No Housing Bottom: Hell Hath Frozen Over. David Lereah Proclaims Housing not Hitting Bottom.

There are moments in history that change the world profoundly. The fall of the Berlin Wall. The industrial revolution and the impact it made on our society. And finally, David Lereah, the former National Association of Realtors chief economist telling us that that things will get worse before they get better? That is correct. One of the most adamant cheerleaders for the housing orgy is now sounding like a housing bear blogger. You know the author of this following book:lereah.jpg

The book was published in February of 2006, just at the peak of the housing bubble mania. Just to give you an insight to some of the bubble rhetoric in case you forgot how it was to live in a society where everyone was drinking housing Kool-Aid:

“We are really on track for a soft landing. There are no balloons popping.” – David Lereah, NAR’s chief economist, December 2005

“If you paid your mortgage off, it means you probably did not manage your funds efficiently over the years,” said David Lereah, chief economist of the National Association of Realtors and author of “Are You Missing the Real Estate Boom?” “It’s as if you had 500,000 dollar bills stuffed in your mattress.”

He called it “very unsophisticated.” (Los Angeles Times Aug 28th, 2005)

You must understand that Daivd Lereah was one of the most adamant supporters of the housing boom. In fact, this idea that money was “stuffed in your mattress” is precisely the reason we have a negative savings rate and there is no buffer to support the continuing collapse in housing prices. But the tune is now changing as highlighted in this big story in Newsweek titled:

“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.”

We now have this mea culpa world tour that also includes the maestro himself, Alan “use those adjustable rate mortgages” Greenspan. There is a concern for legacy and how history will treat them but thankfully to the flow of information, it is pretty easy to pinpoint the causes and the main cheerleaders for this “irrational exuberance” to quote Greenspan himself. Let us now see what Mr. Lereah is saying given the fact that we are now seeing a housing crash:

“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.”

Oh! Talk about a massive reversal in psychology here. But let us go on further and see that Mr. Lereah has learned a lesson in being careful about making hard line predictions:

“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.”

The plethora of quotes during the bubble prove this person wrong multiple times and he’ll be proven wrong once again since he is estimating another 5 percent decline from the current numbers. What in the world is going to keep housing from going down 25 to 30 percent? Also, why 20 percent? Another wanton guess on the mea culpa express. This of course is a radical departure from the idea that the bubble (by definition irrational events) was grounded in logical reasons:

“That’s quite a turnabout from the view he articulated in his book, first published in 2005. There he argued that the solid economy, strong demographics (including immigration and aging boomers), and a lean supply of homes should lead prices to continue rising for years to come. “Today’s real estate market is the result of rational decision making based on supply and demand conditions,” he wrote. “With today’s economy, home owners are in no danger of experiencing a widespread fallout of home prices.”

So who do they blame? You got it. Those pesky subprime loans that somehow have wiped out $2.84 trillion in housing equity:

“[I] just didn’t realize the scope, the extent, the magnitude of the loose underwriting-not looking at incomes and wages, just providing so many mortgage loans based on [expected] future price appreciation rather than the creditworthiness of the borrower,” Lereah says. “That got so out of hand, and none of us realized the magnitude of it until it was too late.”

Bwahaha! No Mr. Lereah. YOU didn’t realize it. There were plenty of folks that just in line with the publication of the housing boom book were echoing the siren call of the housing bubble popping. I’ve noticed this new public relations move and want to stifle it once and for all. Alan Greenspan has used similar PR moves trying to give the appearance that no one saw this train coming and now, we need to adjust and please let us forget that our bubble cheerleading from a very loud podium was a main cause of this boom. Let us not forget that no large industry group has been punished. Do they own any responsibility? Listen, homeowners that took out these loans will end up in foreclosure if they thought they were going to flip a home for a quick profit and took out a destructive mortgage product. That has and will continue to go on. Yet what about restitution by the Wall Street firms and lenders that knew very well that they were going to make out like bandits while homeowners would in no way be able to payback the actual mortgage note. The profit made by these firms was based on negligent lending practices and in many cases, flat out illegal practices.

