Well, he finally came out and said it outright:
NAR Chief Economist David Lereah said the data held "mixed news" but it broadly signaled a stronger housing sector with inventories and sales stabilizing.
"The housing contraction has bottomed," he said.
So there you have it — with an apparent lack of any doubt or question, Lereah called the bottom on December 28, 2006. Remember this one for the history books, my friends.
With inventory rising and
With inventory rising and sales falling, it’s clear to anyone with even rudimentary knowledge of economics that the residential real estate market is not clearing yielding the conclusion that prices are still too high. Lereah is a first class liar. Even if inventories and sales temporarily stabilize at their current levels, it’s absurd to claim the market is at a sustainable long run equilibrium. It’s too bad their isn’t licensing for economists since Lereah would undoubtedly get his license revoked for this whopper.
In late 2005 we had about
In late 2005 we had about 4,400 active listings in the MLS; in October/November of 2005 we had ~6,100 sales.
Right now we have about 17,000 active listings, and in October/November of this year we had ~4,600 sales.
We’ll undoubtably get some more inventory on the market after the beginning of the year. When it becomes apparent that the investors aren’t coming back to RE and the buyers who are buying aren’t going to spend 50% of their gross income on a house payment we’ll see another round of price reductions. I think those reductions will be bigger in 2007 than in 2006.
He probably just meant for
He probably just meant for 2006. I’m sure he would never use his position to convince people that there is no bubble.
It will probably bottom out next month too. And the month after that, and the month after that, and the month after that, and, well, you get the idea.
Good one, Rich. I think
Good one, Rich. I think Lereah will be calling the bottom many times over the next couple of years. The funny thing is that when we truly reach the bottom, RE will be so villified and discredited (as it was in the mid 90s), that no one will care about reaching it.
Lereah reminds me of the
Lereah reminds me of the tobacco industry executives that testified before Congress and under oath that “Nicotine is not addictive”. They have a story to tell and are just looking for a few good listeners……………..
Well, I guess that settles
Well, I guess that settles it. Looks like I’ll be out buying a house this afternoon then. Thanks David!
Certainly in Southern
Certainly in Southern California, and in many other areas the market has not bottomed out, but nationally, it is possible that the bottom is getting close. Most of the country did not have the huge run-up in prices that we had here, and are not likely to have anywhere near the price declines that we will have. Builders nationwide have slowed their construction of new houses, hoping that the market demand will start to catch up. It will happen sooner or later, (maybe sooner say, in Columbus, Ohio, and later here).
Steve, quite possibly you
Steve, quite possibly you are correct. The major problem with that theory is that the people and the money are in the areas that were most inflated. Saying we have reached a bottom in the rust belt or the deep south is useless. Most of the major metro markets did have pretty big run-ups.
Josh
Steve, lots of areas in the
Steve, lots of areas in the U.S. had a ridiculous run up in prices.
Take a peek at the OFHEO Q3 ’06 update, beginning on page 54:
http://www.ofheo.gov/media/pdf/3q06hpi.pdf
Compared to baseline 1980, prices are up 550% in California, 381% in Connecticut, 545% in Washington D.C., 439% in Hawaii, 411% in Maine, 433% in Maryland, 626% in Massachusetts, 479% in New Jersey, 555% in New York, 511% in Rhode Island, 379% in Washington.
Nah, Steve, this is a bubble of national proportions, or, at least, coastal proportions. Only sane, Bible-beating states like Alabama, Arkansas, Iowa, Tennessee, Texas, West Virginia, etc. kept appreciation levels to no more than 200% over ’80-’06.
Only sane, Bible-beating
Only sane, Bible-beating states
Now there’s an oxymoron if ever there was one!
Happy new year all.
jg wrote, Only sane,
jg wrote, Only sane, Bible-beating states like Alabama, Arkansas, Iowa, Tennessee, Texas, West Virginia, etc. kept appreciation levels to no more than 200% over ’80-’06.
As a Texan, I can tell you that the reason properties don’t appreciate there as much as in California has very little to do with either piety or sanity.
* Texas has a huge availability of land to develop, basically the entire eastern half of the state from Mexico to Oklahoma is good, easy to build on farmland with plenty of water and no mountains. There is a huge home construction industry in Texas that buys up farmland and turns it into suburbs. A never-ending supply of new homes keeps prices low, because people often prefer newer houses.
