RESIDENT EXPERT
Daniel McGinn
It’s Going to Get Worse
Economist David Lereah was once the housing market's biggest cheerleader. Now he says the bust isn't near over, and home prices still have a long way to fall.
Whenever a boom goes bust, there's always a round of finger pointing and blame assigning, of people asking "Why didn't the experts see this coming?" So as the housing bust has morphed from a cyclical downturn into a full-blown crisis, there's been no shortage of culprits. Some blame Alan Greenspan for badly orchestrated monetary policy, a charge against which he's lately been fighting back. Some blame the subprime lenders and the brokers who found clients for them; together they underwrote many of the loans that are now causing so many foreclosures and so much pain.
And at least a few observers include an industry economist in this lineup: David Lereah, the former chief forecaster for the National Association of Realtors, whose irrational exuberance for real estate has led to some measure of ridicule.
Let me confess at the start: I spoke with Lereah frequently during the boom, and I always found him to be a smart, thoughtful observer. Sure, his assessment of the real estate market was consistently upbeat, but that's hardly surprising given that he served as chief spokesman for a trade organization that believes it’s always a good time to buy a home. And the truth is I feel a little sorry for the teasing he has absorbed since the housing bubble burst. Yes, he did publish a book in 2006 with the unfortunate title "Why the Real Estate Boom Will Not Bust"—but he didn't pick the title, the same way columnists like me aren't always thrilled by the headlines our editors put atop our stories. And while I thought it was funny when my colleague Daniel Gross and others compared Lereah to Baghdad Bob, the Iraqi information minister who repeatedly announced his army's military successes even as U.S. tanks were overtaking the capital, I can't help feeling bad for him. But if you judge from the blogosphere, I'm in the minority with my sympathy.
It's been more than a year since Lereah left NAR, so I called this week to check in. It turns out he has recently set up a new firm called Reecon Advisors, which is advising Wall Street firms and institutional investors about the real estate market. "Wall Street has an intense interest in [this], because they're looking for when is the recovery going to come, and at what point does the cycle turn," Lereah told me.
His answer: not yet. "We're not at the bottom," he says. "[People] want it to be near the bottom, but we're not there yet. The leading indicators are still very bad. Pending home sales are still in bad shape. Mortgage applications are low … There's still supply out there in abundance … This thing is going to get worse before it gets better."
Lereah says that the industry may begin to see a slight uptick in sales later this summer, which could signal the start of the recovery. Home prices, however, will continue to fall. According to the latest numbers from the Case-Shiller index, the average U.S. home has lost around 15 percent of its value since the market's peak. "We're probably going to end up with a 20 percent [decline], but if I'm wrong it will be even more than that," he says.
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Member Comments
Posted By: pab3809 @ 05/28/2008 12:11:07 AM
Comment: Nins,
Yes, the average taxpayer is getting the raw end of the deal from Mr. Bush and his self-decribed group of "Haves & Have Mores"; but Clinton was even worse than Bush in terms of Corporate giveaways and other taxpayer takaways.
McCain does have a history of voting against the corporate welfare plans and costly subsidies. I wish I could say the same for Obama; but I can't.
Obama doesn't have much of a history of anything. He doesn't have a plan, which he can articulate, for what he would do as President. So far his tactic has been to look at Hillary's plans, find a weakness and say "I wouldn't do that!" and then he will look at McCain's ideas and again say, "I wouldn't do that!" Well, just what would Obama do? When will he begin to share his plans in more depth than "I will be different & I will make it better." When do we get the 'how'?
Obama is a scary choice to be President. Like Hillary said, if you look at this from the perspective of a Hiring Manager and you rank the candidates in terms of experience and skill sets .... Obama is a distant 3rd.
Posted By: UScitizen @ 05/26/2008 8:36:36 AM
Comment: When the average family income can't afford the average price of a house, there's going to be a correction.. either in the average house price or the average house size, specs, quality. "Creative" financing couldn't sustain the overbuidling of the average house but for so long...I make a good salary and there is not way I can afford a good house in my state, with taxes, upkeep, etc.. I thought it must be inheritances keeping the market afloat.. now I see it was unchecked fantasy by buyers, banks, and regulators.
Posted By: Nins @ 05/26/2008 1:50:53 AM
Comment:
Oil and war, war and oil. Environmental destruction. Endless greed. US corporations getting tax breaks while shipping jobs overseas to countries that have no environmental protection laws, no workers' rights, no human rights. Countries where people are factory slaves and the air is so polluted you can hardly breathe. US military violating the Geneva convention, torturing prisoners. US government imprisoning people without charging them with any crimes, and holding them for years without trial. Working class Americans losing their homes in a mortgage banking scandal, and the government bails out the banks, not the working people.
It's simple:
If you are sickened by these things, vote for Obama. If you think these are good things, vote for McCain.
I'm a Republican and I own two corporations. I thought it would be a cold day in hell before I ever said anything like this. But the unprecedented corporate greed aided and abetted by an unscrupulous Presidential administration is now starting to take down the US economy. I have to stand up and protest.
Corporations are good only insofar as they strengthen America. When they start to weaken us, we need to re-evaluate the rules and regulations governing business.
And we need to get rid of George W. Bush, along with all of his misguided policies that have dragged our once proud nation into the mud.