Housing cheers turn gloomy - Long criticized as too upbeat, Realtors' departing economist now sees recession

Housing cheers turn gloomy - Long criticized as too upbeat, Realtors' departing economist now sees recession
BY MARY UMBERGER
Copyright © 2007, Chicago Tribune
Published May 6, 2007

On his way out the door, the housing industry's self-described "cheerleader" is making one last economic forecast -- a sober one at that.

"We're in a real estate recession," said David Lereah, chief economist for the National Association of Realtors, who surprised many this week when he announced he would leave the Chicago-based trade group on May 19.

"I'm projecting the first [nationwide] price drop since the Great Depression," he said. "We're going to have negative home prices in 2007."

His comments seemed uncharacteristic for Lereah, whose mostly blue-sky forecasts have long been criticized for stoking the fire as home sales bubbled to stunning -- and unsustainable, even by his own account -- levels. He had been the public face for the Realtors since the housing boom began in 2001.

"The media regularly turns to him for real estate quotes," said David Jackson, who created the hypercritical David Lereah Watch blog because he believed the economist was churning the housing market. "Lereah tells half-truths and manipulates facts and figures. He cannot be trusted, as he is a paid shill."

Most critics are less incendiary, though frankly uncomplimentary.

They often cite as Exhibit A his 2005 book, "Are You Missing the Real Estate Boom?" subtitled "Why home values and other real estate investments will climb through the end of the decade."

"He promotes housing," said Washington economist Dean Baker, an outspoken housing-market bear. "Certainly, people who were making decisions to move, they either heard David directly or from someone who heard from David that home prices will never fall, don't worry, the market will stay strong. So they paid too much for a house."

Lereah, in an interview Wednesday, shrugged off the criticism. "I feel confident I did a very good job forecasting and reflected what was happening in the marketplace," he said.

"If anybody actually took the time to read my book, rather than just comment on the title, I was insistent in it that ... a frenetic boom was unsustainable. I predicted a downturn [would occur] shortly after I wrote it, in 2005," he said.

Economists generally agree that the slide did begin in fall 2005.

That year home sales exceeded 7 million and have since tapered to a current rate of 6.1 million. Though that's still historically solid, the inventory of homes for sale has climbed to a record 30-month supply.

Lereah said the market overheated primarily because of lax lending practices and record numbers of speculators who bought houses at inflated prices to flip for profit, though others share the blame.

"It's easy to say with 20-20 hindsight," he said. "We're all partly guilty. But the lenders and the speculators, they had the most in it. Making zero down payments with no documentation, that's just irresponsible.

"But the Realtor, the lender, the title attorney, they all got wrapped up in the frenetic pace of the boom," Lereah said.

He said the market's current inertia surprised him.

"Just four months ago, it looked like we were on the road to a very nice recovery," Lereah said. "Then the subprime [mortgage] market blew up, and that has substantially inhibited lending.

"It was a monkey wrench that was thrown in; no one would have predicted it two years ago, no one."

But some did predict it, and publicly expressed concerns about elastic lending standards.

Lereah, however, said those worriers were not the ones who counted. "Did you hear any regulator say [to lenders], 'You can't do that'? If you're going to pick on the lenders, throw in the regulators. They let it all go on their watch."

Lereah is leaving the Realtors to head a new subsidiary of Move Inc., which operates online real estate services, including the industry's most popular site, Realtor.com, for the NAR. He and others in the company declined to discuss the venture until it debuts in August.

But first he has one more public appearance, at a Realtors' conference in Washington. He warns that his speech will not be cheery.

"I am going to say, look, guys, we all have to face the music," Lereah said. "We strayed from [economic] fundamentals, and we're paying for it. It's not an all-out bust, not a crash in real estate, but it is a recession. This is going to cleanse the markets and in the long term this is what we have needed.

"We're going to scrape this bottom for the next quarter or two. [The market isn't] going to come roaring back soon. It will take a couple of years to get back to the heat."

Nonetheless, he said housing's long-term prospects are good. "I am the cheerleader for real estate," he said. "I will always be the cheerleader. I think it's the best investment anybody can make."

In characteristic cheerleader style he demurred when asked whether he ever felt pressure from within NAR to skew forecasts in a positive direction.

"You'll have to talk to me about that in two or three weeks," Lereah said. "I work for NAR now."
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mumberger@tribune.com