‘The Housing Bubble Finger-Pointing Is Warming Up’
A housing report from the Chicago Tribune. “As the housing boom winds down the finger-pointing is just warming up. Last week, home builder Robert Toll, CEO of Toll Bros., one of the country’s largest builders, jumped on the blame bandwagon, pointing to terrorism, the war in Iraq and Hurricane Katrina as reasons for the weakened demand for housing.”
“Among the leading suspects: a bubble-obsessed news media; overly cheery housing-industry economists; zealous real estate agents; and bankers offering low mortgage interest rates that carried on too long. Overly lax lending standards that made homeowners of people who could not afford it; the horde of neophyte investors who overpaid for their acquisitions; and builders throwing up too many houses.”
“Without doubt, the market has slowed. David and Erin Kerpel of Deerfield are representative of those statistics. In July they bought a bigger house across the street from where they have lived for three years. They expected a quick sale of their former residence. But after a few showings they are still waiting for an offer.”
“‘It’s dead. The market is dead,’ David Kerpel said recently. ‘There are no buyers.’ ‘I’m tempted to say that, yes, the market is dead,’ said North Side broker Bruce Theobald.”
“That’s probably because there is an avalanche of homes for sale. In the Chicago area alone more than 95,000 properties are on the MLS of Northern Illinois, fully 40 percent more than a year ago.”
“Area sales prices were still on the plus side in July, the Realtors said. That may be about to change.”
“‘I’m probably going to say that prices turned negative [in numerous metro markets] this month,’ when September sales data are released in October, David Lereah, chief economist for the National Association of Realtors, said Tuesday.”
“‘For a couple of quarters you’ll see price drops from 2 to 5 percent,’ he said in an interview. ‘It’s going to be short-lived, though. If there’s any national downturn, it will probably last a quarter.’ That’s because Lereah predicts the market will pick up again next year after sellers begin to cut prices this fall.”
“‘They will have to, he says. He says that all talk of the Fed’s role, shaky mortgages and irrational speculators aside, what’s at the root of the market stall is sellers’ reluctance to budge on their asking price.”
“Lereah focuses on speculators who acquired properties too high and mortgage products whose interest rates have begun to reset at unaffordably higher rates. ‘Basically the speculators and the exotic mortgage instruments, interest-only loans and zero-down payment loans that permitted households to purchase at lofty prices, they emptied the punch bowl at the party,’ he said.”
“‘This boom would have gone on a little longer if not for them,’ Lereah said. ‘They took prices up higher than they should have been.’”
“Broker Theobald said ‘the non-stop volume of articles on the housing bubble, well, it seems like it did become a self-fulfilling prophecy.’ Lereah sees some truth to that. ‘A lot of Realtors are very angry at the media,’ he said. ‘By discussing the boom building and by anticipating the boom busting, I think it did add to some of the negative psychology.’”
“Lereah and his fellow housing industry economists don’t come out unscathed. Critics say they generated unfounded optimism that the housing market would soar perpetually. Lereah counters that he has been forecasting a change for some time. ‘I’ve been wrong for three years in a row. I’ve said we’re about to get a correction. For three years, I’ve said, ‘This is the year that sales will come down.’”
“‘But now, it’s not because mortgage rates went up, it’s because of the psychology of the marketplace,’ he said. ‘The prices just got too high.’”
“Lereah and his fellow housing industry economists don’t come out unscathed. Critics say they generated unfounded optimism that the housing market would soar perpetually. Lereah counters that he has been forecasting a change for some time.”
… and the serious back-pedaling has begun!!
In my book, all would be forgiven with DL if he agreed to be tarred and feathered like communities used to deal with scamsters.
Yes, because in HIS book, I doubt he ever said RE would come down anytime soon.
I’d like to find out what college gave Lereah a economics degree? Can anybody do a bachground search of David Lereah and tell me what he did before becoming the point man for the real estate industry. My friend, who is a used car salesman, can walk with his head up high compared to this shill.
PhD from the University of Virginia. It’s a good school, and Lereah is probably a smart guy. It’s just that he’s paid to deceive and he does a good job of it.
He just got caught up in the bubble, the spin, and the celebrity. He couldn’t do the right thing.
Well, well, well… Here’s a precious snapshot of Davey with the infamous Katherine Harris. One deception leads to another…
http://harris.house.gov/Photos/?PhotoID=16769
Oh my God!!! She looks like she’s being held together nwith makeup! And Davey doesn’tlook like he wants to be around her! They both deserve each other.
I hope that no one offended, I coined a term 3-4 years ago that fits Mr. Lereah: E-Con-Whore.
Jas Jain
I hope that on one is offended, I coined a term 3-4 years ago that applies to Mr. Lereah: E-Con-Whore.
Jas Jain
“”It’s just that he’s paid to deceive and he does a good job of it.” ”
And when used car salesman get caught deceiving, they go to jail. University of Virginia should not be proud to produce such a flawed PHD graduate. Are there any ethics courses taught there?
It is not a question of college degree, it is a question of integrity.
I remember during the Milkan fiasco, and Drexel, Lambert
crash, all the major business schools made a big push to have mandatory ethics taught before graduation. I might not know exactly what ethics is, but what David Liar and the NAR produce is not even close to ethical behavior.
AND you have to remember that an economics degree from any US accredited university is absolutely worthless, except to understand how fiat currency is pitched to the public from a hard money advacate perspective, if and only if you enter such a degree program already knowing what fiat is. When you go there, you’re basically doing recon to determine how the next civil war is going to unfold.
And Lereah blaming the coming fall on terrorism, et al? Por Chigado Favor! Jesus Chigado Cristos! It’s a diversionary tactic, a very desperate one at that.
