Admissions of Spin at the NAR 20 comments
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Whoa, guess what: Former National Association of Realtors chief economist David Lereah didn't entirely believe what he was saying about the wonders of the pre-bust U.S. real estate industry. It was, as he says, his job to put a positive spin on things.
Q. Were you wrong to be so bullish?
A. I worked for an association promoting housing, and it was my job to represent their interests. If you look at my actual forecasts, the numbers were right in line with most forecasts. The difference was that I put a positive spin on it. It was easy to do during boom times, harder when times weren't good. I never thought the whole national real estate market would burst.
Q. The NAR's latest forecast calls for a slight increase in home prices next year. Thoughts?
A. My views are quite different now. I'm pretty bearish and have been for the past year and a half. Home prices will continue to drop. I think we'll see a very modest recovery in sales activity in 2009. But we've still got excess inventories, a bad economy and a credit crunch that will push prices down further, another 5% to 10% more. It'll take a long time to get back to the peak prices we saw in many markets.
Q. Any regrets?
A. I would not have done anything different. But I was a public spokesman writing about housing having a good future. I was wrong. I have to take responsibility for that.
More here.
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This article has 20 comments:
Exactly what they are saying at the permabull brokerages...
Not likely to happen to you? Do you own a Tobacco stock? A long time ago I worked at an advertising agency. The creative director was outstanding. But he had one particular requirement which he stated up front to management. He would not work on a tobacco account. I always admired that man's moral fortitude.
At some point its likely we will have to make decisions where our moral values conflict with job requirements or investment decisions. What would you do in those circumstances?
I think one of the answers to solving the S&P and Moody's problem is to design truly independent rating agencies and to devise standardised rating processes. One for average, one for speculative, one for conservative. Consistently check the validity of those ratings over time.
That would remove the analysts from being put into a moral dilemma where their jobs were dependent on lying about the data.
Something has to be done about these rating agencies… How would you approach the problem?
By the way, his forecasts were not right. He wrote a book called: "Why the Real Estate Boom Will Not Bust - And How You Can Profit from It: How to Build Wealth in Today's Expanding Real Estate Market" published in February 2006. Oops! I guess that forecast didn't quite come in as planned. By the way, his book is still selling for $11.65 on Amazon if you want to get a good laugh.
Have a retrospective group or groups that would rate the raters--and penalize raters who were shown by the results to have been over-optimistic. (Akin to guarding the guardians.)
Everyone was appalled at Madoff's scam which caused up to $50 billion in losses. Most of those losses were to institutions and wealthy individuals. The real estate bubble was several orders of magnitude larger at $10 trillion (with a T)+, and David Lereah was one of the head cheerleaders. Its impact have been felt by pretty much everyone on this planet. I just wish for once... shills like this would be held accountable for their actions.
concisetrading.blogspo... this is what has really happened, it's not a housing problem, that was just the first land mine that triggered the other buried mines.
Ryan
1. Someone with something to sell is going to tell you that you should buy it,
2. No one is forcing you to listen to him, or to do what he recommends.
If he is working for you as your financial adviser and deliberately gives advice he knows to be bad, you have a case. But unless you are the NAR, Mr. Lereah wasn't working for you. If you acted on his "forecasts", you deserve whatever you got out of it (which was probably a kick in the pants).
Lesson #1: Some people in the world don't have your best interests in mind. Some of them may lie to you. Be wary.
Lesson #2: Don't rely on advice from people being paid by your counterparties.
Didn't your mothers teach you *anything*?
Wow, I bet the dues paying Realtors that depend on that advice will be a bit surprised to hear this!
2) The press parroted his statements for years without questioning them.
3) People ate up this crap without thinking.
4) There is plenty of blame to go around, and Lereah was one of many poster children for it.Too bad he can't be he can't be held legally responsible along with the Fed, Congress, banks, etc.....
BTW Mr. Flair, please keep your racist anti-semitic remarks out of this discussion. I find them offensive and disgusting.
@Bearfund,
>it was substantially obvious to any thinking person at the time
>that housing was overpriced...
How so?
So by your logic, I take it that to any "thinking person" now that housing prices are undervalued?
GNE
I remember wondering to myself when the media would stop going to the NAR for forecasts when every single one of them was proven too optimistic.
The question is, if the realtors themselves won't hold him accountable, who will? Certainly not the mainstream press. And unfortunately, Seeking Alpha is not considered "mainstream".
Re: the rating agencies; please take a look at Sean J. Egan's testimony in front of Congess on 10/22/08. About 10 pages in total but, you will get the "drift" of his commentary on page one.
I first saw this on c-span, and as I have recently commented on another post, this guy seemed to be the only individual in the entire proceeding that truly made any sense.
David Lereah should no longer be allowed to call himself a trained economist. he gave up that right and credibility with nothing but a old fashioned payoff bribe in the form of a NAR padded paycheck paid party from my personal dues. Mr. Lereah should be embarrassed at his lack of morals and pandering in his attempts to recapture his credibility and moral ground. David, thats dead and buried my man, try selling it to your out of work Realtor friends.
