by Mish

Former Federal Reserve Chairman Alan Greenspan said the five-year housing “boom is over,” though prices won’t fall nationally.

“We’re not about to go into a situation where prices will go down,” Greenspan, 80, said in response to questions Thursday evening at a reception in New York hosted by the Bond Market Association. There is “no evidence home prices are going to collapse.”

Greenspan echoed comments earlier in the day by his successor, Ben S. Bernanke, who said housing is undergoing a “very orderly and moderate cooling,” and that central bankers are monitoring the market to help shape their analysis of the economy’s performance.

With his “permanently high plateau” call, Greenspan all but assured prices are about ready to collapse. Bear in mind there was no evidence of a Nasdaq crash in Spring of 2000 either. But given that Greenspan has been wrong at every critical juncture in his entire career, we know housing is will collape sooner or later.

Actually his position is peculiar to say the least. He claimed there was a bubble in stocks in 1994, he embraced the productivity miracle in 1999-2000 looking for upside in the economy as shown by Fed minutes, then after the bubble burst claimed that bubbles could only be detected after they pop. Now he is claiming “very orderly and moderate cooling where prices where prices will not go down”. This is of course reminiscent of esteemed economist Irving Fisher’s statement in October 1929: “Stock prices have reached what looks like a permanently high plateau.”

Head Cheerleader

Of course Greenspan has company with his call. Please consider statements made by David Lereah, head cheerleader for the National Association of Realtors: “There is no real estate bubble.

More than 50 people turned out for an investor seminar recently hosted by Keyes Company/Realtors and held at Belaire Boca, a community of luxury condominiums and townhomes in Boca Raton.

The featured speaker for the evening was David Lereah, senior vice president/chief economist for the National Association of Realtors. Lereah is also the author of “Why The Real Estate Boom Will Not Bust & How You Can Profit From It: How To Build Wealth In Today’s Expanding Real Estate Market.”

Lereah was quick to make his message clear: “You don’t need a boom for real estate to roar. The real estate boom is over but the real estate expansion is still here.” Although homes are not selling as quickly right now, prices are still up. “There are no real estate bubbles, only balloons that expand and contract,” he said.

Lereah substantiated that good news by presenting numerous facts. The 14-year real estate expansion (1991-2005) resulted in a U.S. mortgage market that increased tenfold during that time. Low mortgage rates resulted in a refinancing boom, as consumers became more comfortable with the process.

He said the real estate boom was caused by factors such as lenders being able to reduce financing costs; baby boomers reaching their peak earning years and trading up or buying second, third and vacation homes.


“Forty percent of all home sales in 2005 were second homes – investment properties and vacation homes – compared to about 9 percent 10 years ago,” Lereah said.

“Real estate is not an irrational investment, but speculators purchased irrationally during the boom, especially in areas like Miami. This drove prices up, and many speculators took out interest-only loans. This produced a vulnerable real estate market,” Lereah explained. “In 2006, we are cleansing the market of speculation.”

In 2007, Lereah believes that the real estate market will continue to expand even if mortgage rates increase to 7 percent. “That is still low,” he said.

He added that he is bullish on Florida, Arizona and Nevada because of even greater population increases. “The law of supply and demand works.”

All of Lereah’s real estate investments are in condominiums and townhomes because he doesn’t want to be involved in maintaining them. “If you’re Mr. Fix It, then it’s okay to invest in a single-family home,” he said.

Cheerleader Review
Let’s analyze some of Lereah’s statements shall we?

“The law of supply and demand works.” Yes, the law of supply and demand works. It is in fact one of the reasons Florida is crashing and will continue to crash. 50,000-100,000 condos being built in Miami-Dade should be proof enough. It is why people are walking away from $80,000 deposits. The market is saturated with condos and you are still recommending them.

“Speculators purchased irrationally during the boom, especially in areas like Miami.” Hmm It seems that contradicts the reasons to be bullish on Florida condos doesn’t it? Besides were you admitting “irrational buying” a year ago or were you humming a different tune then?

*“Forty percent of all home sales in 2005 were second homes – investment properties and vacation homes – compared to about 9 percent 10 years ago.”*Seems to me this is evidence of a bubble. Who hasn’t bought that is going to do so now at these inflated prices. Not only are rental prices 4 standard deviations above norm, purchasing second homes for investments seems wildly above normal as well.

“The 14-year real estate expansion (1991-2005) resulted in a U.S. mortgage market that increased tenfold during that time. “ Hmmm, you are proclaiming a tenfold increase in the mortgage market huh? It seems you ought to be writing reasons for Professor Piggington on why this is a bubble instead of denying it.

“There are no real estate bubbles, only balloons that expand and contract.” Even if this nonsensical statement was true, why would one be touting Florida, a market in clear contraction, with enormous inventory and insurance problems, instead of areas with less speculation?

“If you’re Mr. Fix It, then it’s okay to invest in a single-family home.” Even this seems like poor advice. In every boom I have seen, condos are the last to rise, the first to fall, and heaven help anyone that buys a poorly constructed condo. You may not have to fix it yourself but some has to, and typically at rates far greater than you might find for yourself. Tuckpointing repairs and the like are horrendously expensive and that is for Chicago. I can only begin to imagine the problems in hurricane zones.

At times David Lereah appears to have a grasp of the underlying facts, yet manages to come to all of the wrong conclusions about what is happening and why. No one should be surprised by this. David Lereah is a paid cheerleader for the National Association of Realtors, not a real economist.

Mike Shedlock / Mish/

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