Okay, Ben, do a poll; When RE falls, how should people like Lereah, the Federal Reserve System, and the Bush Administration be punished? The guilty shall be:
a) hung in front of the Supreme Court building
b) shot by firing squad ”
c) sent to hard labor with no hope for parole
No plea bargaining will be allowed. Any civilian or military personnel found to assist the guilty into exile will be handled likewise.
The Supreme Court shouldn’t be sullied with rotting corpses, and I’m not big on bloodshed in general, so I’d go with option C. Doing honest work would probably seem like a fate worse than death for most of those crooks, anyway.
He is a liar — his anti-bubble propoganda reports for last year stated that some crazy bad things would have to happen for there to be price declines. He either lied then or lied now.
This article makes me ill.
The spin is just incredible. Will NO reporter call them on their BS?????
sure, Lereah did say year ‘next year might be a little slower’ but he always qualified with “but still appreciating healthily”. he NEVER predicted a soft landing (because there was no bubble) he NEVER predicted a hard landing (same reason) he NEVER predicted a fall in sales prices (home prices only go up)
You’d think that JUST ONE reporter would look him in the eye and say “really Mr. Lereah… could you please comment on your book Why the Real estate Boom Will Not Bust?”
I agree that those Lereah quotes have the ability to make one ill. They have even more power to disgust. I guess it’s politically correct not to show somebody for the liar they are or something. Where’s the outrage over this kind of talking head BS?
There will be no accountability for the malfeasance that led this bubble because of political correctness?
I don’t think ‘political correctness’ has anything to do with it.
It’s more along the lines that the mainstream media allows touts from their most lucrative advertisers to say anything, without taking them to task.
The mainstream media doesn’t care about “hard” reporting for several reasons. A) they might lose “access” to the source - this is the primary reason nobody asks politicians hard questions, because they fear retaliation in the form of being denied future interviews. B) it’s hard work to be prepared to ask hard questions and to demand fair and accurate responses. Reporters nowadays tend to take whatever an interviewee says has rock-solid. They never seem to think they’re being lied to, and they almost never contradict the source. When they do, they tend to get attacked like the unfortunate Fox affilate last week. C) The general public does not demand better information - yet. There is neither an outcry for better information nor is there any alternative station(s) to which one might turn for better information. The internet is growing in influence because it lets one get information from other nations and other places where the press is still strong and active. Remember the interview Bush did with the Irish reporter a few years back? She chewed him up, but that interview never made it across the water. I saw it on the net the next day. Blogs like this one also help dispel the myths. Any regular reader (or anyone who has the inclination) can go back and find the plethora of positive spin Lereah was giving the boom over the last few years - or even the last few months. It’s better than a news service morgue since it’s immediate and free. D) Last, and far from least, the public seems to demand happy-happy stories, not hard data from which they might make informed, solid decisions. Don’t get me wrong, I love strange and silly and visit fark.com every day. The recent expansion of “public interest” stories about cats and dogs, weird news, entertainers, etc. on the mainstream media is, IMO, both misplaced and due to a lack of serious disasters. Networks love serious disaster porn. As soon as the housing collapse starts putting Joe and Mary six-pack on the streets in droves, they’ll be there with the cameras filming every tear and poignant moment in loving detail. Unfortunately, it will be too late and will only distort and exacerbate the downside.
nice post kia
The press have become “Lapdogs” for big business. If you weren’t convinced by Friday’s news bombshell (Bush lied us into Iraq) then these unchallenged comments by Lereah should leave zero doubt.
At least no one has been killed by Lereah’s lies (yet).
http://tinyurl.com/nf939
Your partisan drivel really doesn’t add much value for me.
Go find a political blog. Unless Bush and Saddam were funding competing condo towers in San Diego, it’s not germane.
Like hell it’s not germane. As Orwell said, in a time of universal decepit, telling the truth is a revolutionary act. Or as the Greek saying goes, the fish rots from the head first. When we have a government that’s as profoundly deceptive [not to mention clueless] as this Administration is, one that is essentially a wholly owned subsidiary of profoundly amoral mega-corporations like Carlyle Group and Haliburton, should anyone be surprised that dissembling (that’s lying, for the benefit of yahoos) has permeated every layer of public and private life? The media truth-makers, owned by and beholden to these same mega-corporations, are not going to bite the hand that feeds them — or owns them outright.
As far as “partisanship,” I’ll say it again: The two major parties are like two hairy ass cheeks around the same stinking bunghole: predatory capitalism. The political whores and swindlers from both parties are on the make and on the take, completely bereft of any core principles or convictions, other than an overweening desire to con 51% of the sheeple into pulling the lever for Tweedle-Dee or Tweedle-Dum, thus perpetuating their stranglehold on the levers of power.
To the toolboxes in here who engage in partisan mudslinging, here’s a news flash: BOTH PARTIES SUCK!!! Until medical science figures out a way to reverse your lobotomies, please don’t serve as empty-headed shills for parties that long since ceased to represent or safeguard the interests of the productive sectors in this country.
Now, back to the housing bubble….
Sammy
Hmmm…. Lie is a lie.
If you want to get on-topic, you can discuss how the indigent guy in FL died with something like 7 properties that he owned with liar loans. He used this money to fund substance abuse.
See, it’s not that hard.
The indigent guy is a shrimp in an ocean full of sharks. I’d rather talk about the sharks, if you don’t mind.
You go, Sammy!
This housing bubble thing should be a wakeup to all. We hear these “expert” economists talk about the situation, and know full well that either they are aboslutely ignorant or lying through their teeth. That is because you know something about the subject, are educated with the facts, and can see what is going on for yourself. If you didn’t have this knowledge, you would probably buy hook, line, and sinker what these people are selling.
Now, imagine that there are “experts” giving opinions on TV on subjects that you know nothing about. Say these people are in positions of respect and authority who are supposed to say the truth regardless of how bad it may seem. Say it is in an area of international politics or war that you don’t know much about.
