Housing’s ‘Chief Cheerleader’ Sees ‘New Gold Standard’
Some reports on a changing mindset from the NAR’s chief economist. “David Lereah said he was still looking for a gradual slowdown in housing that would result in a drop of around 6 percent in home sales this year and a slowing in price gains to around 6 percent, compared with the double-digit gains in prices in recent years.”
“The U.S. economy has digested surging energy costs in the past few years with little more than a hiccup. But now, some economists are warning, energy prices have gotten so high that the economy could lose steam. Not helping is the fact that the latest gains are coming as some economic cushions for consumers that have been in place for several years, such as a strong housing market, are slipping.”
“‘At some point, we can’t absorb it,’ NAR chief economist David Lereah says. If oil prices stay at current levels, or go higher, ‘confidence is really going to come down. It is possible that this economy can get hit.’”
“The housing market’s chief cheerleader has a surprisingly stark message for Florida Realtors: 2006 is going to be a tough year. The region’s real estate economy must recover from a hangover wrought by a spasm of speculation and easy money, David Lereah, told Realtors at a West Palm Beach hotel today.”
“‘We’re in a cleansing mode right now,’ Lereah told about 400 people. ‘It’s gonna hurt.’”
“While Lereah compared the housing boom’s excesses to the stock market bubble of 2000, he doesn’t foresee a Nasdaq-like crash for home prices. Rather, he calls real estate ‘the new gold standard’ for safety-minded investors and predicts a period of sluggish activity followed by a return to a stronger housing market next year.”
“‘If you have a healthy local economy, it’s almost impossible to have a bubble burst,’ he said.” “For the near future, though, home sellers will have to contend with a glut of properties for sale and reduced interest from buyers. Lereah called the slowdown healthy: ‘Prices got a little too high. We got ahead of ourselves. We needed to catch our breath.’”
“Lereah dismissed widespread concerns about the lack of affordable homes in Palm Beach County and the Treasure Coast. Lereah said, that number isn’t so steep compared to other parts of the country such as New York and northern New Jersey.”
“While Lereah is bullish on the long-term future of Florida’s housing market, he warned that hurricanes and soaring insurance premiums pose threats. ‘If we have another bad hurricane season,’ he said, ‘all bets are off.’”
Thanks to the readers who sent in these links.
Is this the same David Lereah or….
i bet that this coming hurricane season will be just as bad. global warming stupid.
David’s doing the big CYA. That way, if he gets called on the carpet for the absurd statements he made last year, he can say, “Yes, but I also said blah, blah, blah, and if-this, then-that, unless-of-course…”
” Lereah called the slowdown healthy: ‘Prices got a little too high. We got ahead of ourselves”
So, what’s the cure for “prices that are too high? 6% higher? Somehow this logic seems a little tough to reconcile with elementary arithmetic.
The cure for high prices is lower prices, or, if Mr Lereah prefers, negative gains.
High energy cost = lack of new home sale, is there a correlation? LMAO
yeah, the new gold standard, like when gold peaked at $900/oz. in 1982 and crashed to $400.
I am sure he would like to “peg” gold to housing now that housing is substantially ovewr valued vs. gold historically!
Gee if he was talking about a “Peg” for currency value again who gets to price this? Home builders that increased prices 12,000 a week on every 4 units released?
There is no such thing as a real-estate bubble! If house prices fall, it will be due to unrelated events, that no one can be blamed for. If a hurricane strikes Florida, or insurance companies cancel home owner policies, then sure, prices might tank. But those are exogenous events, and really can’t be predicted.
Likewise, if there is some kind of global economic disruption that causes a big recession, then real-estate prices might fall, but that is yet another exogenous event that can’t really be predicted. The same with terrorism, war, etc.
If the US real-estate market ever does experience a major downturn, it will NOT be because of a bubble, it will be due to some external event like a stock market crash, riots in China, etc.
“There is no such thing as a real-estate bubble!”
——————————————————
Without a convincing explanation, reasoning, data, a statement alone is worth zero.
Wrong. Suzanne already researched this. There is no such thing as a real-estate bubble.
Brad:
Get your sarcasm detector checked.
“There is no such thing as a real-estate bubble!”
