Signup for our free newsletter:

David Lereah Comes Clean

Written By Brian Hicks

Posted May 6, 2008



Shill: (slang)-verb

  1. to advertise or promote a product as or in the manner of a huckster.


It has been quite a while since we last heard from our favorite real estate guy, David Lereah.

He slipped out the back door a year ago, leaving Lawrence Yun behind to pick up where he left off.

Lawrence, by the way, has done a marvelous job in Lereah’s absence, promising on every occasion that now is the right time to buy real estate. Go figure.

Of course, it was his pal Lereah who practically swore that real estate never declines during the bubble heydays.

But now that he is now longer shilling for the National Association of Realtors, Lereah has changed his tune entirely. In fact, in many ways he has finally come clean.

Housing he says now is “not at the bottom” after all.

Gee thanks David.

Here’s Lereah’s new tune from Newsweek by Daniel McGinn entitled: It’s Going to Get Worse

“Whenever a boom goes bust, there’s always a round of finger pointing and blame assigning, of people asking “Why didn’t the experts see this coming?” So as the housing bust has morphed from a cyclical downturn into a full-blown crisis, there’s been no shortage of culprits. Some blame Alan Greenspan for badly orchestrated monetary policy, a charge against which he’s lately been fighting back. Some blame the subprime lenders and the brokers who found clients for them; together they underwrote many of the loans that are now causing so many foreclosures and so much pain.

And at least a few observers include an industry economist in this lineup: David Lereah, the former chief forecaster for the National Association of Realtors, whose irrational exuberance for real estate has led to some measure of ridicule.

It’s been more than a year since Lereah left NAR, so I called this week to check in. It turns out he has recently set up a new firm called Reecon Advisors, which is advising Wall Street firms and institutional investors about the real estate market. “Wall Street has an intense interest in [this], because they’re looking for when is the recovery going to come, and at what point does the cycle turn,” Lereah told me.

His answer: not yet. “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.”

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.

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.

 Oops. “You knew there were a couple of [regional] balloons out there, and [I] said you could have a couple of these balloons pop,” Lereah says now. “But I didn’t think this would turn into an all-out bursting of a balloon for the whole nation.” He, like other prognosticators (including Greenspan), points to his lack of understanding of the profound effects that subprime lending was having on housing markets. “[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.'”


So nobody could have known huh?

What a clown. Baghdad Bob would be proud.