Friday, October 06, 2006

David Lereah Respond's To Moody's Bubblicious Report

David Lereah responded to Moody's negative report on Housing at Tipping Point:
David Lereah, chief economist for the National Association of Realtors, disagrees with the severity of the price downturn in the report.

"It's possible we could go under zero, if you include prices of new homes" along with sales data for existing homes, he said. "For existing homes, I'm still predicting that prices will be above [last year] by 2 percent."

Nonetheless, Lereah agreed that broad price declines in some regions are unavoidable.

"I don't think I would use the word `crash,'" he said. "When you use a word like that, it's almost a self-fulfilling prophecy in the housing market. These are people's homes. Their retirement is depending on it."
Is Mr. Lereah saying that if people's retirement did not depend on the housing market then he would use the term 'crash' like Moody's did? If the housing market was indeed based on fundamentals, in the bubble markets using the term 'crash' would not become a 'self-fulfilling prophecy.'

Mr. Lereah, you were one of the housing cheerleaders who encouraged people down this dangerous path. You even wrote two books promoting the housing boom. As Ben Jones wrote "Maybe the NAR should have been urging caution the past few years instead of cheering prices higher."

35 comments:

  1. "I don't think I would use the word `crash,'" Lereah said. "When you use a word like that, it's almost a self-fulfilling prophecy in the housing market. These are people's homes. Their retirement is depending on it."

    "Their retirement is depending on it" is a non sequitur. This is an argument for home prices going up? The less people spend on housing (and everything else) and the more they save the better their retirement will be.

    Of course when the media use words like "crash" it does affect housing. Psychology is critical any market. "House prices never go down" and my personal favorite, "Oh, it's such a good investment" were self-fulfilling prophecies on the way up. There were not a lot of complaints about the media then.

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  2. Hi I'm new to this blog, and if possible I'd like to ask a question.

    I havn't seen the new Moody's report yet, I may go to my university later to access it. However, I 'm curious about everyone's opinoin of Gerogia.

    I live North of Atlanta (I still don't have a house),I have noticed that prices have been appreciating in this area as well. But from what I hear the Moody's repot claims that the South-East will have modest appreciation.

    Does anyone think that housing prices in Georgia are going to maintain/appreciate and not decline?

    Although very inprecise, I have been keeping track of inventory in my area of Georgia over the past several mnohts and they have indeed grown, in some casese 100%.

    Please if anyone has an opinion (or like to throw in their 2 cents I'd appreciate it). Thanks.

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  3. remember.

    "If you paid your mortgage off, it means you probably did not manage your funds efficiently over the years"

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  4. A person's retirement should never depend on their home. A home should be a safety net at most.

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  5. That's a good quote John Law! Where did you get it? Most people don't realize that minimizing your longterm housing costs usually means NOT paying off your mortgage. Again, great quote!

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  6. Glad Lereah was as concerned about the security of people's retirement when the bubble was inflating as he is now that its deflating.

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  7. glad Leheah was so concerned about people's retiremnt security as housing prices soared, people overleveraged on toxic mortgages and savings rates got pushed down to nil as folks serviced housing payments out of proportion to their incomes (even with the toxic mortgages).

    Oh yeah, I forgot, the people spending 1/2 their income servicing an IO toxic loan were prudently preparing for retirement because housing prices always go up! Spending 1/2 income on housing without parying down principal--no problem appreciation will save you. Just read the book, the bubble won't burst, you are safe.

    Lets be clear about whose retirement this NAR econo-flak is trying to protect---his dues paying, comission dependent Realtor membership.

    Lets hope there is a special place in hell fo rthese folks

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  8. Can't help but think Lereah is trying to influence the Federal Reserve to lower rates as he has done in the past by saying, "These are people's homes. Their retirement is depending on it." He use to meet with Greenspan every so often to discuss housing and he knows that the potential Baby Boomer crisis weighs heavily on their minds as with all Government agencies and politicians. Baby Boomers are still the most populous and wealthy (for now) thus influential voter group out there. He also said, "When you use a word like that, it's almost a self-fulfilling prophecy in the housing market." I agree that the media and corporate/gov't leaders can influence the economy through words alone affecting public un/confidence and sentiment but it's a shame that is what already happened during the boom. Irrational exuberance. Moodys is a rating agency and tend to use the numbers to analyze markets as they rate investments. It's their job just as it's Lereah's job to look after the interest of his employers (1.2 REALTORS for Lereah and investors for Moodys).