Please back up your statements with facts, as we like to do here. Why is your opinion right while months of data indicate otherwise…but I think this guy has a head start on the excuse-makers when the bubble finally does burst. Thanks for the sneak preview.
Oh, and I should also ask that if you don’t believe in the housing bubble, how did you find this blog? It probably wasn’t because you googled “sustainable home price appreciation”.
GEE: it sounded to me, “LEREAH predicted a “Hard landing” (aka Crash)
I am merely pointing out that even if US real-estate prices decline substantially, I suspect that most current market proponents will be able to explain the sudden change from their earlier pronouncements. Economists, and “experts”, advising people to buy real-estate will always be able to point to some factor that clearly was beyond their control (gas price rises anyone?) as the explanation for why the predictions of a rosy market didn’t pan out.
If there’s no real-estate bubble. Add low wages to that list of factors.
Or they can just make stuff up. Like this realtors explanation of why there was so much less inventory on the market some years ago. “A couple of years ago, what happened was inventories were so low that sellers got cold feet because they figured that if they sold their home, they would have a hard time finding another home to buy,” Kleinhenz said. Article here: http://tinyurl.com/nnupd
Brad- I think Mikhail’s statement is sarcastic, revealing how foolish Lereah’s comments are.
Mikhail- I think it’s common for industry types to blame anyone but themselves for problems. Lereah looking for exogenous excuses for a housing correction is like Ken Lay blaming short sellers and bad press for Enron’s demise.
now that’s what i call dry humor. thanks, Mikhail, for the laugh.
“…exogenous event that can’t really be predicted.”
I hate to say it folks, but Mikhail is correct. What he saying, despite himself, is that we need a pin to really pop this thing. That is the thing with bubbles. They are easy to see, yet no one can see the pin that is out there, somewhere, floating…..
I know bubbles when I see them and this ain’t no bubble. This folks, is a hydrogen filled blimp. Feel better now?
I visualize it as more of a throbbing, festering boil on the posterior of humanity.
Gonna be a mess when it finally lets go….
“I hate to say it folks, but Mikhail is correct. What he saying, despite himself, is that we need a pin to really pop this thing”
I disagree. I think that manias often do tend to fall due to their own crushing weight. As example, many people point to the defense industry layoffs as THE cause for the RE implosion of the late 80’s/early 90’s. However, others have posted good data that suggest that the implosion began slightly BEFORE the layoffs… In HINDSIGHT it just appears that the cause was the layoffs. (besides, many areas in CA were hit with lower RE that were nowhere near the defense industry…)
Even now, many RE markets are really struggling, with no obvious cause as far as I know. Higher interest rates? sure, but they’re not THAT high… and if you recall economist’s projections last year they were predicting it would take rates over 7-8% to cause harm. We’re only in the low to mid 6’s. Besides I often hear “housing prices will drop as interest rates rise as people can’t afford the same home prices” and then “housing prices will rise as interest rates rise as people try to get in a home before rates get too high”
War in Iraq? We had that during the explosive boom years.
Bad economy? It’s not any different than last year is it?
Outsourcing? Same thing.
In the end all things reach a limit. RE hit it’s limit. Half the time it’s blind conjecture as to the WHY of the RE mania.
I’m sure 10 years from now people will say something like “the impending war in Iran made RE collapse” but that doesn’t make it so.
Concurrent events are not necessarily causal… they are often coincidental.
Just MO
clouseau
Very good House Inspector Clouseau,
I agree with your comments. Have you heard lately… Sun Micosystem and Intel… Two biggies in the Tech Industry are pondering on massive layoffs. Intel has already made the announcement today. $1B in restructuring both people and offices locations. Sun is facing a cut as deep as 1/3 of workforce. The center off the cuts will come in HQ where high salaries no loner suppport the business. There will still be a ripple effect on this on the local SV economy still to take effect.
Clouseau is right on!
I respectfully disagree. Kindleberger’s book on manias, panics, and crashes suggests that historically there has always been a pin prick event that triggers the panic.
Most of the country saw r/e downturns 1989 - 1999, but each city had their own rationalization for the downturn, and each city had a different reason.
Mikhail, I’m a bit confused by your post. While I think I understand the premise of your argument, it seems to be like saying, “…if a 500lb man dies of a heart attack, it’s not because he was overweight. It was because of that last unpredictable glob of fat that finally stopped his heart.” What am I missing? Or is this really sarcasm that’s over my head?