* No Prop 13 and no state income tax means high property taxes (3% in the good areas) are necessary for public services and schools. Also, properties are frequently re-assessed so your property tax bill in Texas often increases year-to-year.
* Very high energy costs. Texas homes are big, and Texas is really hot in the summer and pretty cold in the winter. $500/mo electric bills are not uncommon in the big McMansion developments.
* High maintenance and insurance costs. Texas has lots of flash floods, hailstorms, high winds, tornadoes, etc… Roofs don’t last long in Texas.
* Yard maintenance costs. The land in most of Texas is really good land, and there is a lot of rain, which means everything in your yard grows like mad, including the weeds and the fire ants. Texas yards are bigger which means people spend a lot more time and money on average maintaining them.
The high carrying costs of the property (taxes, maintenance, energy) and the large supply of new homes keeps Texas prices lower than those in coastal California.
As an aside, anyone that’s spent time in a Texas church knows that bible-beating and sanity are mutually exclusive traits! Seriously, some of the preachers in the Baptist church I attended as a kid would fit right in with the Taliban.
Let’s ignore the possibility
Let’s ignore the possibility that a certain RE industry economist may have bumped his head prior to making this somewhat optimistic prediction that:
“The housing contraction
has bottomed.”
Well, that bump may be much more serious than we initially thought. The poor dude seems to have lost absolutely all contact with economic reality as we know it….
_________________
I just saw a very interesting way to compare the present housing market to previous years was devised by another economist who seems a little more in touch with reality.
His indicator was the ratio of the aggregate housing sales to GDP. His normalized ratio provides a yardstick that compensates for the value of the US dollar, etc.
The average value for this ratio over the years is around 8%. The most extreme ratio in previous years was 12% which occurred during the 1970’s (I bought my first house, a 25 yr old two bedroom home in Silicon Valley for only $69,000 when the Valley was really booming.)
So would you believe the current ratio value is 16%!?!
This indicator suggested the housing market is tremendously over valued compared to previous markets. Assuming we see a return to more traditional housing market we would have an avg. price rollback of 25% to 50%. That’s an obvious worst case number. The reduced sales in the housing market would also be a major hit on our the U.S GDP transaction
buck
Excelent post Buck. We’ll
Excelent post Buck. We’ll slowly get back to 10-12% of GDP, in part by GDP increases, and in part by flat or even declinig house prices. I think we now devote a larger portion of GDP to housing (say, 10-12% as opposed to 8%) because of two reasons:
(1) Houses are bigger and have better materials than in the past. Remember linoleum floors and formica countertops in the old days?
(2) We can spend more on housing because everything else is getting cheaper relative to salaries. To see this, think how many toaster ovens you can buy with a week’s salary at WalMart today, compared to how many toaster ovens your grandpa could have bought 50 years ago at Sears with a week’s salary. Replace toaster ovens with shirts, pots and pans, cars, etc., and you’ll see that we have way more disposable income measured in real terms.
I’m quite certain that
I’m quite certain that Lereah is a liar. BUT with that said, I still find it amazing at the prices set for homes selling in Southern California.
We still have POS homes in Glendale, Burbank, Pasadena, etc…fetching in excess of $650-700K for 1200sqft, 1925 crap…I mean…what is going on? WHO is still buying? I’m angry and amused at the same time…angry because it seems I’m surrounded but utter morons and amused because it’s like watching assclowns perform.
I don’t know…idiots can keep the market afloat…can’t they?
Nozferat,
Take a closer look
Nozferat,
Take a closer look at the financing of those homes. I’ll bet that almost ALL of them have 100 % financing.Here in the South Bay of San Diego very few of the homebuyers in the last couple of years had ANY skin in the game.Creative financing errrrrr “liar loans” have been made into an art form down here.This is especially true in the ethnic market(Hispanic & Filipino) which makes up at least 70 % of the homeowners in this area.
aguho
How do you know about the
How do you know about the number of people financing 100%? I would really like to get some data on the loans made in San Diego, and welcome any sources you have.