Yeah, I’d say it would be pretty easy to convince most of the public in just about anything. Don’t kid yourself. Lereah is selling his story for mere peanuts (in terms of money) than what is at stake on the global scale. We’re talking tens of trillions of dollars. If you don’t think so, then I still stand by what I’ve said before. People get the government they deserve.
Truth be told, a discussion of the Bush Administration is highly relevant to the housing bubble. It was in response to the economic shock of 9-11 that Greenspan, at Bush’s urging, dropped the funds rate to 1%. The cheap money created a speculative frenzy in real estate which, in turn, effectively distracted most of the country from the details of a poorly planned and incompetently executed invasion of a sovereign nation with no WDM–but plenty of oil.
The US is engaged in torture? Won’t bother most people as long as the value of their house is increasing 20% a year. Watch how many shout “War crimes!” now…
Sammy Schadenfreude said:
“… Or as the Greek saying goes, the fish rots from the head first. ”
But it’s (fish) being cleaned from the tail
As usual, Excellent Sammy!!!
Love that hariy ass checks anology! Laughed for weeks last time.
Being cluless helps perpetuate a system were people/consumers are manipulated into things like a housing bubble!
Backing you up on this one, Sammy!!!
Let’s face it, folks. The economy and politics are one and the same. Forget about gays/abortions/religion, etc. That is used to distract the sheep from what the politicians **really** care about — MONEY AND POWER.
You bet this housing bubble has everything to do with politics. It didn’t happen in a vacuum, and it’s not because of the idiot specuvestors. Their behaviour was enabled and encouraged by our politicians.
We always rant about people being informed. Keep you eye on the “leaders”.
“Go find a political blog. Unless Bush and Saddam were funding competing condo towers in San Diego, it’s not germane.”
Oh, I think you just hit on sitcom gold for the 2008 fall lineup!
Bush wants to force down Saddam’s prices so he can buy him out, and he sends in the health inspectors to look for rats — but the inspectors can’t find any rats. Undeterred, Bush raises a stink in the local media about Saddam’s filthy condo tower, and the public buys it. Saddam then can’t sell condos at his asking price and is forced to sell them to Bush.
But then the real zaniness begins as a gang war breaks out in Saddam’s old neighborhood and the housing bubble bursts!
I didn’t know Michael Moore was posting blogs here
good example of the average American mindset.
Baaaaaaaaaaaaaaaaaaa! Baaaaaaaaaaaaaaaaa! THAT, friends and neighbors, is the average American mindset.
Financially they will be killed (some have been already)!
You’re entitled to your opinion but this isn’t the forum. Try the Daily Kos.
David Lereah, the chief economist of the National Association of Realtors, distributed “Anti-Bubble Reports” in August 2005 to “respond to the irresponsible bubble accusations made by your local media and local academics;”among other statements, the reports say that people “should not be concerned that home prices are rising faster than family income,” that “there is virtually no risk of a national housing price bubble based on the fundamental demand for housing and predictable economic factors,” and that “a general slowing in the rate of price growth can be expected, but in many areas inventory shortages will persist and home prices are likely to continue to rise above historic norms.”
He even lies about his lies.
[home prices are likely to continue to rise above historic norms]
Well, this could prove to be correct even after there’s a 50% haircut in many areas. The inertia of this train about to run off its tracks can’t be stopped, and it shouldn’t be. The long term health of the economy depends on it. DL should be held responsible for the financial carnage about to unfold. A public flogging, perhaps.
Once the defaults start rolling in at never before seen levels, there will be witch hunts conducted in Washington and DL’s quotes will come back to haunt him. The blame game will be conducted on CSPAN, with hearings and new legislation. DL will either resign or… get thrown out on his a$$ in connection with with insincere apologies from the NAR.
The real culprits - Federal Regulators & GSEs. They had the responsibility to slow this train down in ‘02, before it got wildly out of control.
I think theres also a great deal of laziness in the MSM. The industry shills are always ready for a quick sound bite. If your a producer looking to do a real estate segment, these people are easy to get and eager to get their face on T.V.. People need to remember that whenever someone gives an opinion you have to “Consider the source”. Are they truly objective? What’s in their best interest to say? Even people outside the industry can have a hard time being objective, since most own homes and don’t want to see their property value fall.
“I think there’s also a great deal of laziness in the MSM.”
I’d say so. A recent article in the washington post ended with this quote by NAR president Thomas M. Stevens:
http://tinyurl.com/nwgwk
“Both buyers and sellers need to understand what’s going on within their local market areas, so it’s even more important now to work with a professional who can guide you through current changes and the negotiation process.”
I don’t think it’s a matter of being lazy, the reporters report what they are told to report. Reporters don’t have much control over what gets published, it’s the owners and managers of the media who decide what gets in and what the spin is on it. Since most media outlets are owned by large corporations it reflects their interests. They also don’t want to offend their advertisers. That’s why blogs like this one are important.
it’s ben’s fault. if he hadn’t started this blog the housing boom would have continued forever.
Darn it. Now we all have to make another donation to Ben since he’s about to get his fanny sued by the RE industry. Redfish - don’t you know you’re not allowed to talk about that?
” Lereah counters that he has been forecasting a change for some time. ‘I’ve been wrong for three years in a row. I’ve said we’re about to get a correction. For three years, I’ve said, ‘This is the year that sales will come down.”
Is this guy for real???? He and James Frey ought to start their own investment firm.
I would really like to see the article and date/time, when he supposedly said this.
All I ever remember hearing from him was, “up, up, up”.
“Lereah counters that he has been forecasting a change for some time.” forecasting to the public?
Your reading too much into it. He means is this:
“…he has been forcasting a change for some time.” to his family and friends.
