NAR on “Temporary” Housing Problems

I almost miss David Lereah. He was the former chief economist for
the National Association of Realtors (NAR), and author of many fabulous books on how to lose all your money in Real Estate (as well as Tech/Telecom/Internet stocks). Since Housing peaked in August 2005, we could always count on Lereah for some utterly ridiculous economic absurdity, explaining why the Housing numbers really weren’t that bad, and why the-bottom-was-in !

Sheer, delightful idiocy.

It was great theater. Each month the NAR could be counted on for denial, cheerleading, and blind stupidity. When the NAR ended up with a new, somewhat less-hallucinogenic chief economist, I was actually a bit disappointed.

Well, cheer up kids! At least a little of the ole psilocybin may be back in the NAR drinking water. This month, they served up the following delightful headline:

August Existing-Home Sales Fall on Temporary Mortgage Problems

And ya know, these problems ARE “temporary.” Thanks to the entropy of the universe, eventually all real estate will disappear as the universe eventually succumbs to its own mortality (heat death). So if you want to be technical about it, all problems are temporary. Thank you, Lawrence Yun, for that bit of existential insight.

Where was I? Oh, yes, real estate.

What did this month’s NAR report have to say?

• Mortgage availability problems peaked in August (How they know this, I cannot say. But if they said it, well, there’s a chance its true: A very, very small chance).

• There were unusual disruptions in the mortgage market. (Really? I must have issed ’em)

• We saw a fairly high number of postponed or cancelled sales. (I guess this must be a fairly new phenomena)

• Lower sales contributed to a buildup of unsold inventory. (duh)

• The NAR expects similar results for home sales in September.

Sow while the NAR cannot help themselves but spin the data somewhat — a flack is a flack is a flack — they are no where near Baghdad Bob’s levels.

Of course, most sober commentators who reviewed the data were much more circumspect. Our own response to this week’s utterly dreadful Housing
datapoints were of that ilk:

Wheeee! New Homes Sales, Prices in Freefall

Continuation of Negative Annual Returns in Housing   

Warnings of a Housing Crisis (in Real Time) 

But to really get a sense of how poor the data was, check out what  Floyd Norris wrote in the NYT today:

“With sales of both new and existing homes down, more homes are now on the market than ever before — almost 4.5 million, a figure that is nearly double the number in early 2005, when prices were rising and home builders were reporting high profits.

And many of those homes have been on the market for a while. Of the 178,000 completed new homes that were available for sale at the end of July, fewer than 15 percent found buyers in August. That was the lowest rate in more than a decade.

In late 2006, it appeared that the housing market had stabilized after falling, with new homes selling at a seasonally adjusted annual rate of about one million, and investors bid up the price of home builder stocks.

But with all the bad news, those prices have fallen to new lows. The pace of new-home sales in August was just 795,000, a seven-year low.”

But the money shot is the accompanying graphic:

graphic courtesy of the NYT

By late 2008, or even 2009, we should Housing more “normalized. But between now and then, we should expect to see prices drop more, until much of the huge inventory build gets worked off. For those of you who put more faith into futures markets than I do, note that prices aren’t shown bottoming until 2010.

Temporary?  I guess if your definition of temporary is a few years, well then yeah — its temporary.  But so is everything else . . .



August Existing-Home Sales Fall on Temporary Mortgage Problems
NAR September 25, 2007

For Housing, the Summer of the Unsold
NYT, September 29, 2007

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What's been said:

Discussions found on the web:
  1. matt commented on Sep 29

    considering one can’t short in IRA accounts, but one can “short” commercial real estate in an IRA by buying SRS (2x the DJ index IYR), what are the boards thoughts on commercial real estate? historically CRE (commercial RE) lags residential by 12-18 months. i mean, if we go into this recession that most here have expected for at least a year, i would think the retail, office, etc RE would be in bad shape, but what about the industrial? just curious to get a handle on what some more intelligent people think, as the yahoo board on IYR is a little lacking. most there don’t seem to realize CRE and residential are two totally different beasts.

  2. Pool Shark commented on Sep 29

    Based purely on historical cycles, the Futures forecast of a bottom in 2010 is probably a bit optimistic.

    The last housing cycle peaked in 1990 and didn’t bottom until 1996.

    Using August 2005 as the current peak, and assuming (always dangerous) a similar correction period, we shouldn’t expect to see a bottom until well into 2011.

    However, since the current boom ran both longer and higher than the late 80’s boom, it would be reasonable to expect both a sharper drop in prices, and longer period of correction for the current housing recession.

    Finally, I don’t recall there being issues of liquidity, solvency, ‘tapped-out’ consumers, or tightening of lending standards at the conclusion of the 80’s RE boom. It just seems to me that current conditions are far less conducive to any kind of housing recovery than they were a decade ago.

  3. SINGER commented on Sep 29

    most of those commercial REIT / Mall types have finally broken a huge uptrend after 7 years and are now making a countertrend rally of that original breakdown…

    Looks like a good time to get short on a technical basis…

    What happens with the credit markets/recession/consumer/rates???

    Time will only tell but the indications from the mortgage market/homebuilders/long bond reaction to fed cut/commercial paper market aren’t inspiring…

  4. PeterR commented on Sep 29

    Pool Shark,

    Curious to know the basis for your statement that,

    “The last housing cycle peaked in 1990 and didn’t bottom until 1996.”