Powayseller,
It’s very easy
Powayseller,
It’s very easy to obtain this information if you have access to Realist or DataQuick.I can look at every property in SoCal and see the sales price,property history,financing,recent comps,neighborhood profile etc… Also,I’ve been using these services for years, and I can usually tell what type of loan is being used just by looking at it(80-20,90-10,Home equity line etc.).
Also, you can obtain this info from your local county recorder’s office.Here in SD the online info is limited,but you can pull all the info on a property at the recorder’s office for free.The advantage to pulling the info at the recorder’s office is that you will be able see ALL of the loan docs and how ugly the loan really is…….The disadvantage is that you have to physically go to the recorder’s office.For me,it’s much more efficient to subscribe to Realist and Dataquick since we own our business and regularly work 80 hours a week!
BTW, we are OPEN right now on New Year’s Day. We need to start 2007 by EARNING money.In the Filipino & Chinese business culture it is considered good luck and important to earn money on New Year’s Day.
Have you read “Empire of Debt” by Bill Bonner & Addison Wiggins ? I just finished it and…..WOW.An amazing book…Really, it should be required reading for ALL Americans(at least the ones that can actually read…….)
Thanks for your contributions to this site over the last year or so.I would have never heard about Mr.Roubini’s excellent blog if not for you.Also,calling out Alan Gin was epic.Great stuff !
Some of my observations: please note I do not expect people to agree with me… that’s okay though.
*Mortgage Fraud is rampant in the South Bay
*Iraq is a complete waste of lives and resources
*Too many Americans are fat,lazy,and illiterate
*Get rich quick schemes don’t work wether it’s real estate,stocks,prepaid legal,Amway,etc…..
*Peter Schiff,Axl Merk,Jimmy Rogers,Bill Bonner,Addison Wiggins tell the truth about what is really going on.
*Republicans are liars
*Democrats are liars
*ALL politicians are liars
*H1-B VISAS should be increased.The more smart,innovative,industrious people that come here the better.
*Family based petions should be curtailed at once.Do we really need any more 70 year old baby sitters.There should be a litmus test administered to each applicant IE: What can you bring to the table?
*Any immigrant that files BK or is involved in ANY type of fraud(mtg,real estate,insurance,medicare,etc) should be deported and blacklisted from re entering The US.
*Most people in The South Bay will NEVER own their home free and clear.
*Many Americans will NEVER be able to retire….and I DON”T want to support them either!
*The Replacements & X are still my favorite bands
*San Miguel,Samuel Adams, & Guinness are the best beers
*Coastal California is still the best place in America to live !
To everyone… I wish you all a wonderful and prosperous New Year.Just make sure you work hard,make good decisions,and ALWAYS do the right and ethical thing.Karma works both ways!
” I must not think bad thoughts,I must not think bad thoughts” X
aguho
88 SNDVL
aguho, nice post! I’m
aguho, nice post! I’m reading Wiggin’s book about the dollar collapse. He’s pretty opinionated that the government LIES to us with the inflation, GDP, and productivity numbers. He also cites Treasury, Social Security, and GAO reports where tables are buried deep in an Appendix showing how bad our situation really is. I’m with jg and 4plexowner now – gold is the only store of value. How long it will take for the dollar to suffer its fate, nobody knows. It could take 1 year, 3 years, 5 years. As long as the foreign banks decide to prop up the dollar, it will be a very slow decline. They may want to prop it up for a long time.
Here’s a question to all of
Here’s a question to all of the gold bugs on this board — what makes you think the government will let you keep your gold if things become as bad as you think they will? They have taken away the right to own gold once before, after all.
Wow, this is like things
Wow, this is like things were in the stock market in 2001, pre-9/11. Everyone was cheering the “rebound.”
Nozferat – I feel the exact
Nozferat – I feel the exact same way! I’m pissed that anyone would buy now, but have to laugh at the thought that they think it’s a good deal. I want to run up to people being led around our building by realtors and ask them what in the hell are they thinking? But, they are adults and are entitled to make their own decisions – kinda like the Vonage commercials.
It’s not just a national
It’s not just a national bubble but a worldwide bubble (see England, France, China, Australia, Hong Kong, Russia, etc..) When real estate really crashes it’ll be felt around the world. We’re a long, long way from the bottom.
Price reductions
Price reductions
Even with the price
Even with the price reductions….
