Wikinvest Wire

Shiller vs. Lereah: No Contest

Monday, March 05, 2007

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.


Anonymous said...

Veeeery creepy picture

Anonymous said...

I am not sure that the critism of Lereah is fair. The guy is hired by the RE industry to promote real estate. Expecting him not to do so is like expecting a car salesman not to push you into buying a car.

I think listening to him should be a case of buyer beware. If you are dumb enough to think that any salesman has your best interest at heart then I can't have too much sympathy for you.

Blaming him for driving up real estate prices doesn't hold water either. He could say RE is a good buy until he was blue in the face and it wouldn't move the market without the easy credit/money policies that the Fed has followed.

Blame for the RE bubble that we are in falls squarely on the Fed, bank and lending regulators and our elected officals, not this windbag.

Anonymous said...

most people don't know that he's a windbag shill and the msm used to accept what he said as truth

Anonymous said...

Anon 5:21 PM

Very important point. He is making blatantly false predictions (lies). In many other industries, when you lie publicly, you can get sued or sent to jail.

You don't see stockbrokers, lawyers, doctors, insurance salesmen, or even used car salesmen making the kinds of promises that DL makes.

Chuck Ponzi

Anonymous said...

I would like to think that he is just a bad economist that only sees a certain view rather than a two face liar. It would be funny if news came out that he's renting right now.


Anonymous said...

Anon 6:23 pm

According to the blog that he says upset his mother:
He does own real estate.

The Feb 15th entry shows the value of the house he owns.

Also, the Feb 19th entry states:
"David Lereah has invested in multiple condos in the Washington, DC"

This entry also shows that for at least 1 condo he bought at the top and has lost money:

2005: Property Assessment: 245,700
April 2005: David Lereah Buys Unit for 276,900
2006: Property Assessment: 271,500
2007: Property Assessment: 248,977

So either Chuck Ponzi is incorrect that Lereah is a liar, and Lereah really does think that housing will go up, or he was smart enough to cover is butt against lawsuits and public scorn and did some buying of real estate so that no one could accuse him of pumping housing while not investing in it himself.

I think that anger at this guy is misplaced. He might be a jerk, a liar, or something worse, but he is not the cause of the housing bubble. He is a salesman doing what salesmen do.

It is the Fed, regulators and government that have created the situation that we are in. Blaming Lereah deflects the blame from those who truly deserve it. No one, especially Lereah has the power to move the housing market the way it has moved over the last 7 years. That is unless they have the keys to the prining presses.

Anonymous said...

Lereah has admitted he is a shill -- in those literal terms.

Now, the real puzzle is why his title is "economist". And an even more perplexing puzzle is why all those housing articles in the past couple years in countless mainstream publications quoted no other "experts" besides this self-proclaimed shill, or at least gave Lereah and his ilk the first and last word.

Hmm, come to think of it, these things may not be so unrelated! If they called him "chief evangelist" or "chief salesman", do you still think he'd be quoted alongside (or instead of) independent economists and analysts?

Anonymous said...

This was classic Rex Nutting

Last Update: 5:31 PM ET Jan 25, 2007
Realtors' economist stayed sunny all year
Commentary: David Lereah saw bottom in first quarter, second quarter ...

There are two universal truths at the National Association of Realtors: 1) It's always a good time to buy or sell a home; and 2) We've seen the worst of the housing market correction.
The second truth was in the script used throughout 2006 by David Lereah, chief economist for the NAR, even as sales plunged by 8.4%, the fastest decline in 17 years. See full story.
With annual sales of 6.48 million, 2006 was the third best ever, but after five years of steady increases, it was a rough year for the industry. Through it all, Lereah never stopped smiling.
At the beginning of 2006, Lereah was projecting home sales would fall about 4.4% to 6.79 million. In the end, however, the decline was about double what he'd projected. For 2007, Lereah is currently projecting a decline of about 0.9% to 6.42 million.

Here's what Lereah was saying throughout 2006 and into 2007, and what the market was doing.

January 2006
Lereah's forecast: "The market is in the process of normalization."
Actual sales: Fourth-quarter sales fell at an annual rate of 12.6% to 6.94 million annualized.
Lereah's post-mortem: "The level of home sales activity is now at a sustainable level, and is likely to pick up a bit in the months ahead."

and so on

Anonymous said...

"No one, especially Lereah has the power to move the housing market the way it has moved over the last 7 years. That is unless they have the keys to the prining presses."

That's a valid point; however, let's keep in mind that excess money can work itself through the economy in a variety of ways, it doesn't necessarily have to lead to the massive iflation in RE we witnessed. it could lead to a more moderate increase in RE while the boom occurs in another asset class such as the credit markets or stocks. In the bad old days the boom would occur in the goods and services markets - leading to the conventional notion of inflation. Nowadays, thanks in part to the price pressures resulting from globalization and technology the boom occurs in asset markets, so consumer inflation is relatively low while asset inflation is high.

David Lereah is basically a saleman - everybody who reads this blog already knows that. The bigger point is that like all salemen who are stupid, dishonest, or both, he should be called on it and yes, his mother should cry for having raised a boy who is either incredibly dim or incredibly unethical. The only way for a free society to function is for for a free press (bloggers in this case) to constantly ridicule, harangue and ultimately embarass imbeciles and liars. If that does not happen we become a society ruled by morons (as Mr. Icahn has pointed out, we may already be there).

Stan "the man" Zalesny said...

David Lereah is hired to speak for the RE Industry, like a Lobbyist. So, he is expected to put a "nice" face on the economics of Real Estate. Robert Shiller, on the otherhand,, is promoting his organization and selling information based on data collection. He is also promoting a "new" way to invest on an exchange by securitizing risk. He needs to be the devils advocate in order to "sell" his concepts about RE. If any one cares to remember, there are hundreds of books on "How to make a Million " in Real Estate, and "How to Make a Million in the Stockmarket", and just as many books on the coming "Crash" of the Stock market and the coming "Crash" of the Real Estate Market. This is how these guys make their money, be "controversial" and sell your books. I don't think either one of them really cares if the ordinary guy and gal have a home, can or cannot buy a home, or lose their homes in forclosure. The game is one of promoting themselves-only.

Anonymous said...

The essence of fraud is a misrepresentation intended to deceive. Lereah holds himself out as an objective source of information, an economist (the "dismal science")who is telling the truth. Most people think scientists are dedicated to the scientific method and the search for the truth.

That's where the fraud comes in. Lereah might as well wear a white lab coat.

Poor, stupid Americans.


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