David Lereah Out as NAR Chief Economist

The reign of David Lereah as chief economist of the National Association of Realtors (NAR) is finally coming to an end. I'm not going to lie, I am going to miss being able to make fun of David month after month as his overly sunny analysis of the real estate market proves false again and again. Lereah has been an utter embarrassment to REALTORs for years and I imagine few are mourning his decision to leave.

Lereah is supposedly leaving NAR to begin working with MOVE Inc. a company that provides neighborhood and community information to new and prospective homeowners. Why Move Inc wants to subject themselves to criticism for hiring Lereah is unknown. The equity markets did not reward MOVE for the hire. Move Inc.'s stock was off 2.5% today perhaps as investors begin to calculate just how much damage Lereah can do before they realize their mistake (okay, okay that's probably not why the stock is off).

The real question for me is what will become of the blog that quickly became my favorite housing bubble blog: David Lereah Watch. My sources tell me that the site will probably be renamed and follow the next qualified economist who can stomach cheerleading for the NAR during a market downturn. That's not an easy job. Just imagine trying to pitch technology stocks to investors in 2002 . In the event that no one signs up NAR will probably contact someone over at the Competitive Enterprise Institute (CEI), the favorite PR spin artist of ExxonMobil and Big Tobacco. I'm sure they'll come up with something.

Real Estate Market Update

Yesterday the National Association of Realtors announced that 2007 will be the first home price decrease since the Great Depression. They revised down their estimate from a 1.9% increase to a 0.7% decrease in the national median price. The NAR is well known for putting out, how shall I say it, "optimistic" analysis. Downard revisions by industry organizations in and and of themselves are relatively common, but when the ever cheery NAR revises down, the actual number will in all likelihood be much, much worse. Some economists are calling for a 6%+ decline.

What we have here is the perfect storm:

1. Tighter lending standards have eliminated 15-30% of prospective home buyers from the housing market.
   
2. As we enter the first big wave of recasting mortgages many "motivated refinancers" will be unable to refinance and will quickly transition into "motivated sellers."
   
3. In the conventional wisdom it is the motivated sellers that ultimately lead to price declines. A useful figure to track is the percentage of home sales per notice of default. In other words it is the percentage of sellers who are "motivated" by being unable to afford their own home. See the graph below for the San Diego area courtesy of Piggington (hint: this is not a good sign for the housing market):

Don't Believe a word David Lereah Says!

I think that one of the most hilarious parts of what I do is reading what David Lereah, the chief economist for the National Association of REALTORs has to say about the housing market. I think its safe to say that he may be a shade biased given his salary is paid by people who rely on a strong real estate market to make their living! Honestly though, would you go to the guy who wrote the book "Why the Real Estate BOOM Will Not Bust" for honest, impartial advice about the real estate market? By the way if you really want the dirt on Mr. Lereah check out the blog dedicated to him here. Or if you don't have that much time on your hands just check out this article bashing Lereah.

I'm not the only one who thinks Mr. Lereah is a ridiculous public figure, just check out what the guys over at Motley Fool had to say:

"There's nothing funnier or more satisfying … than watching the National Association of Realtors (NAR) change its tune these days. The latest news release from this sunny-Jim industry group finally fesses up to its past fiction, but even when it admits the bubble's going to pop, it can't muster the courage to just come out and say it. … the NAR is full of it and will spin the numbers any way it can to keep up the pleasant fiction that all is well. … [T]he cracks began to show in subsequent remarks from NAR 'Chief Economist' David Lereah. The head outfit that ridiculed the idea of a housing bubble for years is now crying for Ben Bernanke to bring it back. … It should have been completely obvious to anyone with a loan calculator and a glance at wage increases that those months of industry bubble denials were just wishful thinking."

Now that hits the nail right on the head. The most sickening part of this whole debacle however is the power that the National Association of Realtors holds over the press. Just take a look at this hilarious chart courtesy of Kevin Depew over at Minyanville. Don't worry about reading the actual words in the articles, just focus on the headlines and the dates.

Anyone who actually follows the data knows that 2006 was a bad year for the real estate market. In fact the 4Q2006 numbers show the largest home price drop in history, 2.7% (y0y). The truth is that we are in the early stages of what looks to be a fairly broad and meaningful fall in the real estate market. Prices are off almost across the board. If you don't believe me check out these reputable sources for more reliable information on the market:

Professor Piggington - Rich Toscano's Great Analysis of the San Diego Market
The Big Picture - Check out the "Housing" Section for in depth analysis of US Housing Market.