Actually (in the interest of truthiness)
David DID say at the end of 2003 and 2004 that he expected RE to “moderate”, and go back to the “historical average” of 6% per year forever. Then the spring of 2004 and 2005 proved him wrong and many markets skyrocketed 20,30,40% upwards.
So he is truthful when he says he predicted that housing would cool, but he misrepresents himself as though he said he predicted a downturn in the OBVIOUSLY CYCLIC housing industry.
makes me want to retch.
He did say prices should level off in 2004 and 2005. If he had taken the continued run-up as a sign of a price problem, he wouldn’t be in hot water now. Instead, he concocted flimsy rationals for the bubble, after the fact.
He said sales volume would “correct”; he never said prices would correct.
He supposedly has been saying this “three years in a row” - which means he has said it repeatedly. I wish this clown could be indicted by a grand jury.
Didn’t the subtitle of his book claim that RE would continue to rise through the end of the decade?
“Are You Missing the Real Estate Boom?: The Boom Will Not Bust and Why Property Values Will Continue to Climb Through the End of the Decade - And How to Profit From Them”
That’s pretty damning evidence to me.
it’s because of the psychology of the marketplace,’ he said. ‘The prices just got too high
Mr. “Economist”, prices are fundamentals, not “psychology”.
I was thinking that too. The contradictions (in what they say) are evident within the same sentence.
- 1 “‘For a couple of quarters you’ll see price drops
- 2 ‘It’s going to be short-lived, though.
- 3 will probably last a quarter.
Outstanding! Now I can finally time the market for my purchase.
DL new predictions of short term turn down is equally as bad faith as his prior predictions . How can anyone in good faith ,after seeing the numbers ,and knowing what the supply/demand is , make a prediction like that ?
Does he think that it’s only going to take 2Q’s for houses to become affordable again? Are all these people going to get a 30% raise in 2 quarters . What is is basis for DL. thinking the correction will be short lived ?
As I see it , the NAR/Cheerleaders are trying to define the correction now .You hear statements like ,”it will only be 5%/10%” ,or “it will be a slow forth quarter but in 2Q of 2007 should pick up again “, etc.
It’s one thing to report data if your a Trade Group ,like the NAR,and its another making predictions on that data ,(which the latter should come from non bias analysis ).
Just don’t blame the realtors or mortgage brokers for any part they played in this run-up is the CYA and spin I’m seeing now .
After all the realtors want the sellers and buyers to keep dealing with them on the money -making down-side of this bubble .
“As I see it , the NAR/Cheerleaders are trying to define the correction now.”
I think you have that PRECISELY right! They’re trying to prime the buying public to think it will only last a quarter or two, so that the buyers don’t panic when they see the price-decline data. They’re hoping to program the buyers into thinking “oh good, a bargain” right when they should be thinking “run like hell!”
I think they’re trying to manage the bubble in an attempt to prevent it from snowballing.
Jon
Yes, but this form of “damage control” will do no good if prices are down just a few percent 2 quarters from now.
The underlying issue—-which Bob Toll alluded to by stating “this is the first downturn in the forty years since we entered the business that was not precipitated by high interest rates, a weak economy, job losses or other macroeconomic factors,”—-is that prices are just too high for current income levels.
Perhaps, Lereah’s 2Q forecast is a veiled warning at a “hard and fast”, rather than “slow and long” landing?!?
If prices do drop 10-20% by the Superbowl, then yes, we may begin to see a bounce in the spring.
Oh.. Oh.. That’s rich..
You know, they might be onto something. If nobody reported/blogged/told people about the bubble, I honestly feel it may have gone on longer. I have been trying to tell people for the past 2 years, but nobody listens to me; they only listen to the talking heads on TV.
But, no matter where they want to put the blame; what they have to realize is housing has become a national Ponzi scheme! Reporters report the news and give their opinion. Do you think people would stop buying houses if they were 10 cents on the dollar right now; even if the news was saying “its going to 5 cents, keep renting”?
The fundamentals are not, and never were, there. Come on people, you cannot blame the media for reporting that. What gain does the media (as a whole) stand to gain from a housing collapse? This is just crazy “conspiricy theory”; comes from too much Kool Aid.
The media had alot of advertisers that were from the real estate industry . In addition most of the media had homes to .
You would of thought that there would of been more ‘bear’ point of view coverage to provide balance so the masses weren’t so brain-washed into a one-sided view of this bubble .
“‘For a couple of quarters you’ll see price drops from 2 to 5 percent,’ he said in an interview. ‘It’s going to be short-lived, though. If there’s any national downturn, it will probably last a quarter.’ That’s because Lereah predicts the market will pick up again next year after sellers begin to cut prices this fall.”
last a quarter? I noted no one is talking about the elephant in the living room. Foreclosures! That along with tightening credit and already debt swamped consumers with few if any wage gains all but guarantee this down-turn will last several years.
sorry forgot to close italics
Everything I have read about RE cycles pegs us at 3-5 years for the downturn, before we start back into a “normal” cycle again.
I would guess that we are going to be closer to 3 then 5; only because I think we are going to fall faster this time. The toxic morgages are going to cause people to sell/forclose, when in the past they could just keep happily chasing the market down for years.
However, Lereah knows these down makets are years being corrected. Also, something else he said really makes me laugh. He is hoping that people do not know how to do math (and I am too lazy to compound it correctly right now, so shoot me):
5% per quarter = 20% / yr
2 years of that, and we are back in the ball game (especially when you take in account the compounding). I think he is setting himself up for another “I told you so”, but without telling people that their homes are going to be worth 1/2 in 2 years time. Remember, Joe Sixpack is MUCH lazier then I am, just multiplying is FAR beyond how deep he wants to go into something. Forget compounding (which is TOTALLY evident by how people spend away on CC with 20% intrest on them).
Agree totally. My question is: how can prices only go down for one quarter if, after that quarter, poeple finally start cutting their prices. If prices are cut doesn’t that mean prices are going down?
