Monday, November 13, 2006

The Realtors Attend Nardi Gras

Lereah and his fellow Realtors are at the annual National Assocation of Realtors convention. This year they are down in New Orleans. Last year New Orleans was underwater, this year many homeowners are underwater on thier mortgage.

To cheer up his grumpy Realtors, who pay Mr. Lereah's salary, he offered hope.

"We need a price decline, we were overbloated," particularly on the West Coast, David Lereah, chief economist for the National Association of Realtors, told attendees at his organization's annual meeting here on Friday.

"In 2007, it will be a flat year, maybe 1 percent [sales] drop, and that's it," Lereah said. "After 2007, we'll be back to expansion again."

Lereah forecast that 2006 sales will end up about 9 percent lower than in 2005, a record year. He anticipates sales of 6.47 million units, declining to 6.43 million next year. Prices nationwide will be down by about 2 percent, year over year, and will inch up by 1.5 percent in 2007, he said.

New-home sales will decline this year by 16.8 percent, to 1.07 million units, and will sink 8.7 percent further next year, to 975,000, he said.

Lereah said inventory is stabilizing, citing his trade group's data on pending sales--homes that have gone under contract.

"It appears that inventory has peaked," said Lereah, who now estimates a 7.3 month supply of available homes nationwide.

"We were hovering near four to five months' [supply of homes for sale] during the boom, and in some areas, such as Orange County, Calif., we were measuring it in weeks, not months."

But Lereah said the national picture is positive. "I'm optimistic for 74 percent of the country," where local markets are, at worst, flat. The other 26 percent are in for some rough times."

Struggling the most would be California, South Florida, Arizona, Nevada, and metro Washington, D.C., he said, where sellers need to lower their prices.


Mr. Lereah, the discredited chief economist propagandist for the Realtor is still whitewashing the real estate reality.

17 comments:

  1. I would love to be at that meeting and ask him why the homes I'm looking at have dropped $250k in price since March. In other words, about $1k per day! Now this is California, but judging by the inventory of homes around DC, that area cannot be more than 6 months behind us. To think, the real discounts won't be here until late 2007 or 2008...

    We toured homes on Sunday. New tactic, no matter how much you like the house, critisize the *ell out of it. The realtor hinted the seller would cut the price $100k! Hmmm...

    I think I'm going to hire a friend's wife as a realtor; I'm seriously thinking of adding a clause into the offers "contingent upon no other seller accepting the offer first." I'll make sure the earnest money is held by my realtor. ;) You wouldn't believe how many homes are coming on the market... Right before the holidays too!

    Neil

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  2. "Last year New Orleans was underwater, this year many homeowners are underwater on thier mortgage."

    How true. 1 out of 6 households is underwater right now, according to Merrill Lynch economist David Rosenberg (from Barron's):

    "David also notes that the vast majority of the 10 million households that bought an existing home since June 2005 (ah, those were the days) are underwater on their purchases."

    Based on Merrill Lynch's stat that almost 10 million households are underwater, approximately 17% of households who own are underwater right now. This is based on 58,903,000 households who own according to stats from the Federal Government.

    http://www.census.gov/population/socdemo/hh-fam/cps2005/tabF1-all.csv

    76,858,000 total households
    58,903,000 own
    10,000,000/58,903,000 = 17% or 1 out of 6 households is underwater.

    Frightening indeed. And the realtors are at least partially to blame for this due to their reckless cheerleading.

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  3. John Fontaine quoted David Rosenberg saying:
    "...the vast majority of the 10 million households that bought an existing home since June 2005 (ah, those were the days) are underwater ..."

    uh ... these are homes bought just slightly over a year ago ... Haven't people mentioned more than several times that buyers shouldn't be buying if they don't expect to stay in their homes at least 5 years because they WILL be "under water" due to buying costs if they sell sooner? Sorry, this isn't anything new to anybody who's experienced NORMAL real estate times. True enough that over the last 5 years or so people came to expect to being able to buy a house and flip it 6 months later for a profit. But that is not the normal or to be expected. Like in any major transaction, there are transactions costs involved in making a major purchase like a house. Drive a car off the lot and you've lost 20% of it's value ... Buy a house and you need to be prepared to stay in it 5 years if you don't want to sell at a loss. Sorry John, your "frightening indeed" is about as unfounded as unfounded can be ... We're just back to good ole regular times.

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  4. And John ... just another comment ... You're saying that one out of every 6 households out there is living in a house/condo they purchased sometime since mid-summer of last year? I find it hard to believe ... But if it is true, that is a good thing a VERY good thing. In what other country in the world would you find that much "move up" and "first home" buying acitivity occuring? If you are correct, you've just given further proof of how well we as a nation are doing. And yes, I understand that understanding this means understanding that your "underwater" fear is a red herring. There's nothing wrong with people not being able to re-sell something right away ... Most people would understand that ... except of course for flippers ... And as I've said many times before, BHs really are flippers at heart ... IF THEY had the money (or maybe instead just the gumption to take on risk), they'd be flippers ... But their not ... So they spend their days hating those who do.

