Tuesday, May 23, 2006

David Lereah Interviewed

David Lereah was interviewed by Business Week, where he sounded more confused then ever.

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.

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.

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.
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' "


  1. Why is he confused and defensive? He's been saying for months that there isn't going to be a nationwide market collapse.

    That sounds an awful lot like an unfounded accusation...

  2. He's a shill for the industry and his credibility is zero. Why anyone gives this guy the mouthpieces they do to spew his garbage is beyond me. When your ability to eat every year is based on how many homes you sell and at what price you sell it, why would you say anything that would impede those sales,even though tthe facts at hand already make you a liar (see RE never goes down--it already has, and I hazard a guess that tomorrow, they will again)

  3. "Why is he confused and defensive?"

    Defensive? he is now lashing out at the 'doomsayers'

    Confused? just read his chorus of statements.

  4. Here's my two cents on Lereah's answers:

    1. He might be right with prices rising--but only in a few metropolitan markets. Nationally, there should be a net decline in housing prices.

    Again, real estate could be in big trouble if the CONSUMER DEBT BUBBLE pops with a bang. The unemployment rate in the country does not account for those people who have given up the job search or those who had to settle for contract work or part-time jobs. The unemployment/underemployment number should be well over 10 percent in the United States.

    2. Housing price drops will be pronounced in bubblicious coastal markets such as LA, SD, SF, NYC, Boston, South Florida, and to a lesser extent, our lovely Nation's Capital.

    3. If the CPI continues to grow through the next quarter, the Fed will have to raise interest rates. The currency markets always bear watching. The US dollar is more vulnerable than people think. The Euro continues to gain versus the dollar.

    4. We don't know whether the housing market crash nationwide. I don't believe Lereah's rose-colored optimism but I don't believe the doomsday scenario promulgated by a few extremist bubbleheads.

  5. Even relatively insulated micromarkets here in Northern VA are seeing price declines. A SFH much like mine sold for $690K in September 2005, and another near-identical one sold for $685K in April 2005 (this was with a $64K price reduction).

  6. David Lereah needs some more WD-40 to help his ten speed Huffy back peddle fast enough to reflect the worsening conditions in the housing market that he continues to downplay.

  7. Lereah is certainly correct about one thing: His comments on San Diego, although you will get strenuous arguments to the contrary from our "local" cheerleaders. The rest is baloney. Inventory has been skyrocketing here to all time highs. Prices still apreciating YOY in the 4 to 5% range, but I'd venture to say not for much longer. Some say we are the canary in the coal mine. I would agree and that the bird has almost keeled over.

  8. I don't see the Fed taking rates up higher... I don't see a scenario where rates can go higher.

    This is as clear evidence as any that Lereah should not be taken seriously. Futures markets are predicting that rates will be at or above 5.25% by year's end, which would mean at least one more increase (I only checked Intrade, but I assume other markets are fairly close). Lereah is flat out ignoring what the market considers to be the most likely outcome and his advice appears to be based on what best serves the interest of the NAR.

  9. Bostonbubble,

    Great point. :-)

  10. My favorite David Lereah quote thus far: "Prices are too high in San Diego because it's not an affordable city". What??!!

    Is this where realtors get their convoluted doublespeak twisted "logic" talk from- the master himself?