Head NAR Cheerleader David Lereah Changes Tune
Here are a handful of new quotes from the Chief Economist at the National Association of Realtors, David Lereah. Many here will immediately recognize Mr. Lereah as the head cheerleader and media spin master of the organization. Mr. Lereah has been one of the most outspoken pro-real estate spokesmen to date, doing everything in his power to turn asset bubbles into pretty balloons. Lately the tune from the NAR spokesman has been changing. Many have speculated that the NAR realizes that the housing collapse fallout will more than negatively impact their organization, so they've been trying to play the cover their as* card as much as possible lately, so that they can point back to it in the future saying "we were honest, we told you so."
Investors are unknown factor in 2006 real estate market
"It's difficult to follow the strongest year ever," said David Lereah, chief economist for the National Association of Realtors trade group, which has about 1.2 million members. "The boom is obviously winding down. That's what we're all saying and observing." Existing-home sales should drop about 4 percent to 5 percent this year, compared to the 2005 levels, Lereah said, and new-home sales should drop about 5 percent to 6 percent year-over-year.
Price drops are possible in some "very, very hot metro markets," he added, though "it's very difficult to know which markets they will be right now." Nationwide, though, Lereah expects home-price appreciation to be up about 6.1 percent this year, compared to a rise of 13 percent in 2005.
Wait a minute Mr. Lereah, what happened to "Home Prices Never Go Down"? A few months back you wouldn't even entertain the notion of overheated markets. Now you acknowledge that certain hot markets are poised to decline? These hints being dropped by the NAR should not be taken lightly. If anyone has a vested interest in the bubble continuing it's the NAR. For them to acknowledge any weakness, no matter how small, should be taken as a sign that they are indeed trying to cover their collective backsides.
As for investors, Lereah said, "Investor activity is by far ... the biggest risk that the housing sector is going to face this year, because investor activity had gotten to levels that we had never seen before. And we are in uncharted territory." Speculators who bought properties to flip quickly may be left at a loss, as interest rates are rising and the market is in transition from a seller's market to a buyer's market.
Yes Mr. Lereah, you are correct, we are in uncharted territory. About time you stated that publically, we've been yelling about it for what seems like years now. Unfortunately, once the fallout begins, it won't just be speculators and investors who are going to feel the pain, it's going to be the entire housing market.
David Seiders, chief economist for the National Association of Home Builders trade group, said, "I think the biggest risk would be for investors not only to stop investing, but to move those units back onto the market in large volume, and that could create a bigger problem. This is kind of new to us," he said, adding that it's a "major uncertainty" where investors would put their money if they pulled it out of the real estate market.
Oh look, another chief economist. Yes Mr. Seiders, the phenomenon is called supply shock. When speculators start to bleed money and it's obvious that home values are falling these speculators will indeed dump their supply. Panic selling? Perhaps. But there is no question that speculators dumping inventory will negatively impact all markets.
"All of us will be observing keenly," Lereah said. In March 2005, the Realtor trade group released a study that showed a high level of investor activity in the housing market: 23 percent of all homes purchased in 2004 were for investment, and another 13 percent were vacation homes.
A quarter of all recent home purchases were speculative in nature? How many more we're "me too" purchases by unqualified buyers using funny money mortgages? What happens when these homes start to get fed back into the available market? The same momentum that brought asset prices up can bring them back down.
Caveat Emptor!
Grim
Investors are unknown factor in 2006 real estate market
"It's difficult to follow the strongest year ever," said David Lereah, chief economist for the National Association of Realtors trade group, which has about 1.2 million members. "The boom is obviously winding down. That's what we're all saying and observing." Existing-home sales should drop about 4 percent to 5 percent this year, compared to the 2005 levels, Lereah said, and new-home sales should drop about 5 percent to 6 percent year-over-year.
Price drops are possible in some "very, very hot metro markets," he added, though "it's very difficult to know which markets they will be right now." Nationwide, though, Lereah expects home-price appreciation to be up about 6.1 percent this year, compared to a rise of 13 percent in 2005.
Wait a minute Mr. Lereah, what happened to "Home Prices Never Go Down"? A few months back you wouldn't even entertain the notion of overheated markets. Now you acknowledge that certain hot markets are poised to decline? These hints being dropped by the NAR should not be taken lightly. If anyone has a vested interest in the bubble continuing it's the NAR. For them to acknowledge any weakness, no matter how small, should be taken as a sign that they are indeed trying to cover their collective backsides.
As for investors, Lereah said, "Investor activity is by far ... the biggest risk that the housing sector is going to face this year, because investor activity had gotten to levels that we had never seen before. And we are in uncharted territory." Speculators who bought properties to flip quickly may be left at a loss, as interest rates are rising and the market is in transition from a seller's market to a buyer's market.
Yes Mr. Lereah, you are correct, we are in uncharted territory. About time you stated that publically, we've been yelling about it for what seems like years now. Unfortunately, once the fallout begins, it won't just be speculators and investors who are going to feel the pain, it's going to be the entire housing market.
David Seiders, chief economist for the National Association of Home Builders trade group, said, "I think the biggest risk would be for investors not only to stop investing, but to move those units back onto the market in large volume, and that could create a bigger problem. This is kind of new to us," he said, adding that it's a "major uncertainty" where investors would put their money if they pulled it out of the real estate market.
