Tuesday, May 30, 2006

David Lereah's home is declining in value according to Zillow.com.

David 'soft landing' Lereah's condo investments located in the Wasgington, DC metro area are also starting to depreciate in value at an even faster clip. [Zillow still has a some inaccuracies, but this valuation looks right]

Mish's Global Economic Analysis Takes on Lereah

Mish's Global Economic Analysis takes on David Lereah.

Of course Greenspan has company with his call. Please consider statements made by David Lereah, head cheerleader for the National Association of Realtors: "There is no real estate bubble.


At times David Lereah appears to have a grasp of the underlying facts, yet manages to come to all of the wrong conclusions about what is happening and why. No one should be surprised by this. David Lereah is a paid cheerleader for the National Association of Realtors, not a real economist.

Well put. :-)

Thursday, May 25, 2006

Lereah: It may be the the bottom

"The housing market peaked in August", said David Lereah, chief economist for the real estate group. "This may be the bottom. It appears May is a little better"

“Higher interest rates are slowing home sales, but we see this as another sign of a soft landing for the housing sector which remains at historically high levels.”

Tuesday, May 23, 2006

Lereah's Interview with Business Week

From David Lereah's Interview with Bussiness Week:

In a picture posted on the National Association of Realtors' Web site, David Lereah appears trimly dressed, with light glowing behind him. The industry group's chief economist, author of Are You Missing the Real Estate Boom? (Doubleday, Random House), published in February, 2005, has been talking up the housing market for years.

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.

Why? Lereah says the growing economy will boost the market, offsetting the negative impact of rising interest rates. If you agree with his mantra, you'll say the Federal Reserve is the housing market's friend. BusinessWeek Online reporter Sonja Ryst recently asked the economist to explain his outlook. Edited excerpts from their conversation follow.

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.

Do you think banks have been lending too aggressively?

The last two years of the boom were exaggerated because of lending. There were more loans, such as negative amortization loans, allowing people to put off their debt payments until later. In some metropolitan areas, this exaggerated home prices and increased them further than they should have gone.

To that extent, there's some risk in those local markets. For example, if you take any local market in California, they'll have interest-only loans and adjustable-rate mortgages because prices got too high. If mortgage rates increase, then some of those markets are vulnerable. But the forecast isn't for interest rates to go up significantly. I have mortgage rates going to 7%, not to 10%.

Before 2004, the banks weren't doing those types of loans -- I mean they didn't do them in any meaningful way. After 2004, places like California got too high in price and people couldn't afford homes anymore. That's why they started stretching the credit at that point and offering people lower downpayments, so people would take the homes at those prices.

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.

Monday, May 15, 2006

David Lereah @ Boca Raton

The Boca Raton News had this to report on the latest statements by David 'soft landing' Lereah.

Lereah was quick to make his message clear: "You don't need a boom for real estate to roar. The real estate boom is over but the real estate expansion is still here." Although homes are not selling as quickly right now, prices are still up. "There are no real estate bubbles, only balloons that expand and contract," he said
David Lereah is basically saying slow appreciation. Certainly there will not be slow appreciation in bubblicious Boca or other bubble markets.

"Forty percent of all home sales in 2005 were second homes - investment properties and vacation homes - compared to about 9 percent 10 years ago," Lereah said.

This should scare the sh*t out of any one who bought in a bubble market.

"Real estate is not an irrational investment, but speculators purchased irrationally during the boom, especially in areas like Miami. This drove prices up, and many speculators took out interest-only loans. This produced a vulnerable real estate market," Lereah explained. "In 2006, we are cleansing the market of speculation."
In 2007, Lereah believes that the real estate market will continue to expand even if mortgage rates increase to 7 percent. "That is still low," he said.

Sure. There will be no expansion in prices in 2007 in the bubble markets.

Buying real estate has advantages, too. "It is the most leveraged asset and there are tax advantages…Real estate needs to play a role in your investment and retirement portfolio. You should diversify," Lereah said.

He added that he is bullish on Florida, Arizona and Nevada because of even greater population increases. "The law of supply and demand works."
Wow, now he isreally going out on a limb. Remember the fundamentals. But can they afford the overpriced housing units?

All of Lereah's real estate investments are in condominiums and townhomes because he doesn't want to be involved in maintaining them. "If you're Mr. Fix It, then it's okay to invest in a single-family home," he said.

Lereah also pointed out that he has invested in several condominium conversions. "Condo conversions are good because the property is already there."
Looks like he may loose money as well during the bubble. I wonder how much money Mr. Lereah has invested in RE.

Tuesday, May 09, 2006

More Lereah

“‘It’s going from a seller’s market to a buyer’s market,’ said David Lereah, the chief economist for the NAR. In March, ‘price appreciation went down to 7.4 percent, from over 10 percent,’ he added. ‘That most probably reflects that sellers are bringing their prices down.

Do you still believe in a soft landing?