I’m sure some of you may think I’m coming down a bit hard here. But the one thing I am not hearing about is what is the punishment here? Are any groups responsible? The argument that “well buyers should of known better” is simply a distraction. Guess what? There is a clear consequence for taking out a mortgage you couldn’t pay. Its called foreclosure. The consequence for making horrible loans? Its called a bailout from the Federal Reserve. Think about this for a second. Let us say you maxed out your credit cards, took a ridiculous mortgage on a McMansion, signed on for a lease on a luxury car, and simply cannot make the payments. Can you go to your bank and drop off your lease, mortgage, and credit card liabilities in exchange for money? Of course not! Yet this is the access Wall Street firms have under the political guise of “well, they’re too big to fail.”

Back to Mr. Lereah, at least we can give him credit in that he actually followed his own advice and put some of his own money into the housing game. Many of these perma-bulls have a simple way to prove their commitment; go out and buy a home right now in Southern California. Put your money where your mouth is:

“Every time you have something like this you overreact the other way,” Lereah says. He sees Frank’s efforts to boost the FHA’s role as a solid countermeasure that may help the market. While he was an economist at NAR, Lereah was also a real estate investor himself, at one point owning 10 condominiums from Virginia to Florida, which he rented out. Today he still owns seven of them, and aside from one that’s languishing unrented, the other six are still making money, he says. So even if his forecasting record is mixed, his in-the-trenches investment record appears more solid.

Florida has the worst condominium market in the entire country. Now he is championing the FHA bailout plan which is another form of privatizing gains and socializing losses. If we are now getting David Lereah saying that things will get worse we know that things are nowhere remotely close to a bottom. The quote that comes to mind about letting single owners go down in flames while bailing out Wall Street is from J. Paul Getty:

“If you owe the bank $100 that’s your problem. If you owe the bank $100 million, that’s the bank’s problem.”

Did You Enjoy The Post? Subscribe to Dr. Housing Bubble’s Blog to get updated housing commentary, analysis, and information

15 Responses to “No Housing Bottom: Hell Hath Frozen Over. David Lereah Proclaims Housing not Hitting Bottom.”

  • eric in vegas

    Just wait and see what the alt-a and option arm mess is going to do to the bulls. Lereah is right that people want to convince themselves that we’re at bottom because the losses are going to be too painful to take. We won’t e at bottom until we get back to normal mortgage/income ratios. End of story.

  • That’s why they are called talking heads, everything they say comes out as BLAH, BLAH, BLAH! You cant believe a word of these people, one day everything is great & the next day the sky is falling.

  • NAR = biased morons, everyone should realize this by now.

    Yes some folks made some money, and I know a few, but realize that a mortgage is not “sold” at face value on the street, but in fact discounted heavily. In other words, the risk (inflation, probability of default, etc) is factored-in to determine its price. Ie. Hypothetically a bank brokers a $400K mortgage for $235K. ($235K cash is fair trade for $400K over 15 yrs)

    I am no expert, but this is the determination I made when My motgage broker buddy would call me and say “I just made $40,000 in one day!” And this was off one loan. The banks & mortgage bundlers could lop-off $40K for him, $100K for them, and still sell the mortgage (for less than what was loaned). Everybody got a piece.

    As far as being over leveraged, that is a choice both the lender and borrower make. The house is the collateral: Don’t make the payment, the bank gets the house. It is not cold-hearted either, the “home” was never yours, the bank owned it all along. All is not lost, in fact if you specialize in liquidating bank-owned properties, I ‘d assume your are very busy today!!!

  • With all due respect, the man is a genius.

    Why? He KNEW that we where in a bubble and was able to earn a fortune on it, and now he’s going to make an even larger fortune on the popping of the bubble.

  • I believe this housing bubble will turn around soon it is just an economic bubble that occurs in local or global real estate markets. It is characterized by rapid increases in the valuations of real property until unsustainable levels are reached relative to incomes, price-to-rent ratios, and other economic indicators of affordability. This, in turn, is followed by decreases in home prices that can result in many owners holding negative equity—a mortgage debt higher than the value of the property. The housing bubble in the U.S. was caused by historically-low interest rates, lax lending standards, and a speculative fever. This bubble is related to the stock market or dot-com bubble of the 1990s. I think we have seen the worst and the economy is resilient and will soon make its rebound.