    But what are the facts and numbers for the economy in the near future and the effect RE will have on it? I think we are potentially in for rough times ahead. Unemployment is low but the housing industry spawned a ton of the job growth in the past 5 years via re agents, mortgage brokers, home improvement/remodeling and construction and much more to be honest (lumber alone lost 50% of it's value as demand has plummeted). These people are going to need a job soon meaning unemployment is going to go up (also have to factor in outsourcing). There are 1.2 million realtors presently. The Stock market is doing well, hopefully with lessons learned from the 2001 tech crash but I have a nagging feeling that free spending americans are looking for other investemnt outlets now that RE is no longer that attractive. I mean that maybe todays gains are not necessarily completely from fundamentals like corporate production and growth as much as it's people looking for the next big thing to invest in. I'm sure that's not completely the case but i think it figures into that equation. Home ownership will take a hit with the defaults that are already rising and tangently we are in a big mess housing wise when all the baby boomers cash out of their homes as it is their major and sometimes only retirement nestegg. The RE industry also has to take a lot of credit for tax revenues also menaing that will go down as well given a potential significant adjustment or crash.

    All of the above are my opinions based of my reading and research. This is just one possible scenario that I've thought about and still not betting the farm on this so to speak as no one can predict the future. It's just one interpretation I see in todays market environment.

    Please comment accordingly. Agree? Disagree? Why? I would loved to be proved wrong. And also what effects will the upcoming elections have on this scenario? Macro economists are encouraged to reply.

    Thanks!

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  9. Atlanta's housing market hasn't had the kind of explosive growth in appreciation like many other parts of the country. That probably means it won't experience dramatic price drops either. Suburban Atlanta prices have almost been stagnant the last few years so there's no reason to think they will suddenly drop. Finally it's still the cheapest major city in the country in terms of housing prices (probably because job growth is anemic there). For all these reasons its safe to buy in Atlanta. I would never buy for investment there because there's no appreciation. I probably also wouldn't want to live there either...

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  10. Atlanta's housing market hasn't had the kind of explosive growth in appreciation like many other parts of the country. That probably means it won't experience dramatic price drops either. Suburban Atlanta prices have almost been stagnant the last few years so there's no reason to think they will suddenly drop. Finally it's still the cheapest major city in the country in terms of housing prices (probably because job growth is anemic there). For all these reasons its safe to buy in Atlanta. I would never buy for investment there because there's no appreciation. I probably also wouldn't want to live there either...

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  11. Anon,

    I recommend going to Mish's blog (globaleconomicanalysis.blogspot.com). He has a contributor who is a real estate agent in North Atlanta (AKA Sonnypage). His posts and letters are very illuminating to the Atlanta area. I suspect that the area is also a bubble zone. Most cities in the US have been hijacked by runaway asset inflation. Kinda like what happened in the stock market, first it was just the tech stocks, later it was anything related to tech, and then it was finally everyone else at the end. First it was Cali and Florida, then it was places like Las Vegas and Arizona, and finally it is places like Salt Lake City and Atlanta.

    John Doe

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  12. the media is down playing this collapse.

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  13. What collapse? I'm not seeing it. I do see some prices coming down, a few substantially, but nothing like a collapse.

    I think we might expect a more reasonable buying/selling environment over the next 6 months to a year. Up to 15-20% price reductions from vastly overoptimistic expectations in some cases, but no collapse.

    I'd LOVE to see a collapse, believe me! The less I pay for a house when I decide to buy the better I'm gonna like it, but the financial mechanics just aren't there. Low unemployment, high pent-up demand, reasonably good economic indicators, fuel prices going lower all add up to a fairly good sized pool of potential buyers.

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  14. "the media is down playing this collapse"

    Very true. And they are underplaying the moves in the stock market.

    Lance, John Law's reference is interesting and can be true for some people. Sure, when investments are returning 15% it is silly to tie up much capital when mortages are only 5-6%. My problem with taking this as advice is that some folks will go into debt thinking they are being smart with their money. A direct analogy is most people who are thin eat breakfast. OK, so if I eat breakfast, I'll be thin. A little knowledge is a dangerous thing. So if I carry a mortage I am part of the 'smart money'. Well, no, not really.

    Have a good weekend.

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  15. Lance said...
    “That's a good quote John Law! Where did you get it? Most people don't realize that minimizing your longterm housing costs usually means NOT paying off your mortgage. Again, great quote!”