Even with the price
Even with the price reductions….I thought the median SD income was around 50K and the national was around $40K. But if SD house price is $500K. Even with $80K it cannot be sustained. I remember several years ago –feeling bewildered about the housing situation…telling my parents in SD (I was visiting) “I can never move back here…” and “WHO is buying these homes?” Who buys all those $$$ homes in the East Chula Vista and beyond? Are most people in SD earning tons of money to afford the “median” price?
Even the old homes in neighborhoods like Encanto (historically low from my memory) were in the $400Ks!
Let’s hope housing has
Let’s hope housing has bottomed, of course that would suggest there’s only one direction it could go in……
Mike
What’s Hot Today.com
http://www.whatshottoday.com
The housing sector is very
The housing sector is very politicized at the moment.
I think everyone needs to agree here that the Huge Run up in prices occurred for one reason only. Taxable income to the Federal Reserve. Secondly, I know we all should remember the fact that a lot of money was made off of a lot of investors during the Dot Com craze. This NEW MONEY….is not the NEW ECONOMY all the CNN’s and Biz TV shows were proclaiming back in 1998-1999. It is a symptom of what happened in the .Dot Dumb era if you will.
All this money is causing a lot of people sheer grief.
People who normally could now afford a home can’t because that home which sold for 100k in 1999-2000 now cost 240k.
There simply is no basis for continually seeing RE prices to sky rocket. None Whatsoever.
If you drive across the country “And Open Your Eyes”
WE PEOPLE, are not running out of Land Space.
There is plenty of land and space available for anything you want to build. And yeah so what if your commute just increased by 15-20 minutes, who cares!
Fact is prices are way way too high and rediculous but if we stop and think about it. Anytime you have a large number of folks with the cash willing to spend it without even thinking about the real cost factors this RE massive price increases x 50 is what happens.
Even in the automotive sector this happens. The boomers wanted and craved New Everything from boats to cars to Rv’s.
Their salaries also (New money)/(More Income) drove up the price extensively here. It happened at Ford, GM and Chrysler. Ask yourself like you are asking yourself about RE prices………Why does a simpleton stell and plastic fabricated car costs 35 grand. It shouldn’t be this way.
Now ask yourself. Waht is happening to GM and Ford right now employee and cost reduction wise. Lay Off Mania.
These Big Auto companies know full well 5 million boomers won’t be spending 30-40 grand on a vehicle at age 64.
Ok try 10 million retirees in the next few years not buying over priced cars and trucks. Even with new wage earners coming into the economy. Companies aren’t shelling out Huge Salaries anymore like they did in 1990 to 2000. You get starting out about 35-45k Tops.
Folks we are in the midst of the biggest price reductions on large items such as Land, Real Estate and Vehicles this country has Ever witnessed. Don’t even believe the American car companies when they say Oh YEah sure we can sell a Ton of stuff to China blaa blaa blaa. Take Note: Ain’t Happening! China plans to build their own and ship them over to us. The China car company call Chery. Lets face the facts and they are the following:
The Next Big thing is already here and that is Medical expenses and Health Care for the Mega millions of people dropping Like Flies in a few short years. The best investment is to start your own Grave Yard and sell plots of land. Or invest in the Funeral Service and Casket Conglomerates.
Maybe our Caskets will be made in China too !
One thing for sure, the US of A will be a much different landscape in 2015. I am going to dread waiting in line at the Hospital and Doctor offices. All of those funeral services Stopping Traffic every day of the week is really going to piss me off !
I’m glad to see a post about
I’m glad to see a post about the problems facing us as the boomers age. However, the data indicates that life expectancy is increasing, so it’s going to take decades before the first wave of boomers is ready for those caskets.
Here’s another shot caller,
Here’s another shot caller, president of the Irvine Community Development company.
“The attitude change in homebuyers mirrors recent sentiments by some analysts — including former Federal Reserve Chairman Alan Greenspan, who recently said that he believes that the housing market adjustment is over.”
http://www.irvineranch.com/whybuynow/
Despite all the happy talk, the little bird told me they just regegotiated (downward) their land prices with builders at Woodbury and Portola Springs last week to get selling prices down and compete with Tustin Legacy.
-SCHB