  • David Lereah’s offical title was Chief Economist for NAR. The Newsweek article’s description of him as Chief Spokesperson belies the contradiction between that of a sober scientist and that of a spin doctor. Which was he? Homebuyers gave his word the respect of a credited scholar. They are paying the price for listening to him. Most professional economists are disgusted with his behavior and lack of professional standard. The damage that he and NAR did to American families and the economy is incalculable. HIs contrition is too little too late.

  • re: “this is the access Wall Street firms have under the political guise of “well, they’re too big to fail.”

    we need someone to remind us that, as a group, the american people are the biggest too big to fail

    there’s no game without all of us

    i think we’ve just forgotten how to keep score 🙂

  • “The American people are the biggest too big to fail.” Well, we’ll wait and see. The dollar is losing its position as the sole international reserve currency. We have been running trade deficits for decades. When I was born, the US was the world’s greatest creditor nation, now it is the world’s greatest debtor nation. Sure, they want us to pay back all that money they lent us and they don’t want us to fail, but the creditor can survive the bankruptcy of the debtor better than the other way around. America has simply consumed its way into insolvency and ultimately nobody is too big to fail.

  • I actually doubt the average American homebuyer was influenced directly by Lereah. In fact, I would bet that a vast majority the average American homebuyers in the bubble years never even heard of him. With that said, I definitely feel he was a huge part of the hoopla. His main influence was on RE agents, brokers and others that made a living from real estate. He was like a cult leader – spouting rhetoric with no real basis of truth behind it. Yet he as able to gather a following the likes we have barely seen before – all of his little RE minions preaching his gospel. I don’t think anyone can argue ineffectiveness on his part.

    It became like group think. I know plenty of people that bought during the bubble and frankly they all one thing in common – no research. The main argument – Jon Doe just made $100k (or insert any other absurd amount) selling his house and his house sucked (again pretty much any negative description/adjective will do). That was the extent of their knowledge – all rants of the Lereah-bots. I’m not sure why people make one of, if not the, biggest financial decisions of their lives basing all of their info on hearsay and the “kindness” of strangers – strangers whose sole purpose is to make money off the transaction. Those nicely dressed automatons will help us.

    The thing is, like many cults, his minions actually believed his cr@p, too. I must admit it makes me giggle just a bit when I see a short sale or REO with the owner (or previous owner before the bank) listed as a RE agent. Payback is a b!tch.

  • SteveInChicago

    OK, since this guy is always wrong, does this mean I have to go long homebuilders?

  • This article is another example of the occasional populist demagoguery sprinkled within your otherwise good articles. What culpability are you even talking about?

    Anyone who committed fraud should make restitution and be criminally prosecuted. But that is a minority of cases and if it is not, lets see some actual evidence.

    Any incompetently stupid boob who bought more house than they can afford or used a toxic mortgage loan of their own choice deserves no compensation. Moreover, several million of these people did not even suffer a financial loss which would warrant any compensation even if they were cheated. How can someone who makes a zero downpayment and obtains a Bizarro world negative amortization mortgage where their mortgage payment is less than the free market rent of thier home qualify for anything?

  • This site may be useful to some of you guys and gals.
    It has some practical information on how to avoid foreclosure.

    Good Luck

  • You want to see cheated?
    Some one close to me just “inherited” their father’s house.
    Only problem granddad was talked into a reversed mortgage
    on his completely paid off house. Of course the deal went down
    around 2005 when his house was appraised at around 500 000.
    Unfortunately he died late 2007 and the heirs only have one
    year to sell the house. They sold gladly at around 340 000.
    Barely enough to pay back the bank and clear around 40 000.

  • Well I sincerely hope we have seen the worst and that we’re soon to make a rebound. Unfortunately, in California reality gets in the way. Just reference the following links:
    and one last one that sums it all up.

Leave a Reply

Name (*)

E-mail (*)



© 2016 Dr. Housing Bubble