Saturday, September 23, 2006

Welcome Correction

At this point, it seems the National Association of Realtors Chief Economist David Lereah can’t distance himself fast enough from this historic housing bust.

One has to wonder whether this about face is a late in coming acceptance of the unreasonable factors that have led to the housing bubble or simply a means of covering the tracks of prior statements.

In his latest article written for Realtor Magazine Online, Lereah “Welcomes the Correction” with the following statements:

“Prices in many of those markets are still up, though, in some cases by double-digit percentages. But in the not-too-distant future, they should start falling—and that’s not a bad thing.

“… we need cooling prices today to give buyers a chance to get back into the market.”

Additionally, in the latest issue of “Real Estate Insights”, Lereah makes some truly astounding statements especially compared to his prior hyper-bullish sentiment:

“The U.S. housing sector has entered uncharted territory. Despite historically low mortgage rates and a growing economy, it is contracting. What is going on here?

This market anomaly is defying the lessons of Economics 101. For the past century, every major downturn in the housing sector has been attributed to rising interest rates and a sluggish economy”.

“…. But low-cost financing and jobs are plentiful today -- both 30-year mortgage rates and the nation’s unemployment rate are hovering near historic lows, about 6.6 percent and 4.7 percent, respectively. Meanwhile, the housing market is cracking.”

“…The good news is that prices are beginning to soften. Price growth (year over year) turned negative in the West and Northeast regions of the nation during July. Hopefully, this trend can continue for the next several months.“

“So prices now need to take center stage. Sellers need to abandon unreasonable expectations about the value of their homes.

“Most homeowners today have enjoyed substantial equity gains on their properties during the real estate boom years. Cutting prices by 5 or 10 percent will not wipe out their home equity gains.”

“Only price reductions can bring confidence back to the market. So let’s give a round of applause for prices taking center stage for a brief turn. The sooner home prices drop, the sooner we can stop the bleeding.”

“Expect home prices to fall for most of the remainder of this year. Although it may seem to go against your better judgment, this is a good thing for the long-term health of housing.”

Now, contrast those statements with the following excerpt taken from David Lereah’s book entitled “Why the Real Estate Boom Will Not Bust - And How You Can Profit from It: How to Build Wealth in Today's Expanding Real Estate Market” published in February 2006 (yes.. just this last February):

“Why do I believe that the real estate boom will continue into the next decade? While many real estate watchers like to attribute the boom to low mortgage rates, that is only part of the story. And even if mortgage rates notch up a percentage point or two, they will still remain historically low. What are the other factors at work? First, technological advances such as automated underwriting and internet-driven home listings have reduced home ownership costs and simplified the process with which houses are bought and sold. Most important, a continued high level of demand for homes by baby boomers, their children, and new immigrants buying their first homes helps to ensure that the boom will continue into the next decade. There is no real estate “price bubble.” The long-term fundamentals for housing remain excellent for the foreseeable future.”

Remember, this is the same man that only just last year, labeled a number of leading economists, including Robert Shiller of Yale “Chicken Littlels”.