Shiller vs. Lereah: No Contest

Two recent interviews, one with Yale University economist Robert Shiller and the other with National Association of Realtors Chief Economist David Lereah, paint a wildly divergent picture regarding the state of the nation's housing market.

The interview with Robert Shiller appears in the current issue of BusinessWeek and David Lereah was interviewed for Fortune Magazine.

You really don't have to read the interviews - one look at these two and you know who's trying to give it to you straight and who's just blowin' smoke.

Wouldn't it be cool to have lunch with Robert Shiller? Wouldn't it be creepy getting anywhere close to David Lereah?

----- Robert Shiller----- ----- David Lereah -----

While this sort of face value assessment of these two men may strike some as too quick and judgmental, reading what they have to say about real estate does little to alter this view.

Here are some selected excerpts to prove that point.

On the future of home prices:

Shiller: Looking at our national home-price index [the Standard & Poor's/Case-Shiller Home Price Indices], it appears that the boom is over. [Prices] had been rising at an accelerating rate from the late 1990s through 2004. Since then the rate of increase has been decelerating.

We're going through a peak. There hasn't yet been a big price decline, like 20%. For instance, out of the 20 major cities in the country the biggest drops are in Detroit and Boston, which are down 5.9% and 5.1%, respectively. I think there's a good chance home prices will be down 10% to 30% over the next five years.

Lereah: I don't [think a price drop will happen] because we're already seeing some parts of the real estate market picking up again. It looks like we've bottomed out. The worst was the fourth quarter of 2006.

For the past two months now the inventory numbers actually improved for the country. Mortgage rates are still low. The Fed is going to behave. So there are a lot of good signs that the worst is over for housing.

So when it's all said and done, this contraction in housing is probably going to be the least severe contraction we've ever had, which is going to surprise a lot of people.

On the market psychology:

Shiller: Bubbles don't pop suddenly. The air comes out gradually. More and more people decide that the market is turning. The other large factor is a big supply of homes.

I've been reading old newspapers and advertisements to see how past booms ended. It's usually when stories start to circulate that embarrass people who believed in the boom. For example, there was a Florida land boom [in the 1920s]. There were stories of people buying land that was swamp. Booms end when prices start to fall, and then there are stories of buyer stupidity that are told and retold. I sense that's happening now.

Lereah: He (Shiller) thinks psychology will play a major role here, and my view is no. We haven't strayed from the fundamentals. The only part where we strayed from the fundamentals was the speculative investors coming in during 2005. And that exaggerated everything in real estate.

On troubles with subprime lending affecting the housing market:

Shiller: It could. Problems like this can change market psychology. The subprime loan problem will get much bigger if prices really start falling.

Lereah: I was giving a speech in Atlanta about two years ago. During the question and answer period, someone asked me something about interest-only loans. I said, they're kind of dangerous and you have to be careful. Someone rose their hand and said, Did you know that in Atlanta, the percentage of interest-only loans in 2005 was 40 percent of the market? Atlanta didn't even have a boom.

That's when I knew we were in trouble. Regulators and the big lenders need to get together and work out some arrangements to accelerate refinancings. They need to take people out of these crazy loans and get them into longer term loans that work for them over the next 10 or 15 years.

On blogs dedicated to documenting what they say in public:

Shiller: Not applicable.

Lereah (David Lereah Watch): At first I was kind of laughing. And now, it's enough already. This is a 26-year old that could not afford a townhouse and blamed it on the boom. And then he said, Who's talking about the boom and my name kept coming up. So I became Satan to him.

The worst was that my mother read one of those things, and she almost started crying. And I had to say, Mom, you have to have thick skin. I'm going to be in the public and make statements about real estate, and if someone doesn't like what I'm saying, they have every right to say something opposing me.

Now should they go so far as to call me Satan? I don't understand where that's coming from. That's just weird.

No contest.