Everything I have read about RE cycles pegs us at 3-5 years for the downturn, before we start back into a “normal” cycle again.
Doesn’t that wrongly assume a localized RE cycle operating in an otherwise “normal” economic environment?
Just remember there are more ‘followers’ then ‘leaders’ in this country which is why the boom was overblown.
Why do you think they still advertised ‘how to make millions’ in infomercials? Because there are enough stupid people out there who actually beleive they can start a home-based business making $5-$50k a month from their own home!
-X
My favorite part of those infomercials is the fine print disclaimer—always something along the lines of “results are atypical.” They’re obviously counting on the fact that most people who get suckered into those things are too stupid to know what “atypical” means (atypical = this is total BS and you’ll never make a cent doing it).
‘Basically the speculators and the exotic mortgage instruments, interest-only loans and zero-down payment loans that permitted households to purchase at lofty prices, they emptied the punch bowl at the party,’ he said.” “‘This boom would have gone on a little longer if not for them,’ Lereah said. ‘They took prices up higher than they should have been.’”
What? This boom never would have happened if it wasn’t for them…
When I read that, I did a double-take. And another one.
I think the wheels have come off the Lereah Train.
Right ,the boom would not of happened if it had not been for them . Right, price increases would of been spread out for 25 years instead of 5 years . Now what are we going to do ? Oh , it’s going to be corrected in 2 quarters ,boy am I relieved .
As the housing boom winds down the finger-pointing is just warming up.
These “greedy” P’sOS.
Instead of building affordable homes with demographic based functional utility and energy efficieny, these azzholes thru up glutton-sized white elephant McMansions, ’cause the economies of scale made it better to make $100G’s on one pig-than on five smaller, but more affordable houses.
The new US “downsizing” paradigm has got these bastands by the balls.
Front page of today’s Boston Globe has a story how for the 7th straight year, health insurance costs will exceed 10%!!!!!!!
Read the writin’ on the walls, you stupid, MF’s!!!!!!!!!!!!!!!!
Gluttony-the Deadly Sin.
Sounds like it is time to break out Bubblefucious or Bubbles the Clown!
Right , Rainman 18 ,get that clown over here ,we need a song and dance .
Good post HD;….
“That’s because Lereah predicts the market will pick up again next year after sellers begin to cut prices this fall.”
And this is what the mortgage industry is counting on to keep the game going. Houses are still being sold at high pricing here to those who can least afford them with creative mortgaging by telling the buyers that home prices will start going up next year when the government lowers interest rates. Time for the government to take all the creative mortgages and their suppliers to the wood shed.
Lereah’s statement that you quote runs counter to his later statement that “psychology has changed”.
We have seen the shift in psychology already happening all over the place save one last standout - Seattle, where it is now occurring on a slow basis. But, once this shift is firmly entrenched it is very hard to turn around.
Not to quibble with Lereah but we have had plenty of examples here alerady of people cutting prices and not getting a sale. The key truth he avoids confronting is people don’t want to pay 50-100-200% more the the seller paid a few years ago. I no longer care what a house is listed for, I just want to know what they paid for it and we’ll work from there.
Many overpaid in 2003 - 2005, so even this measure is not really all good. I really believe it is about fundamentals value, not comps and previous selling prices. Once prices disconnected from reality a few years ago, all bets were off. I agree though that properties which is aclerly being flipped at a large markup after just a short time is a clear warning sign.
I’ll need to know the pricing history back to 1995 before I’d be comfortable making an offer…it doesn’t matter to me what the last buyer paid…what was the price in 1995?
It has been said many times, but aren’t the government regulators a big part of the problem too? I may be a little bit slow but I thought that their job definition was to control (monitary) policy so as to avoid (or smooth over) shocks to the economy. What were they thinking when they saw the brokers parade out the exotic/toxic loans in ever increasing numbers? I think these guys need to be shot too.
“David Kerpel is a case in point, vowing that he and his wife will not further reduce the price on their house. “‘We don’t have to, financially. Plus, there’s a certain pride in our house.’”
Pride??
They will come to hate that house. If they keep up the denial he will go from 2 houses to no house. Fast forward to the future, Kerpel,”Well, I know it is hard to believe now, but at one time I had two half million dollar homes. But because of X (pick a reason, besides greed), we could not sell one of them and it sucked all the equity out of both properties.
“When dealing with people, let us remember we are not dealing with creatures of logic. We are dealing with creatures of emotion, creatures bustling with prejudices and motivated by pride and vanity.” Dale Carnegie
AHHH! Pride, another deadly sin.
Pride goes before destruction; a haughty spirit goes before a fall. (Proverbs, I think).
“Those whom the gods would destroy, they first make proud.”
- some ancient Greek.
Actually, the Greek saying is, “Who the gods would destroy, they must first make mad.” Meaning that anyone who dares to speak truth to power, can only be destroyed by a concerted campaign to smear them as lunatics or crackpots. Only then can they move against them with impunity.
No, no, no. The Greeks were completely indifferent to the little guy who would speak up to power. That statement refers to a certain symmetry prevalent in much of Greek literature where if someone in power gets too big for their britches the Gods will ensure that bad things happen to them. The Greeks didn’t bother to smear uppity peasants, they just killed them.
We know a couple in SE Florida, where insurance costs compound the difficulty of selling a home, who are acting just as foolishly. When several realtors refused their listing unless it was at or near the bottom end of all existing listings in their neighborhood, they put it up FSBO. In a community where outdoor signs aren’t allowed! Where realtor.com shows at least 4 houses of similar size and amenities already priced lower (up to 20% lower)! Talk about pride and vanity (”Yes, but ours is different”).