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  5. wannabuy,

    I also live in southern Cal. It's been very tempting to buy, seeing prices are falling fast and far. Inventory is high too. But, it's kinda hard to make that offer when you notice homes dropping in price weekly. How low will they go is the million dollar question.

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  6. Lereah Quote of the Week

    From Newsweek:

    "You'd have to go back to the Great Depression to find a housing period that is this unique."

    Sacramento Land(ing) blog

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  7. We bought our $400 townhouse in Reston, Virginia two years ago, and the balance on our loan is $310k (we put 20% down, what an idea!)

    Two homes in our neighborhood are now on the market. One for $340, one for $312k. And they are sitting.

    Uh oh. Good think we're at the botton.

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  8. "overbloated" is my new favorite word . . .

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  9. I also live in southern Cal. It's been very tempting to buy, seeing prices are falling fast and far. Inventory is high too. But, it's kinda hard to make that offer when you notice homes dropping in price weekly. How low will they go is the million dollar question.

    It is weird. I calculated homes are now dropping $1k/day in this area. How long? With the quantity of mortages that reset between now and 2Q 2007... its only starting.

    And everyone in DC should be aware of those SoCal mortgage resets. With so many mortgage companies in this area, when we go down, the employees at those companies will spook... and that will tighten DC credit. What happens when the risk premium is restored? Yep.

    Two homes in our neighborhood are now on the market. One for $340, one for $312k. And they are sitting.

    Uh oh. Good think we're at the botton.

    Wow! Sorry to hear that. Good luck. Unfortunately, when appreciation expectations disapear, sales slow. So its a double whammy. The old advice is you know you haven't hit bottom until its difficult to get a mortgage again.

    Interesting times ahead.
    Neil

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  10. Lance,

    With traditional financing and 20% down a new owner would not be underwater right off the bat as you suggest is "normal." They might lose money if they have to move within 5 years but they would not be underwater. The statistic is therefore relevant and, in my opinion, alarming.

    My $0.02.

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  11. mytwo cents, what do you mean by "underwater" if not "lose money"? i.e., how are these terms not interchangeable?

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  12. lance said:

    "Buyers shouldn't be buying if they don't expect to stay in their homes at least 5 years because they WILL be "under water" due to [selling] costs if they sell sooner...Sorry, this isn't anything new."

    The distinction is that I'm talking about being underwater even before selling costs - 12% underwater for those who bought in DC last year according to the latest MLS stats for October.

    Being 12% underwater before selling costs in only a year is not "normal." So yes, this is frightening indeed.

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  13. JF said:
    "Being 12% underwater before selling costs in only a year is not "normal."

    I'd only be frightened if my intention was to flip the property. And even then, I wouldn't be "frightened", just disappointed that I'd made a bad short term investment ... knowing full well that the reason flippers can make big bucks is that the risk is high. As a homeowner though, I wouldn't even give it a second thought. Just like I wouldn't worry that the car that I just bought can't be immediately re-sold for what I paid for it, I wouldn't worry that the home I bought to live in also could be immediately resold ... since re-sale wasn't what I bought the home for. Longterm prices always go up. If they go up a lot (as they did over the last 10 years) that is a bonus, but not something that a homeowner should bank on. And unless they are retiring to some cheap third world country, even if the value of their home has gone up significantly in a 6, 7, 10 year period, it really doesn't matter as the price for a "move-up" home will have similarly followed suit. By the same token, if after being in your home 6, 7, 10 years and you need to move and prices have basically stagnated .out there .. so what? It'll still have been a lot cheaper than having thrown money down the toilet paying rent. Now will there be some people who unexpectedly need to move in less than 5 years time? Of course! But life is full of chances ... You can't live life without taking them. Should you buy if you absolutely KNOW that you'll be moving within 5 years ... NO! Should you buy if all indications are that you will be staying put for at least 5 years ... Most reasonable people would. But most reasonable people also don't believe that prices will drop forever by the large percentages being bantered about here on this blog.

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  14. Lance,

    By under water I'm referring to owing more in mortgage loans than the property is worth.

    My $0.02.

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  15. I'm so bored with the housing bubble, it is soooo 2006.

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  16. Lance,

    The bubbleheads believe that the market is overpriced becaused prices deviated from their long-term trend of appreciation to astronomical levels by appreciating 10 or 20% per year for several years, without a major change in income levels or other external factor. The bubble will be quashed when the prices return to the long-term trend.

    You seem to assume that prices will appreciate at long-term trend, without first returning to that base level.

    Care to comment?

    And thanks for keeping this board interesting.

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  17. Anon 7:45 am,

    Thanks for your kind words. I believe either one of two things are possible. Either we will return to baseline in real dollars by means of inflation - as has been the case in the past such as in the 70s/80s; or the 10% or 20% appreciation per year we experienced was justified because of external factors related to pan-globalization. In either case, I don't believe we will return to trend in "nominal" dollars (i.e., houses won't ever again sell for what they sold for back in '97 "plus 5% per year". Either way, from the viewpoint of someone looking to buy a home who is going to be financing it, that means there is really no reason to put off purchasing and waiting for the "never-going-to-happen" drop in nominal prices. Thanks for asking.

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