It’s kind of a question of semantics. To me, the word “bubble” implies not so much a bursting as a decline in prices/values at about the same rate that values have risen. Others may see a bubble in some other way, but that’s how I conceptualize it.
Here in Cali, in many areas values have risen (in nominal terms, not adjusted for inflation) over 100 percent over the last 5-6 years. To decline back to 1999 levels at roughly the same rate as the prior rise means that values will have to decline from their present levels about 10 percent per year for the next 5-6 years, on average.
This doesn’t strike me as an implausible scenario.
“To decline back to 1999 ”
If we look back at the prior RE collapse ,as they called it back then, California peak in 1988 and then bottomed in 1991. The swift decline in 36 months returned valued back to 1985/86 prices.
What have they done with the real David Liarrhea?!
Technology these days is amazing.
David Liarrhea v1.0: Housing is incredibly strong. It’s always a great time to buy.
David Liarrhea v1.1: We expect a slight moderation in the incredible acceleration of the wonderful housing market, down to the low double-digits of annual appreciation.
David Liarrhea v1.2: Appreciation will slow. I predict a soft landing ahead. Price appreciation “only” around 6%.
[Engineers go back to work, fixing bugs... fixing bugs... man that AI code, what, it's written in Fortran? Cripes, rip it out and rewrite...]
David Liarrhea v2.0: It’s like I’ve been saying all along, since the beginning. We’re in cleansing mode and it’s gonna hurt. Don’t you people listen to me?
David Liarrhea v3.0 beta preview: Good Lord people! Can’t you see there’s a huge correction happening right before your eyes?! Sell your houses and run for the hills!
Don’t forget a few months ago when David said he was looking for property in Las Vegas, a great place to invest. LMAO
We’re in a cleansing mode right now
“cleansing mode”: similar to ‘ethnic cleansing’ but refers to speculators and realtors rather than an ethnic group.
If you have a healthy local economy, it’s almost impossible to have a bubble burst
“healthy local economy”: i.e. not based on unsustainable speculative mania.
See Lereah’s new book, “Why the Real Estate Boom Will Not Really Bust - Even if House Prices Plummet like a Free-fall Skydiver.”
healthy economy = good housing has become the new circular argument.
I would add that “cleansing mode” could last for a few years and would likely take care of over-mortgaged folks and the trillions in equity built up by the bubble. Not to mention that this cleanse will likely infect the entire US. No big deal really. The coming or already-arrived cleanse is nothing that our robust recession-proof over consumption-based local economies can’t handle. What would you say speculators and over-mortgages dunces conservatively represent ~ 50% of the housing demand in bubbly areas at a minimum over the past few years. Cleanse that out and what do you have left?
“Cleansing mode” sounds like a something a good strong laxative would do for you.
Laxatives aren’t effective if the point of exit has been obstructed by the new bankruptcy laws.
“‘If you have a healthy local economy, it’s almost impossible to have a
bubble burst,’ he said.”
Priceless ! Amazing quote. I love the paradoxical nature of this line. If it doesn’t burst, how can it be a bubble ? If it’s a bubble, then why is it impossible to burst ?
New headline from NAR
This bubble won’t burst
“‘If you have a healthy local economy, it’s almost impossible to have a bubble burst,’
Sure, I agree. The part David Liarealtor® doesn’t mention is that this is true because the local economy and home prices have become one and the same. Most new jobs where I live are in the RE industry. If the economy goes down, so will home prices. If home prices go down, so will go the economy. It becomes the old chicken or the egg debate. Of course the RE industry will quick to point to the economy as the problem. In reality, RE is the economy.
slowing in price gains to around 6 percent
In other words, we’re going to see a sudden reversal of the price drops we’ve seen so far this year and then a dramatic upswing to get to +6% in spite of record inventory levels and accelerating inventory increases?
“cleansing mode”
Ben, I think you found your “bubble popping” code words.
Now David is in on the blame game. He stubbornly refuses to believe or accept that this is the greatest bubble in history and that he is a part of the problem.