A close friend is a real estate data consultant…he keeps telling me that there’s a ton of equity out there and that most borrowers just don’t ever need to sell…as if fundamentals don’t apply to them. But I think what some underestimate is the psychology of falling prices. Another friend just bought a $950,000 home in east side Costa Mesa. What will recent buyers be thinking when they can get the same home at half the price? Many may simply walk away rather than continue making a ridiculous payment (50 to 60% of gross income) on the hundreds of thousands of dollars in lost paper equity.
MC:
Bingo!
Why?
If you think about a typical OC family.
$100-150 income
If they are prudent and save 10% of net.
A 200K paper loss is 15-20 years of savings down the drain.
They aren’t going to hang on because the numbers are/will be crushing.
Remember, foreclosing this time will be different than foreclosing during the last downturn, since many also HELOCed to re-do kitchens buy cars. Just can’t walk away that easily anymore unless you want to give up your assets as well. It’s going to be a bloody mess.
“‘This boom would have gone on a little longer if not for them,’ Lereah said. ‘They took prices up higher than they should have been.’”
Thank you, David….your foot in mouth has been caught for all to see…this one particular comment pretty much sums it up for the NAR. They are a self-serving group with only one aim…to make their members more and more money. That any of their members, least of all DL, were touted and quoted as “housing experts” was absurd. At least it’s all in print, so when the blame game really gets into gear, there will be plenty of evidence of their antics.
Nobody forced anyone into paying more for those houses than they were worth. It’s stupid people, I say. They’re everywhere.
David Lereah did. He wrote “Are You Missing the Real Estate Boom?: The Boom Will Not Bust and Why Property Values Will Continue to Climb Through the End of the Decade - And How to Profit From Them.” So you see, you had to buy. You did buy, didn’t you? Well, if you didn’t, it’s your fault.
He didn’t force anyone to buy. He just sold it well.
I wonder if I could get a signed copy of that book?
“I see stupid people.”
That’s MY sixth sense.
I see debt-people!
Brilliant.
“Broker Theobald said ‘the non-stop volume of articles on the housing bubble, well, it seems like it did become a self-fulfilling prophecy.’”
What an ass. Funny, I don’t remeber hearing any complaining from them when things were going up, all the while home hunters became either FBs or didn’t buy because they became so discouraged.
The brokers have themselves and the media to blame for the bubble. It was they who pumped it up for the last five years. The R/E only goes up was a self-fullfilling prophecy for the last five years.
Cross post from another blog:
You assume that homes are going down in value 1-2% a month, what a crock. You also assume that we are going to have a huge realestate crash in fla. For that to happen unemployment would have to go above 7% all the people that are selling right now would have to be leaving the state, and people would stop moving here. I don’t see that happening. People are still moving here and not that many are leaving they are selling and buying an another house here. And although the residential construction mabey slowing Commercial is going crazy there is developers begging for work force and they are paying for it as well. And if there is a drop of 20 or 30% in the market, all the buyers that are sitting on the sidelines right now will rush to start buying and that will create another sellers market, And what happens in a sellers market. Bidding wars, the nation is doing good right now unemployment is at its lowest levels I sure would not be shorting re now. Remember to have a realestate crash you need have everyone selling and no one buying or renting. That just can’t happen. Why you ask becuase people need to live somewhere, you think people are going to live in their cars. The reason the stock market crashed was becuase you can’t live in a stock. We have to live somewhere.
Please feel free to help me educate this guy.
http://www.palmbeachpost.com/blogs/content/shared-blogs/palmbeach/realestate/entries/2006/09/08/will_biotech_gains_price_gains.html#commentsform
Don’t waste your time trying to convince those that can’t be convinced. This person is obviously a “R/E never goes down zealot”.
If Eskimos can make homes out of ice, can’t one recycle otherwise worthless stock certificates into affordable housing?
After all, those one-person condos under the 12th street bridge don’t actually have to be made out of cardboard.
“Please feel free to help me educate this guy.”
We’ll have to start with grammar and punctuation….
Proverbs says to never argue with a fool. It diminishes your stature and gives the fool credibility.
“‘This boom would have gone on a little longer if not for them,’ Lereah said. ‘They took prices up higher than they should have been.’”
Uhhhhhh I dont get it(snapping my gum and twriling my hair)
So the boom would have been even bigger if it wern’t for thoes rootin tootin speculators……….someone help me
Sorry, can’t help you. I had the same reaction. Prices would have continued going up if speculators and easy money hadn’t pushed them up…hmm.
‘In the Chicago area alone more than 95,000 properties are on the MLS of Northern Illinois, fully 40 percent more than a year ago.’
Who is responsible for this? Or the fact that the listing prices are almost certainly out of whack with local incomes? It is interesting that there is no mention of the Federal Reserve in this article.
Bearnke is going to have to wear an asbestos suit for the coming congressional hearing blaming the fed for falling housing prices and the wailing cries of millions trapped in bad house deals.
I agree it really comes down to median asking prices becoming severly disconnected from median incomes. In the long run median incomes are are the underpinings for economicaly rational prices. With median incomes flat for the last several years, prices will with adjust down to levels that people can truly afford.
Well, there were exactly 91,975 homes listed for sale in Atlanta as of 8:14 am today. That’s up about 300 from yesterday. I’d say there are two reasons for this:
1. In 2003 Atlanta lead the nation in the number of I/O loans. I saw a map somewhere with “bubbles” drawn over the nation based on percentage I/O loans. This was one case where Atlanta beat out CA. I think the percentage was something like 30% I/O loans in Atlanta that year. Those loans resetting are causing pain.
2. The employment situation in Atlanta is unhealthy. The Fed’s quarterly reports give a pretty good summary, especially if you’ve been reading them sequentially over the past few years, though they do seem to downplay the pain. Even though our housing prices are low, working people are still struggling to afford them.
