-- Posted Monday, 11 September 2006 | Digg This Article

		With the US housing market building towards what could be a momentous bust, who will be remembered as the Henry Blodget or Abby Joseph Cohen of the US real estate bubble 5-years from now? There can be only one. Housing super-bull, David Lereah, admitted last week what we all knew was coming: “we’ll probably see prices dip temporarily below year-ago levels as the market works through a build up in housing inventory.”  Mr. Lereah added, “home prices should return to positive territory within a few months and annual appreciation will be slower than historic norms.” Without elaborating on ‘slower than historic norms’, Lereah concluded that “people who purchased last year with the intent of flipping are likely to get burned”. Suffice to say, in order for Lereah to admit that the first monthly decline in home prices in 13-years is around the corner, things must be really bad.  Nevertheless, and lest one question his suitability for a place on the podium beside Blodget and Cohen, for Lereah bad news is about the best news the housing market could get.  Follow Lereah’s award winning logic if you can:  David Lereah said higher interest rates dampened sales but that price softening is good news for the housing market because it is drawing buyers…“Now sellers in many areas of the country are pricing to reflect current market realities. As a result, there could be some lift to home sales…” Aug 23, 06 While this might constitute ‘good news’ for Lereah’s members at the NAR who rely upon commissions, to equate a potential uptick in housing turnover, at the expense of prices, with ‘good news’ for anyone who actually owns a home defies common sense. Of course this type of mindless equivocation and definitional gerrymandering is not new to Lereah. As recently as April 2006 he was playing desperate word games in order to avoid the use of an ugly term like “speculator:” David Lereah said all the factors at play in the second home market were favorable in 2005. “To begin with, the baby boom generation is driving second home sales – they’re at the optimum point in life when people become interested in second homes, they’re at the peak of their earnings, interest rates remain historically low and boomers want to diversify investments.” Apr 2, 06 This may be a linguistic quibble, but to what extent is a house whose owner has no intention of living in it a “home?”  It might qualify as an investment, but the quaint implication of baby boomers acquiring summer cottages is clearly misleading. The word ‘flipper’ was only added to Lereah’s lexicon last week – had he been more forthcoming about identifying housing speculation in 2005, perhaps he would have been less optimistic about the sustainability of increased housing prices. In any event, Mr. Lereah has not been content to rely on the ‘flipper’ defense as the housing bull turns bearish. Rather, even though mortgage rates are likely to end 2006 well below his forecast, and even though any sane person is fully aware that anyone with a heartbeat can get a mortgage if they want one, Mr. Lereah has already started, a la Kudlow in 2000, to play the ‘blame the Fed’ card: “It's important for the Fed to understand how fragile the housing market is, and how fragile the economy is.  The economy impacts housing, and housing impacts the economy.” Aug 23, 06 However, it is not just the Fed that is to blame for reality failing to match up with his prognostications.  In a recent Wall Street Journal article Lereah, who apparently has a Ph.D. in Economics, targeted home owners themselves for defying his forecasts:  “...the sellers are not bringing prices down fast enough. They've been very stubborn.  A drop of 5% to 10% in California and southern Florida "probably would be enough to bring sales back.”…“The quicker we can get negative prices, the quicker we can get sales coming back”. In comparable terms Mr. Lereah could simply be calling for sellers to reach a ‘capitulation’ phase, which is what so many overly optimistic equity analysts started doing in 2000 (unfortunately the final capitulation in stocks did not occur until after down years in 2000, 2001, and 2002).  But if strength in a market can only be acquired after ‘very stubborn’ sellers capitulate and prices decline, how strong is the market in question to begin with? Conclusions and Congratulations In 2005 some investors told homebuilders that their home purchase was for a first time home. This little lie allowed them to circumvent home investment restrictions (i.e. higher down payments), and it also rendered the already record high ‘second home’ statistics at the NAR too low. In the coming months, and even as the official statistics show home prices falling, rest assured that actual home prices will be falling even faster.  The fudged numbers will be the result of all of the perks homebuilders are adding to their offerings but not necessarily taking off the ticket price.  A free trip around the world costs a good chunk of money, but it is being included in (as in not taken off) the purchase price of some new homes in the U.S. today.  Ideally it is these types of important subjects the media and real estate investors should investigate.  However, in a world where the inside scoop on the US housing market is being compiled and shared with the public by entities such as the NAR, one can not hope for too much analytical honesty. Quite frankly, there is no realistic and honest forecast to be made by Mr. Lereah because his interests are much different than most of his audience: The core purpose of the NATIONAL ASSOCIATION OF REALTORS® is to help its members become more profitable and successful. NAR Mission Statement As if receiving the award as the most myopic housing bull in America was not enough, Mr. Lereah also receives the Dent/Glassman award for the most untimely book publication(s). Instead of offering a rounded opinion on the unprecedented speculative forces in the US housing market, Mr. Lereah spent the first part of 2006 tweaking the title on his ‘how to get rich quick in real estate’ book.  No word on whether Lereah is passing emails to co-workers saying that the US housing market is ‘powder keg’ or that his viewpoints are ‘crap!’ yet…

-- Posted Monday, 11 September 2006 | Digg This Article

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