“While Lereah compared the tulip boom’s excesses to the stock market bubble of 2000, he doesn’t foresee a Nasdaq-like crash for tulip prices. Rather, he calls tulips ‘the new gold standard’ for safety-minded investors and predicts a period of sluggish activity followed by a return to a stronger tulip market next year.”
Oh yes, they are still trading tulip bulbs in the Netherlands.
And last year many ‘investors’ in a Dutch tulip fund (a fund trading real tulips!) lost most of their money. Guess people never learn ;-(
Out, damned italics!
“While Lereah is bullish on the long-term future of Florida’s housing market, he warned that hurricanes and soaring insurance premiums pose threats. ‘If we have another bad hurricane season,’ he said, ‘all bets are off.’”
Nice of him to blame it on something totally out of his control.leaving him totally blameless.
What a dirtbag.
Not to mention that the predictions for the next 10 or so years are that the hurricane seasons will be pretty active. Expectations are that 2006 will be more active that normal, but probably not as bad as 2005.
I was thinking the same thing. Looks like a subtle hint that things aren’t doing so well in the “land of milk and honey” these days and a way to shift blame from his and those of his ilk. West Palm’s economy is cooked once the implosion is in full-effect. There are like 10,000 realtors in Palm Beach County. You add in construction and lending and you got a ton of people asking “You want fries with that?”
Five point penalty for leaving italics open
italics off
Close Damn it!
There we go.
Lereah dismissed widespread concerns about the lack of affordable homes in Palm Beach County and the Treasure Coast. Lereah said, that number isn’t so steep compared to other parts of the country such as New York and northern New Jersey.”
Hey Lereah, wake-up and smell the payrolls. NY and vicinity is where the high-paying JOBS are. Palm Beach county and environs is much more of a bifurcated economy (you are either rich or poor). The two areas, and your argument, do not equate.
That’s like saying company A is a better buy because price is $5/share than company B whos price is $50/share.
You can’t compare the two companies’ share prices, you have to compare market cap.
“…predicts a period of sluggish activity followed by a return to a stronger housing market next year.”
Except for the word “housing”, these are the same words
that came from Abby Joseph Cohen immediately after
the 2000 stock market crash. She was predicting
a “V shaped” recovery.
BTW, what ever happened to Abby? Don’t hear much from
her anymore.. I wonder if she and David Lereah know
each other?
I only hear about her (AJ Cohen) at the bi-annual Barron’s Roundtable. Same old song.
issues.
Abbey Cohen - I kid you not! She worked behind the scene in the Google IPO. Her fee $20/share of Goog … she sold her stake $200-300/sh
“There is no such thing as a real-estate bubble!”
Yes please back up your statment: oh yeah it will only crash if there are job losses right, Nope this bubble was not caused by major employment, most jobs are in the service industry i.e restraunt, retail not much money there, and ahhh yes the wage growth: Where? wages are stagnant if not actually declining, oh yeah the baby boomers, no more land, immigrants, everyone wants to live here, must I go on.
here is your reason for the foolish outrageous housing boom and yes it is, will go bang and trust me there are many fundamentals out there that can do just that, you just gotta look further than your own back yard, which most of you real estate cheerleaders don’t seem to be able to do. Click the link and you et your answer.
http://www.financialsense.com/editorials/englund/2006/0422.html
The wizard has stepped out from behind the curtain.
“‘If you have a healthy local economy, it’s almost impossible to have a
bubble burst,’ he said.”
I guess my local economy is unheathy as our wages doesn’t increase 20% a year to support the RE vampires sucking our economy dry.
can we agree to stop using the damn italics tags ?
This should turn off italics.
Dang. Trying again.
I’m convinced that economists use Mad Libs to publish their economic forcasts. This article reads almost word-for-word of what the stock pimps were saying during the initial stages of the stock meltdown of 2000. Remember this crap?
I guess they are not stupid. We Amurikunz keep lapping it up.
Real estate as the new gold standard — Does he mean that real estate is the new “barbaric relic”?
“‘If we have another bad hurricane season,’ he said, ‘all bets are off.’”
Yep you can say that again…a fact I have been bringing up as I look for another 1 year lease on a condo here in Miami. Tourist season is over, Hurricane season is coming, and this one is predicted to be the worst one yet. Since the last 2 really sucked, this one should be a blast…a real BLOW OUT!!!
I will blog updates from under the piles of debris and rubble.