Finally, I have no proof of this, but I think that a lot of those I/O loans were taken out by people who were laid off in 2000 or 2001 and either had not found employment by 2003 or had found a job for less than they previously earned. I say this because on my street alone during the 2000-2001 time period I know seven people who were laid off. Two ultimately had to leave the state to find employment, two have to date still not found permanent employment and have worked a series of contract jobs while continuing to job hunt, one became a mortgage broker and says he did quite well, and the remaining two both eventually found work in their fields that pays significantly less than they previously earned. No one found a comparable job in his field in Atlanta.
Found the map on another bloggers site. That big “blot” that you see in Georgia is Atlanta. 32% I/O loans in 2003.
http://bigpicture.typepad.com/comments/2006/07/interest_only_m.html
Another thing about Georgia; the banks in that state hold one of the highest percentages of home loans on their books.
yet another thing about Atlanta. They have one of the highest percentages of seller-funded “gift down payment” FHA loans, as GAO reported. These can’t overlap with the I/O loans, since all FHA loans are amortizing.
http://www.gao.gov/new.items/d0624.pdf
Yes, and I forgot to mention in my original reply that Atlanta is also at the top of the list for foreclosures this year:
http://www.realtytrac.com/news/press/pressRelease.asp?PressReleaseID=112
I’ve read elsewhere that the increase in the foreclosure rate in Atlanta since 2000 is more than 150%. Its really sad because Atlanta really, truly is a beautiful and welcoming city. But right now there are some definite problems to be fixed.
I suppose that if your house were going up in “value” by 20% a year, and if the bank would re-fi or increase your HELOC limit by that amount, you could have used the new-found equity to make all your mortgage payments and still have extra to eat with. Like having your own little Greenspan printing press.
Makes me think that people will go to foreclosure very fast during this bust, once the loan officer says their credit is tapped out. They can’t sell because they’re underwater.
Oops. Didn’t see your comment until I posted my reply to Mort_Fin, above. Probably should have put that info here instead. You just hit the nail on the head.
Except….. If any of those yahoos refinanced they were probably moved into a recourse loan. You can’t just walk away from those because the banks can come after all of your assets except for your 401K.
I know I”ll get flamed for this, but I figure that I’m the “defender of Chicago housing values” so I’ll chime in here. I think this is an example of a transitory effect that I postulated about 6 months ago. Chicago has a fairly healthy economy (at the moment) with stable population in the city, growing population in the metro area, increasing jobs, and prices that are only a little out of whack versus rents or incomes (I’m not saying not at all out of whack, just a lot less out of whack than San Diego or Boston). So you don’t have the bubbly prices of San Diego, nor do you have the tanking economy (tanking, gas prices, autos - get it?) of Detroit. So why the huge inventory run up? I think it’s the MSM’s fault . In the last few months there has been substantial talk of a bubble, with newspaper and TV reports about huge inventories, foreclosure run ups, etc. I suspect that buyers everywhere are thinking twice about making a purchase, and the rush to buy now before you are priced out is over. If the rate of homes being offered for sale doesn’t change, and the rate of people buying homes falls 10% or 20% the result is a build up of inventory, assuming that things were pretty stable beforehand. I’m not surprised at the run up in inventory, and I expect that to lead to a fall in prices. But I suspect that it won’t take much of a fall before you can make investment properties cash flow in most parts of town, which will put a floor on prices and a ceiling on inventories.
Take shots at me as you will. I can take it. Note that I’m not saying that Chicago real estate isn’t priced too high, or that it won’t fall a little. Nor am I saying that everything is the MSM’s fault (in fact, I think very little of it is). But I do think that incessant coverage of the boom changed people’s behavior, and that incessant coverage of the bust will do the same in reverse, having impacts on both bubbly and non-bubbly areas.
Mort: I would love it if you could buy with a traditional mortgage and get positive cash flow. Prices would have to drop 50% here in CA for that to happen. Eventually they will drop 50% and you will be able to get + cash flow.
Also the MSM always pumps up RE when it is going up and bashes it once it goes the other way.
In both cases noted above history repeats. It will happen again in the next housing cycle starting in 2013.
Mort — there have to be some number of people who would not live in Chicago except that the houses in the area to which they would want to move are too expensive. Once THOSE houses start dropping in price, the differential obviously decreases and they will want to sell. But to whom will they sell, unless they drop their own price?
Not sure if you mean people leaving the Chicago area for warmer climes, or if you mean people leaving the city for the burbs. If the former, I think people who want to leave do leave, and if FL is too expensive they head for the Carolinas, and if CA is too expensive they head for AZ.
If you mean leaving the city for the burbs, that desire is always there for families with kids. To get a change in city price you’d need a change in suburban price. Except for a few marquee suburbs (Naperville comes to mind, but not Aurora) I don’t see the burbs any more overpriced than the city. The prices are higher for burbs with good school districts, but they always have been and always will be. I don’t think the bubble suburbs are big enough to have a large effect on the whole metro area.
To put Chicago in context, I looked up the NAHB Wells Fargo “affordability” data. Chicago’s median price is about 3.5 x median income, Boston and Washington are about 4.75 x median income, and San Diego is 7.5 x
Mort-Fin,
“So why the huge inventory run up?”
This is what you have to tease out to see if your theory can hold water. How many houses were put up for sale each month compared to the same month in 2005?
If for instance in August of 2005 X numbers of houses were put up for sale and in August of 2006 8X houses were put up for sale, then you know it is not a problem with buyers sitting on the sidelines. It is whole sale dumping of property which is what is happening in my area. I monitor my little area and and have since 2000, almost overnight we had a projectile vomitous of condos for sale. It happened before my eyes on realtor.com. One day there were like 20 condos for sale 2 weeks later 200, in a small area.
Sounds like you may have already thought of that though.
In my area are that the deals are falling through because not because people do not want to buy, but because;
1. People cannot sell their current home.
2. They do not qualify for the loans.
Everyone is trapped the sellers and the buyers. Gridlock.
