demand curve). In the neo-classical economics that most people think about with supply and demand curves, demand curves are generally assumed to be downward sloping: at higher prices, there is lower level of quantity demanded; and at lower prices there is a higher level of quantity demanded.

    But as we saw one often witnesses with stock & commodity markets - there is often a perverse relationship between price and quantity demanded. People love to poor money into investments that have done really well in the recent past. In other words, if you increase the price, quantity demanded also increases. This has been observed in growth stocks, value stocks, real estate, energy futures, whatever. So in these instances, one could make an argument that these investments actually have perverse, upward-sloping demand curves.

    So although I think Lereah is partially right, that some people (e.g. me) will want to buy a house if the price comes down, others - especially investors, will wait until they perceive that price is high.

    ReplyDelete
  6. I just ordered a copy of Lierah's book. I will show it to my grandkids one day when they ask me about what it was like in the period prior to the greatest financial collapse in history. I got it used for $3.95. Looks like his book has held value about as well as those mcmansions will in Woodbridge.

    ReplyDelete
  7. one day his book will be collector's item!

    ReplyDelete
  8. one day his book will be collector's item!

    hmm... maybe that makes me a speculator. let's all buy up every copy of his book so that we can create a bubble.

    ReplyDelete
  9. sc in dc,

    We see this in momentum markets. Rising prices create demand because of expectations that prices will continue to rise. This is valid only in markets with a liquid resale market, not in typical consumer items.

    Rising prices and the promise of resale at higher valuation becomes a positive feedback issue.

    We are seeing the inverse now. Even properties for sale at prices in line with 'fundamentals', however we chose to define them, are under the shadow of uncertain future values.

    The Greater Fools have wised up, and using past real estate market corrections as a template, we'll see prices fall for 2-4 years followed by a stumbling market for a few years with a recovery to peak levels in 7-14 years.

    It seems to take that long for people to capitulate, after that buyers and lenders are scared for years, then everyone forgets and it all starts over.

    Stocks seem to be 'getting some momentum' now. Heh. We'll see.

    With money coming out of real estate, oil, metals, and the hedge funds starting to buckle, stocks might become the next big thing for a while.

    I still blame the lenders. IO and option ARMs are insanity, and the buyers were taken advantage of in a very big way.

    ReplyDelete