On Jan 05 11:10 PM perki wrote:
> I would by the "spokesman" line but for the fact his title was not
> "spokesman", it was "Chief Economist" in the "Research" department
> of NAR. Supposedly, his job was to give accurate information based
> on economic research to the dues paying members (Realtors) of the
> organization, many of who mislead their clients based on his "research"
>
>
Have to ask yourself if it all did not conflict with that code of ethics.And did not the NAR itself in its actions of paying a shrill to spin the forecasts thereby negate and nullify their very own code of ethics which the NAR membership and Realtor name is totally based upon. That answer is yes they absolutely did and with knowledge and in bad faith. There might be some aggressive legal attorney missing a class action suit here either representing past members or many clients who were handed that written code of ethics sold by the Realtor association.
On Jan 05 11:08 PM bearfund wrote:
> While I don't find shills like Mr. Lereah very sympathetic, I also
> don't understand why some of the other posters are demonising him.
> Did he lie? Probably. Did he embellish? Certainly. But it was
> substantially obvious to any thinking person at the time that housing
> was overpriced, and that in some markets it was excessively overpriced.
> It was (and is) also substantially obvious to any thinking person
> that:
>
> 1. Someone with something to sell is going to tell you that you should
> buy it,
>
> 2. No one is forcing you to listen to him, or to do what he recommends.
>
>
> If he is working for you as your financial adviser and deliberately
> gives advice he knows to be bad, you have a case. But unless you
> are the NAR, Mr. Lereah wasn't working for you. If you acted on
> his "forecasts", you deserve whatever you got out of it (which was
> probably a kick in the pants).
>
> Lesson #1: Some people in the world don't have your best interests
> in mind. Some of them may lie to you. Be wary.
>
> Lesson #2: Don't rely on advice from people being paid by your counterparties.
>
>
> Didn't your mothers teach you *anything*?
First, compare cost of renting vs. cost of buying. Same rule your parents and grandparents used when deciding when the time was right to move out of their apartment and buy their first house. If it costs substantially more after all tax and principal payment considerations - no, you don't get to count appreciation as an offset - to "own", keep renting (or sell and rent). There are certain rare exceptions that tend to be highly local, but you're unlikely to go far wrong this way. This is especially true if you have a long-term lease or rent control, in which case buying property that costs more than leasing is almost never correct.
Alternately, look at housing prices in gold (this way you can look at prices as far back as you want - and you should want to look very far back indeed). HUGE spike in 2000-2001 that coincided with the high point in most asset prices, as measured in real terms, as well as the beginning of what was then thought to be the tech bust but will later be remembered as the true beginning of the Greater Depression. Oh, and house prices, as measured this way, stayed extremely high through 2006 and remain much elevated to this day. By my estimate, housing in the San Francisco Bay Area, to continue with but one example, remains about 25-60% overpriced (depending on whether we're talking about high-utility property in the City or near-worthless tracts in outlying exurbs - see below).
Finally, you can look at housing costs vs. income and housing costs vs. net household assets. Both practically off the charts from 1999-2007 and still far above the historical range today. With unemployment rising faster and real wages for those remaining employed falling faster than house prices are falling, and the cost of living ex-housing continuing to rise as well in dollar terms, housing is actually getting more expensive when measured this way.
Also, if you want to make a reasonable comparison, look closely at the data: a lot of surveys use "metropolitan areas" or census district groups. These are often extremely large regions; in some cases they encompass both dwellings from which many people could walk to work and dwellings from which their owners would face a 3-hour commute each way with no mass transit options, meaning higher cost for owning car(s), higher fuel costs, lost leisure and side job opportunities, etc. Never forget to adjust for the fact that the suburban and exurban building boom of the past 25 years resulted in a hefty decrease in the utility value of the average dwelling in most large survey regions. This effect actually made the price spike seem less extreme than they really were; a utility-adjusted chart is simply too terrifying to look at. But you only need to make that adjustment if you care about making an apples to apples comparison; even without it you could - and still can - see that housing was insanely expensive and remains so. So if you think driving 6 hours a day to and from work on a congested freeway doesn't increase your cost of living or decrease the utility of your property, you're welcome to use the published figures as-is.
By all these measures, housing is still absurdly overpriced in many markets. Only in places like Detroit that have literally been in a deep depression for 20 years is housing "undervalued". Assuming unemployment does not increase further and real wages do not decrease further (a pipe dream), I figure that either house prices in dollars will fall by another 30% or the dollar will lose 30% of its value before we'll be back to something resembling a fair price for residential real estate. In many markets, that figure might be closer to 50%. That doesn't include the inevitable overshoot, and given the ever-worsening real economy I hesitate even to guess what the eventual figures will be.
Some thoughts every thinking person should have right now:
1. Housing is still expensive.
2. Treasuries are more expensive now than housing was in 2001.
3. The dollar is experiencing a short squeeze and is ridiculously expensive as a result. But never forget what usually happens when a short squeeze ends.
4. The market price of most assets is at present almost entirely decoupled from their value, but not in a consistent direction.
5. Oil is dirt cheap.
6. The only way to do fundamental and/or historical analysis is to price everything in gold.
7. When market behaviours are viewed in the context of a dollar short squeeze, and asset prices expressed in gold terms, many previously confusing and bizarre charts make perfect sense. Including housing.
On Jan 06 11:26 AM Good News Economist wrote:
> Great article Paul,
>
> @Bearfund,
> it was substantially obvious to any thinking person at the time
> that housing was overpriced...
> How so?
> So by your logic, I take it that to any "thinking person" now that housing > prices are undervalued?
> GNE