I am from the midwest and the lenders there are much more conservative than what I have seen here in Florida. So traditionally there have not been the wild swings you see in other parts of the country. BUT you can over pay anywhere, anytime.
Those would be the right tests. But I can’t claim to follow the Chicago market closely enough to have those tests at hand. What I have is fuzzier. Sales have fallen while they were flat to slowly rising, and inventory has gone up, but not by a huge amount (40% for Chicago, 100% to 200% for parts of FL or southern CA or AZ). That’s consistent with not having a big surge of new listings, but I don’t know that there haven’t been. Anecdotally, I was driving around the southwest side, in neighborhoods that I know not to have been infested with flippers, and saw more For Sale signs than I have ever seen in my life, mostly on well-manicured lawns in front of obviously inhabited single family homes. Which tells me that, in those neighborhoods at least, it’s not a huge burst of bailing speculators.
Mort–I think what you are missing is that people are sheeple. When people in Chicago read about the housing bubble busrting in MSM, and they think about the effect of losing 20% equity on a zero-down loan, they too will be more resistant to purchasing. And those with multiple properties will head for the exits. So the bust may be psychologically driven in Chicago even if price-to-rents is not as out of line there as it is elsewhere.
Jon
“‘It’s going to be short-lived, though. If there’s any national downturn, it will probably last a quarter.’ That’s because Lereah predicts the market will pick up again next year after sellers begin to cut prices this fall.”
Even when Pinnochio is trying to back pedal, he is still lying.
As we get older watching the market tank, here is the…..Blogging Senility Prayer
God, grant me the Senility
to forget the bragging FB’s
I never liked anyway.
The good fortune to run
into Ben’s Bloggers,
and the eyesight to tell the difference.
“‘It’s going to be short-lived, though. If there’s any national downturn, it will probably last a quarter.’ That’s because Lereah predicts the market will pick up again next year after sellers begin to cut prices this fall.”
Please help me understand this quote. I am too stupid to follow it.
So, the rationale is:
1) homes aren’t selling. so it’s a buyer’s market, causing a “national downturn”
2) due to homes not selling, sellers will need to lower their price
3) this will take about a quarter until the sellers do this
4) by lowering their price, the market will come back
5) by lowering their price, the median home price will go UP???
How the heck does the seller LOWERING their price cause prices to RAISE in a quarter?
the logic is mystifying.
Doc. ..The NAR/realtors know that the only thing that can change the market is if the inventory gets cleared out . So they think if sellers slash prices it will clear the inventory ,than a lower inventory will bring back a market and cause the prices to go up again .Of course the NAR relies on people having short term memories .
This inventory glut situation is so extreme that it has created a dead market . Buyers and sellers are at a stand-off in this iventory glut market ,and for the NAR this is the only way the get the market going again . The plan will not work for a number of reasons ,but this is how they think .
“Broker Theobald said ‘the non-stop volume of articles on the housing bubble, well, it seems like it did become a self-fulfilling prophecy.’
Yes, Theobald. And the trees waving made the wind blow.
Also:
I remember hearing for 3-4 years that people were buying bigger and more expensive homes, with luxury amenities and master suites and granite counters etc etc etc BECAUSE there was “terror” in the world and the world was so scary and unstable, that people wanted to have a “sanctuary”, something that was “real” and “theirs”.
Now DL et al are espousing that terror and instability are causing people to sell their sanctuaries?
ugh.
They finally figured out that the more the square footage the greater the amount of plastic sheets and duct tape that it would take to seal them up.
LOL …funny
NOTHING like 1 or 2 Massive White Elephants Sitting UPON your Chest to Wake you UP. Just WAIT until there is NO wiggle room beneath THEM !
I beginning to think the the NAR/realtor cheerleaders want to turn the real estate market into the stock maket . Up…down ….up …down…. turn those houses …turn those houses .
OK ,NAR we are at September 1929 as far as housing goes …what do you suggest ?
Anybody ever hear of the expression, “Debt Saturation”?
I don’t think that I have ever heard of that expression before 6 mos. ago but I’m assuming it would mean that just about everybody had reached their maximum amount of debt that they could possibly afford to service
here, I’ll use it in a sentence:
We reached debt saturation sometime ago and have gone beyond with the sub-prime mortgages enough to assure a robust decline in the housing market.
I’ve seen some old speculators time this thing perfectly, selling 3-4 houses last summer and not buying anymore
the pro flippers have left the building
I think they keep track of debt levels, potential demand and credit regulations but I’m no expert, maybe it’s a conspiracy
I have interacted with alot of flippers in my line of work, window treatments, and do remember some advice in particular,,
“Only buy one investment property at a time unless you can afford more without borrowing
I point the finger at the system and the people who take advantage of it.
Alot of the FBs of today may be successful speculators uhhh, not tomorrow heheh prolly not next year either
I haven’t herd the term before, but used it in a reply to a post yesterday to describe the point that, our society can no longer absorb any more debt.
As to Dr. Lereah, I coined a term that applies to him rather well — E-Con-Whore
Jas Jain
Remember, the ultimate finger pointing goes to Greenspam.
As for Chicago overpriced or not, time will tell. This blog has been awesome. Ben is da MAN. I hope we are able to preserve these quotes for history.
And what about some blame for Leslie Appleton Lay and our good friend, Mr. Gary (in the bag) Watts. These fine folks certainly have earned themselves a warm furnace, big shovel, and a unending pile of coal. Ditto for Mr. Liarah.
If I ever come across David Lereah in person I’m going to smack him in his f**cking face. Seriously.
Hey Joe:
I guess you can only hope for this kind of treatment from the cops.
http://www.ocweekly.com/columns/hey-you/hey-you/25793/
Warning crass swearing but kind of funny, related to Joe’s quote up above.