Letters to the Editor
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He's like the anti-Cassandra
Given Lereah's track record thus far we might conclude that the bottom has, in fact, been reached. I would love the irony of that, should it prove true.
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I publish a real estate magazine.
In October 2005, we were well on our way toward the bottom falling out of the market. We started seeing a slow down in late 2004/early 2005. David Lereah gets paid to lie.
Everyone has a different idea of what a recovery is. Here's mine: After we work through all the foreclosures (with thousands more coming on every month); all the short sales; and most of the builder inventory, AND when a homeowner can put her house on the market and NOT have to bring money to the table, then we'll be in a recovery. I think we are 18-24 months away from my idea of being in recovery.
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Snapshot of the housing recovery
Today, the Detroit News published Realcomp's figures for housing sales in Wayne County, Michigan. Wayne County is where Detroit is.
Total sales are up 25% compared with a year ago!
Pending sales are up 38% compared with a year ago!
Median price has dropped 73% compared with a year ago!!!
The median price for a home in Wayne County was only $28,000 last month!!!
Yikes!
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Let him rot in obscurity
For Lereah it's not about being right or wrong. It's only about expounding the position that will bring in the most income for him and his clients.
He is a shameless bridge salesman and nothing he says should ever be reported again.
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Housing as metaphor for the class struggle
By most accounts the Commercial Real Estate Market has farther to fall than Residential property. However by all current (pollyannish) reports, places like Manhattan are still booming. The downside of a Starbucks on every street corner is an empty store front on every street corner.
To grasp what is happening we should break the real estate market down into its various categories, and components which drive valuations. (Downtown property in Manhattan may be desirable, but....)
Land should not lose value (real assets) while stocks and bonds go up (paper assets). The property component should sustain the housing market somewhat. And while the Fed has lowered short term rates mortgage rates have actually risen, (the inflation component), and conversely raising short term rates should ease the burden on mortgage holders. By nudging inflation a bit with higher rates, labor and material costs should also come down. This would allow the value of homes to increase, and get borrowers who are underwater off the snide.
Of course credit will get tight, especially refi's and line of credit loans, however, home equity does not count as savings, and that doesn't disturb the economists too much.
Inflation should make the property more valuable, while labor and material costs come down, and available credit gets tighter, although rates may actually decline, as lenders give points and incentives.
The housing market is like the stock market, or any other market, where supply and demand are the basis of operation. Although the US population is slowing, especially since fewer Mexicans are allowed in, and are not finding jobs, we could have a negative population number, which would bring out the real Chicken Littles. The ongoing migration to cities will allow a shrinking group of home buyers to pile into high rise condos, like sardines. Property will become the bragging right of the wealthy, so values won't fall out of bed.
Let's also imagine those people who live South of the border, whose housing standards need an upgrade. The US housing industry will fill that need, and many newly impoverished Americans will find the digs attractive and affordable, as Americans have already discovered in Costa Rica, and other Central American destinations.
People aren't going to stop living in houses anymore than they will stop eating. America will end up being for the rich primarily, and the poor will go South, or occupy the ghost towns of the last boom.
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Chicken Little...ummm
Just to be picky: in most versions of the story, Chicken Little was wrong. An acorn fell on his/her head, and the chicken had a deluded panic attack.
No doubt some modern versions say Chicken Little was right -- these days it's compulsory to portray all doomsayers as plucky misunderstood Cassandras. But classically, the moral was, "Don't over-react, you idiot." David Lereah was clearly wrong about the housing situation, but not about the fable.