    Hey Lance, I’ve got some great quotes for ya! How ‘bout these:

    Lance said...
    A smart buyer knows that there is never a bad time to buy
    July 25, 2006 6:31 PM

    Lance said...
    whitetower said:
    "So, you are saying that a person who has a mortgage should ignore the total amount paid for his house?"

    now you're getting it! yes, yes, and yes. It is the present value and cashflow characteristics of the stream of payments that you will be making that counts.
    July 25, 2006 11:09 PM


    Lance said...And remembering that there is never a bad time to buy if it is a home you are buying.
    July 22, 2006 8:04 AM

    Lance said...
    So, as one other poster aluded to, YES I do believe that for a prospective homeowner (or longterm investor) there IS no bad time to buy
    July 21, 2006 1:34 PM

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  16. Anonymous said...
    "the media is down playing this collapse."

    Since when have you ever seen the media play down anything? There isn't a collapse and there won't be a collapse. Just like there never has been a collapse. This isn't a stock. People can't just up and decide one day that they want to "dump" their house before it's worth nothing.

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  17. Lance, thanks for that bit of wisdom. I can't believe, er, I do believe, that the REIC has sunk to new lows.

    No one should ever pay off their mortgage? Jesus Christ.

    I hope there is jail time down the road for as many of you as possible.

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  18. Did I just read on Ben's blog that prices in Falls Church are already down 16% from their peak?

    That's quite a haircut.

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  19. Anyone know where i can see full-text and charts from the "housing at tipping point" report? Obviously paying $4000 is not an option.

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  20. john law,

    i have never resorted to a comment of this type, however, your comments on paying off your home loan were IDIOTIC! 4990 years of recorded history wiped out by 10 years of a "new era". you sir are an IDIOT....

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  21. "the media is down playing this collapse."

    I can see why you might say that, if you haven't read the recent coverage in USA Today, LA Times, NY Times, FT, Economist, Newsweek, Wall Street Journal, Wash Post, etc. etc.

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  22. Thanks everyone for the leads. My university has not yet recieved the Moody's report in their database so I am still unable to take a look at their research.

    However, I have heard it has predicated "moderate" growth for the South-East. But I can attest (at least in the very short run of the past several months), that the market is certainly not clearing in my areas of North-Atlanta Georgia.

    I'm curious what sort of data-regression and models they employed in their study.

    In any event, I have also noticed that prices have gone down slowly (and in some, incrementally) in the market. But again, they have not reached market clearing conditions.

    If I could entice a few of you to comment on this situation (the fact that the study states something, yet reality is showing something differnt), I'd be much obligied.

    Also, if anyone knows of any other blogs about the Atlanta region (or any comments that could be made about the area), I'd appreciate it as well.
    Thanks.

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  23. It's been 4 days (and counting) since any new posts have made it to this blog. It looks like the individual who forced David into using "moderation of comments" has won.

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  24. Wow. This doesn't belong in this thread, but man. TLC has a show "Flip That House". I just found it, what a hoot. If that isn't a sign of the end, what is?

    Interesting that Greenspan feels the need to issue damage control for housing.

    Too late, the paradigm has changed. Couples are now looking to rent for a year or two as prices fall so they can afford their dream house; this is a one-eighty from a year ago when these nesting couples were rushing to buy their dream house before they got left behind.

    Interest rates could go to 1% and real estate would still head down. Momentum is a cruel master.

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  25. Robert,

    You're a complete idiot, if you don't understand why my quotes are on the money and your putting them down just exposes you for the really non-educated, non-intelligent person that you are. Frankly, I wouldn't be surprised if you have problems tying your shoe laces.

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  26. Thanks Lance. I included dates/times so as not to be accused of “misquoting” you.

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  27. hey lance,


    you do realize that you are the exact polar opposite of the bubbleheads??

    think about how stupid you think they sound with the sky is falling mantra reguarding realestate and realize that, THAT IS HOW YOU SOUND only on the other side of the argument.

    just sayin.

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  28. Boston Herald Business Columnist
    Sunday, October 8, 2006
    Just how weak is the Boston real estate market?

    The most expensive properties fell hardest. A $1,760,000 penthouse plunged $600,000 to just $1,140,000. A $1,600,000 three-bedroom apartment with a terrace crashed by half a million dollars, selling for less than $1.1 million.

    Here you go Lance. Try these

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  29. Boston Herald Business Columnist
    Sunday, October 8, 2006
    (thanks to www.housingpanic.com)
    Just how weak is the Boston real estate market?

    The most expensive properties fell hardest. A $1,760,000 penthouse plunged $600,000 to just $1,140,000. A $1,600,000 three-bedroom apartment with a terrace crashed by half a million dollars, selling for less than $1.1 million.


    Here you go Lance. Try these

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  30. Say what you will. As someone reported last week, the YoY in my zip code (20009) went up AGAIN to something like 10% as of the latest MRIS report. Like I've said all along, there is NEVER a bad time to buy ... just people who don't know how to buy smartly ... under ANY market conditions. People like Robert don't dare venture out to try their skills in buying real estate unless it's a full-fledge depression out there.

