Tuesday, November 15, 2005

Lereah is Responsible for The Infamous Anti-Bubble Reports

The National Association of Realtors just posted a link to their 'Market-by-Market Home Price Analysis Reports' on their homepage. In a August letter to Realtors, David Lereah writes of the upcoming anti bubble reports:

This project is incredibly labor intensive. My staff is working overtime to provide you with the necessary information (reports) to respond to the irresponsible bubble accusations made by your local media and local academics. Please be patient and you can expect to begin receiving the first batch of these reports just after Labor day.

The NAR did not allocate the necessary resources to properly write local housing reports. Instead, they presumably used a shoddy computer program to do a 'program and paste' job to 'write' these very similar reports. Some of the holes found in their research include:

  • The conclusion for every market is the same. In the executive summary the reports conclude "With home prices rising strongly in most parts of the country, there has been widespread media coverage on the possibility of a housing market bust. A thorough analysis of the metro market, as detailed below, reveals that there is very little danger of this." ( Thanks Felix who posted over at Calculated Risk)

  • Even markets that are regarded as the most over-priced and are already experiencing contraction, such as Boston and San Diego, say "A thorough analysis of the Boston-Cambridge-Quincy metro market, as detailed below, reveals that there is very little danger of this." ( Thanks to poster Felix who posted over at Calculated Risk)

  • So shameless is their cut-and-paste work that the data sometimes contradicts the text! For example, the Philadelphia analysis says "jobs are being created and ... suggest potential for further price gains.". However, the Philly numbers - right above this comment - contradict this statement and shows negative 3 year job growth (-0.2%, compared to 7.2% for the top 20 metros) and negative net migration of -4,800 over the past three years! The job situation is called "unfavorable". ( Thanks to poster Felix who posted over at Calculated Risk)
  • One thing I noticed in looking at the anti-bubble report is that the price-income ratio seemed extremely low. Well, if you look at the table footnotes, the definition of income is "per capita income multiplied by the average number of people per home"!!! Logically, this means that a family with 4 kids is able to afford more house than a DINKY couple. Laughable at best.. ( Thanks to poster John Laws Ghost )
  • In each market the NAR puts the housing market under a 'stress test.' In the Philadelphia market "The local housing market will experience a price decline of 5% only under extreme unlikely scenarios. For example, mortgage rates rising to 12.5% in combination with 114,000 job losses could lead to a price decline." If mortgage rates really hit 12.5%, and 114,000 jobs were lost a much greater decline would occur. What is NAR's formula for these stress tests?
The work of NAR on these housing reports is contradictory, deceitful and lousy. NAR should be ashamed of their research.