I hope you have a generator. I was without power for 7 days without Wilma.
Oops, should be after WIlma.
Where is edit post?
Gee wiz. Everyone here is mentioned low or no wage growth. Could it really be that Bush and the republican congress is lying about how wonderful the economy is?
NO WAAAAAAAAAAAAAAAAAAY! Fox news sez so. Therefore, it must be true.
Great for Walmart and Target and Halliburton(importers), sucks for the
Average American
Comment by Doug_home
2006-04-27 13:58:56
Great for Walmart and Target and Halliburton(importers), sucks for the
Average American
_________________________________________________________
Exactly. But what we hear is “the economy is doing wonderful” when the facts prove it to be otherwise.
Brickell Bay condo buyers file class-action lawsuit
Buyers at the canceled Miami condominium 1390 Brickell Bay don’t just want their deposits back plus interest — they have filed a class-action lawsuit seeking much more.
http://www.miami.com/mld/miamiherald/business/14438067.htm
Poor Poor babies, did the fine print say you were entitled to huge profits ?
Wow. 25 YO, Starting his first bankrupcy. Way to go!…
Well he can always head south to avoid the bill collectors.
‘If we have another bad hurricane season,’ he said, ‘all bets are off.’”
——————————————————————————-
I get a kick out of Davies attempt to absolve himself from his earlier predictions once the next hurricane hits in Florida.
Magic’ Johnson Wants To Build $171 Million Condo In Little Havana
http://www.local10.com/news/9036845/detail.html
Next see him disappear when reality sets in !
ben (and anyone else tracking ny) , NYSAR stats out –yoy, median price declines:
http://www.nysar.com/files/stats.html
no it says median prices unchanged in a year
“While Lereah compared the housing boom’s excesses to the stock market bubble of 2000, he doesn’t foresee a Nasdaq-like crash for home prices. Rather, he calls real estate ‘the new gold standard’ for safety-minded investors and predicts a period of sluggish activity followed by a return to a stronger housing market next year.”
Is this the same David Lereah who wrote this book?
‘The Rules for Growing Rich : Making Money in the New Information Economy’
I wonder why he is not telling us how the .com bust was just a period of sluggish activity to be followed by a return to strength in the technology sector? Or if he will just stop predicting things after the sluggish period in real estate has gone on for more than three years without a return to normalcy?
Earlier today I was listening to a half-hour radio ‘program’ (advertisement) put on by a local mortgage company; the ‘program’ was called The Mainstream Financial Show, and it seems to be on every Thursday morning at 11:30 am here on the California Central Coast (Santa Barbera up to San Luis Obispo).
Anyways, the show consited of someone from the mortgage company hosting, and two real estate agents as guests. While listening to the program, I got a lot of very helpful real estate tips:
1. Buyers shouldn’t focus on the price of the home, or the interest rate; they should *only* focus on the monthly cost. This little helpful gem came from the ‘host’ of the program.
2. Waiting for prices to go down isn’t the best move right now because interest rates are likely to go up. The ‘host’ stated that, if prices go down, but rates go up, you are in exactly the same boat; buying at low price but with a higer interest rate saves you nothing over buying at a high price over a lower rate (according to her).
3. Real estate ‘investing’ should be for the long run, so now is *still* a good time to buy. The host bought a house about 10-15 years ago, thinking she was only going to be in it for three years, and look at her now, she is *still* in her house. Whooda thunk? The moral seemed to be that even if you were thinking you’ld only be in a house for a few years (because of job changes, etc.), things happen, and you may be in that house much longer than you planned, so don’t worry about short term (3-10 year?) dips in the RE market. She also siggested that if you *have* to move, you could rent out your old house, while pulling equity out to buy your new house.
OK, class, do you see any possible problems with any of these three pointers?
They are practicing in outright lies. Some of these guys need to go to jail because it is blatantly false advice.
Sure, the monthly payment will be about the same. But your property tax bill be a lot less if the sale price is a lot less.
The interest deduction from income taxes will be higher…not really a reason to buy, though.
At a given monthly payment, a high interest rate means a lower principal. This is clearly better in two ways:
1) Extra payments will pay off the loan much faster, saving money in the long run.