    Incidentally, did anyone see Trump on the Today Show this morning? He's touting his new book where he says that if you're going to be rich you need to stop thinking like a poor person and thinking that by pinching pennies you'll become a millionare. Instead he basically makes the point that you have to spend money to make money. AND he points out that this country is dividing into "haves" and "have-nots", and unless you want to be a have-not, you need to start acting like a "have". I.e., Robert, quitting waiting for those pennies you've put away to grow into enough to put your 100% down on a house ... You're grow destitute waiting for your middleclass "entitlements" to come to you. I do hope some "homedebtor" has the pity to put you up when you can no longer afford your skyrocketing rent!

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  31. Lance,

    The Media clearly has its own agenda, they play up and play down issues as they see fit. For whatever reasons, they are looking past the housing decline. At the beginning of the year they were hitting it hard.

    Report the rumor, ignore the event?

    Housing is in decline, the interest only loans are eating their young (borrowers), and we will just have to wait to see where the bottom is.

    Banks have been scolded about exotic loans, their investment grades are suffering because of their exposure to such perverse lending practices. Frankly, that will have more impact than Fed scolding.

    As usual, we can't look to the Media for clarity. We are each responsible for steering our own ship.

    Buy less than you can "afford", avoid exotic loans, stay put for 5-10 years at least, and real estate is the best deal in town.

    Now that's a sure bet.

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  32. hey Lance please do me one favor, don't bring up Mr born rich Donald Trump on this site..K??

    i mean come on dude the guy was born into money and NY realestate put him in BK (or did you forget that) in the late 80's early 90's and lets not forget his almost BK Trump casino, yeah the one they basiclly kicked him off the board of.

    and also Trump is to big to fail he owes so many so much that it's not his problem anymore but theirs.

    and on a final Trump thought. the "donald" is in the business of selling Donald Trump and NOT realestate.

    bookmark this thread you will hear of him going BK (again) before this bloodbath in RE is over.

    mark my words.

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  33. Trump is such a cartoon. Before his divorce he was bragging that he was worth $2B USD. Then the divorce happened during the last real estate collapse and he was $200M in the red, just long enough for the settlement.

    Then he kept mum for a few years before coming out bragging he was worth $4B.

    So who knows. Hardly a role model. Well, he does marry good looking women. That is a good thing to strive for.

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  34. 1. Trump - eh. On the one hand, he is right - money is not made pinching pennies. It is actually made when people keep their big expenses low (housing being the biggest of all) and then stay committed to a long-term investment strategy. Warren Buffett who rarely comments on others, said something to the effect of...'Trumps biggest success was getting others to lend him as much as they did.' Reason being, if you own the bank $100K they will come after you; if you owe them $100 million, they will do whatever they can to help you since if you go down, you are taking them with you.

    2. Lance's 10% YOY increase is just a new variation on the "it's-different-here" mantra...only this time the place that is 'different' is his zip code. DC will decline everywhere except for a 4 block radius around Lance's home in Dupont. :) Lol.

    3. This bubblehead has no intention of paying 100% cash for a house - that is the absolute worst thing you can do - and I doubt that is Robert's plan either. At this point in time, it is still about cost to own v. rent. The housing expense to own is still too high when compared to rents (even using ridiculous financing). The housing expense to rent is still pretty cheap and leaves extra for that long term investment strategy, which takes priority. Housing expense is going to be there one way or another. If my housing expense is so high that it prevents investing, you go with the cheaper option that allows for investing. Right now, that is renting.

    4. If the Dems win in November, defense budgets will get cut. If that happens even sacrosanct government contracting jobs could see big cuts. Anyone with an ARM or interest-only loan needs to ask themselves, if they lost their job could they still pay the mortgage? If not, would the bank allow them to refinance without an income? If they had to sell, could they afford the 6% commissions out of pocket?

    5. http://www.ricedelman.com/planning/home/rule21.asp Because it is a good explanation of mortgages - my favorite line: Pat has fallen victim to the biggest misconception in real estate: That a mortgage is a loan against the house. It isn't. A mortgage is a loan against your income. Without an income, you cannot obtain a loan.

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  35. All you folks with sharp pencils and short memories, john law's quote comes from this esteemed source:
    "If you paid your mortgage off, it means you probably did not manage your funds efficiently over the years," said David Lereah, chief economist of the National Association of Realtors and author of "Are You Missing the Real Estate Boom?" "It's as if you had 500,000 dollar bills stuffed in your mattress."

    Of course, there's no font for sarcasm...

    Great quote, right Lance! Doh!

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