Oh look, another chief economist. Yes Mr. Seiders, the phenomenon is called supply shock. When speculators start to bleed money and it's obvious that home values are falling these speculators will indeed dump their supply. Panic selling? Perhaps. But there is no question that speculators dumping inventory will negatively impact all markets.
"All of us will be observing keenly," Lereah said. In March 2005, the Realtor trade group released a study that showed a high level of investor activity in the housing market: 23 percent of all homes purchased in 2004 were for investment, and another 13 percent were vacation homes.
A quarter of all recent home purchases were speculative in nature? How many more we're "me too" purchases by unqualified buyers using funny money mortgages? What happens when these homes start to get fed back into the available market? The same momentum that brought asset prices up can bring them back down.
Caveat Emptor!
Grim
12 Comments:
Amen Brother! Get the Costco industrial sized Alka Seltzer because this will be one long hurtin hangover.
I can't believe how fast it is unravelling. It is in the news everywhere now.
To the people that have been priced out. Patience.
To the speculators that get burned. Don't come whining to me or the taxpayers for a bailout. That goes double for the MBS underwriters.
To the FED you have blood on your hands.
BTW does any one think it was a coincidence that the new BK laws went into effect in Oct 05. I don't.
A question for anyone:
How many people do you think are on the sidelines waiting for a price drop?
In other words, do you think there will be a rush to buy if inventory becomes available in a hurry or is there just a small percentage of prudent buyers waiting?
thanks,
Gary
I can't take credit for this, since someone else noticed this similarity and posted it up on another blog, but it's most appropriate here:
Housing Sector Economists Open Window to 2006
"Home sales are coming down from the mountain peak, but they will level-out at a high plateau -- a plateau that is higher than previous peaks in the housing cycle. This transition to a more normal and balanced market is a good thing."
- David Lereah, January 2006
"Stock prices have reached what looks like a permanently high plateau. I do not feel there will be soon if ever a 50 or 60 point break from present levels, such as (bears) have predicted. I expect to see the stock market a good deal higher within a few months."
- Irving Fisher, October 1929
Economist Irving Fisher said the above quote shortly before the great stock market crash of 1929 and depression that followed. Irving Fisher was not an industry shill like Lereah, but a quite notable economist.
Caveat Emptor,
Grim
Gary,
No to sound like an ESPN poker show, but at this point all the players are all in.
Two years ago I would have agreed that we still had a fair number of potential buyers on the sidelines. But after two years of constant NAR and media brainwashing, those buyers have all conceeded and purchased at stratospheric prices. I myself know a few sideline sitters that bought in this year. Just how many glowing media stories does it take to turn a housing bear?
The dead cat will certainly bounce a few times on it's way down, but the pool of buyers has shrunk dramatically.
Grim
Grim,
I hope you're right. We had to settle for a small house 5 years ago after an unsuccessful bidding war.
Now, we're looking to trade up and our target is for late 2007. Let's hope the pool of buyers is thin!
ChaoticChild,
Thanks for the insight.
I am on the sidelines waiting. I cashed out last spring and I am ready for a deal. if not this spring, the next spring. Bottom line is that income levels can't support the justification in the price increase.
Alos, I was around for the last fiasco and picked up a $465k for $265.
BTW--that 4th "bedroom" in the attic that the realtor sold you on, it will become the "attic" once again. I can't believe how many people drank the kool-aid.
A typical cover your ass response from the industry. The Fat cats milked this to the bitter end now arew worried about class action lawsuits. I suspect huge amount of litigation for years to come.
Do not bid on any houses.
Catching a falling knife can be painful. Make sure youare compensated for your time patience and grief listening to all the die hard pumpers lecturing you on missing out on riches.
My wife and I have been thinking about getting into our first home for a year or so. I told her that we should wait. Seems like we made the right choice. We are renting now and can wait another year if needed.
I can't wait until I can stand above all those fish in a barrel of people who are over their head when their 5 year interest only loans come due and shoot an arrow at them.
I hope some of the ones we looked at come back on the market. Then I can tell the seller, I looked at your home before you bought for $30k over the asking price. I think I make on offer of 70% of the original selling price when you bought it, sucker.
Grim,
I am one of those waiting on the sidelines. In my last post I did not clarify that, though I just finished my graduate school "career" with a lot of student loan debt, I am not 22 but 42 years old! And I have no intention of leaving this area. I plan to remain and build my career here--I'm a psychotherapist and I have made many business contacts and am building a practice here. Given my current salary I know I can afford to buy a property at a certain price range that is not a lot more than what I'm paying per month now. Incidently, I worked with a realtor a year ago who was trying to talk me into an interest-only ARM to pay for a place. I simply did NOT like the idea of spending money I had not yet made! It seemed too risky so I stopped looking. If prices drop 25-30% in the next 2 years, I could afford a certain coop in Rutherford (a 1-bedroom was going for 50-55K in 2001). I'm holding out for that!
Make sure you are compensated for your patience time and grief. I say grief because many sane homeshoppers have heard the lectures the last 2 years "why you didn't buy". Well remember the same feeling when told why don't you buy Cisco or Lucent. Don;t hear to much chatter about this anymore especially from homeowners that owned those 2 dogs.
After waiting a year or 2 dealing with silly bidders and sellers, don't be a fool and charge back in to buy. Probably another year before the sellers "Really" get it. Meaning price drops of at least 25%-30%+. Realtors are already getting it.
I have been following a site now for almost 2 years and I have found it to be both reliable and profitable. They post daily and their stock trades have been beating
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RickJ
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