2) As a bonus to (1), if interest rates decline signifigantly in the future, you can potentially refinance to a shorter-term mortgage for the around the same monthly payment, thus accelerating the process of actually OWNING your home.
The above doesn’t even count the benefit to savers that higher interest rates will bring. Let rates go through the roof!
That’s the rightwing whackaloon station out of Santa Maria isn’t it? KVEC am?
I remember hearing Rush Limbaugh on that station making the argument that gas was cheap compared to printer ink, so $3 gas is no big deal. I’m sure it was tongue in cheek, like a lot of his ravings, but I don’t think most of his listeners caught it.
One of these days I will have to check out that left wing whackaloon radio station. I wonder if they subsist on laxative ads as well…would prove that liberals aren’t eating their veggies.
new gold standard as in an actual new gold standard?
Leahry makes it sound oh-so-complicated-hurricanes-jobs-blah-blah-blah.
Hey Davey, how about this math?
super high inventory + no buyers = end of housing boom
period.
Well, we all know how this will end…David L. will cash in all those 7 figure checks ,hop in his private plane ,and relax on the beach…
He’ll make the statement ” I guess I was wrong, RE does go down…Oh well ” He ,and the top 10% of the RE complex will retire for “personal reasons ” ,and leave someone else to clean up the mess….Happens every time.
Where is the IDIOT Gary Watts and his 15% increase and “It’s in the bag” comment. In some of those areas where the realtors will soon be asking “do want fries with that”, there may not be enough activity at the McDonalds.
However, buying stock in the company producing Alpo and Doggie Chow might be a sure bet. Those realtors will be scraping by to get that for themselves. Fido will have to fend for himself.
He was on the OC Register blog. Check the April archives.
A few of the regulars here put in their 2 cents.
‘the new gold standard’ for safety-minded investors
OH God another Jim Crammer type in mid-2000.
“While Lereah is bullish on the long-term future of Florida’s housing market, he warned that hurricanes and soaring insurance premiums pose threats. ‘If we have another bad hurricane season,’ he said, ‘all bets are off.’”
Is this guy even kidding… LOL! Chances of a bad hurricane season in the Gulf / Atlantic is 1000x higher then a bad earthquake in California. YEA! all bet are off. Give me a break.
From some of the stuff I have been reading on the increasing strength of hurricanes and cyclones- their vigor is likely do to climate change. And climate change related weather patterns are likely to increase in coming years-not far off but now. Large parts of Florida within 20 years could be flooded and underwater– for that reason I would be very leary of buying any kind of RE i most of the state.
I forgot to ask that pig-
- that flew by my window-
…if he was planning on talking to Gary Watts, too.
This dude can say apparently *anything* to get the last few idiots sucked into his pet bubble, with no fear of retribution. Gold standard? Safety-minded investors?? Our regulatory system is broken.
IMO gold will be rediscovered after this crash as the only ’safe’ investment , and as such at this junction it is RE’s mortal enemy… c’mon Mr Learah, don’t validate your enemy by acknowledging its existence!!
There is no substitute for the mighty Au, wealth in its purest form… a crackerbox built 5000 years ago an hour chariot’s commute from an ancient and long since gone city has long crumbled into the earth and the deed to the land is worthless, but gold mined then has kept its value perfectly!
Wish I could converse in real time, but am in Asia. This session was pretty funny (much more so than BB’s testimony yesterday). As much grief as Greenspan gets on this blog, he was a pleasure to listen to. Helicopter Ben is simpy droll. Certainly doesn;t reflect well on Princeton.
One thing that’s absolutlely so funny to me…
…is how…
…when you go back through Ben Jones’ archives…
…how absolutley DEAD ON we’ve been.
Normally, we’d be writing biography’s about now.
Talking about how smart we are.
Screw that.
I can’t wait to have a baby.
I’m excited by the idea of baby talk and eyesight and pink or blue pajamas.
All the rest of you flippers that lurk here can go screw yourselves.
The Fed’s gonna keep raising the rate, and if you didn’t drop your price…I’ll be buying your 1 of 20 homes for $1.99.
And I won’t give a rats ass…
…’cause it will let me have a BABY.
p.s.
BITE ME…
…and…
…LEARN HOW TO INVEST IN STOCKS…
…WHERE ‘SPECULATION’ IS WELCOME.