    According to the Case-Shiller chart of annual % change of home prices in the 9/25 article here,

    1990/1991 marked a bottom in the rate of decline in home prices (at -7% +/-) and went firmly positive in 1996 it appears. These dates appear to be somewhat at odds with yours above.

    Moreover, even though home prices’ rate of change took a few years to go positive in 1996, the equities stock market went positive (albeit slowly) from 1990 to 1994/5, and then took off. Equities thus led the real estate markets by 4-5 years or so +/-.

    Is it possible in your view that equities could now lead the weak housing market and continue to rally to new highs?

    Thanks and have a good weekend.

  5. Long SRS commented on Sep 29

    Does anyone have an idea what real estate would have to fall from current levels to have a return similar to other asset classes over 10yrs? (S&P500, Lehman AG, CRB, ect.)

    Look at That is how I got the idea but there data is not clear. (Charts and table data do not match.) This should be an crude but easy way to look at possibilities of how much further we can fall.

  6. Unpopulardude commented on Sep 29


    The bottom in 1996 was the price bottom, not the fastest rate of decline in value. The fastest decline in value was between august 1993 and august 1993, when prices dropped 11% Los Angeles. Nationally, the price bottom was also 1996. The maximum annual drop nationally was 8%, several times.

  7. Pool Shark commented on Sep 29


    The bottom line is that upon examination of Shiller’s housing price chart, it becomes pretty obvious that the current correction is nowhere near over, and we probably won’t see a bottom for years.

    But, probably the scariest feature of that chart is a possible reversion to the mean of 110 (which every boom since 1947 has reverted to).

    That would equate to a 45% decline in home prices from the peak.

    The current ‘bottom-callers’ remind me of Chip Diller (Kevin Bacon) from Animal House:

    “Remain calm. All is well!”

  8. twistytop commented on Sep 29

    Why wait for the universe? The earth will die from heat death long before the universe.

  9. PeterR commented on Sep 29

    Thanks Pool Shark and Unpopulardude,

    The point remains, does it not, that the equity markets kept rising 1990-1996 +/- even though housing was bottoming, correct?

    In other words, even a dismal housing market may not translate into equities falling.

    Now moving on to the Bronson chart of housing prices. IMO this is not measuring actual dollar value of a house (even adjusted for inflation) if an 1890 house worth $100,000 is worth $199,000 in 2006, a 100% rise 116 YEARS LATER !!! This seems nonsensical.

    This chart must represent some other measure of house prices? As a percentage of something else? GDP? etc. If you could explain the scaling/methodology of this chart, that would be helpful.

    Anyway, my basic point remains — yes, housing may take years to bottom out, but this is NOT a predictor IMO of equity prices.

    We should have a good sign of the next equity move soon, Q4 begins Monday. Santa or 1987 redux?

  10. peterbob commented on Sep 29

    What I notice is that the NAR no longer even REPORTS the monthly price drop in its news release. While boasting about the month over month gains was typically the headline in recent years, now I have to go to NAR’s actual data and calculate the percent gain myself.

    Why does the press go along with this? Why isn’t the NAR called on this?

  11. shrimplate commented on Sep 29

    The Cretaceous/Tertiary extinction is also temporary.

    Everything is temporary. That’s why all investments are always good all the time: they will eventually pay out, just as Albertosaurus and Tricerotops will someday again come back in fashion. And they make good pets.

  12. ECONOMISTA NON GRATA commented on Sep 29

    “Based purely on historical cycles, the Futures forecast of a bottom in 2010 is probably a bit optimistic.”

    I agree wholeheartedly…. However, 2011 is too early and I do not see “normalization”, what ever that means, returning to the housing market ever. The events of the recent past have no historical precedent that we can use as a metric gauge to forecast the severity or time frame of this “crisis”, if that’s what it is… If anything, we could use Japan as a model, but anecdotal evidence indicates that this is more severe. If that’s the case, even the most bearish amongst us may be underestimating this fiasco as Proffesor Roubini recently stated in one of his enlighting posts. It’s quite possible that this could draw out for more than a decade. I believe that it will….

    Best regards,


  13. Pool Shark commented on Sep 29

    “That’s why all investments are always good all the time: they will eventually pay out…”

    That’s exactly what I told the bankers when I applied for my business loan; but somehow they didn’t think my idea for a “Discount Day-Old Sushi Shop” would payoff in the long run.

    I guess in the long run we’re all dead anyway…

  14. whipsaw commented on Sep 29


    “If that’s the case, even the most bearish amongst us may be underestimating this fiasco as Proffesor Roubini recently stated in one of his enlighting posts.”

    I quit reading Roubini on a regular basis many months ago not because he is ultimately wrong about anything, but because the timing given for his projections (like recession in Q1 or Q2 2007) is bad enough to be harmful for trading purposes. Beyond that, pretty much all of his stuff that I have ever read either ignores the markets entirely or is along the lines of “Aha, I told you so!” when the markets finally recognize some macro condition in a way that is consistent with his past analysis.

    I give him credit for his intelligence and his willingness to be frank, but economists typically don’t know jack about the practicalities of investing, let alone trading, profitably and are perfectly content to miss by a couple of quarters or a couple of years. Unless you can tolerate 50% drawdowns that can go on indefinitely, then it doesn’t really matter whether they are eventually correct about anything.

    But, I also wonder if he appreciates the fact that we are in a managed economy that is heavily skewed towards redistribution of wealth from the vanishing middle class into the hands of the upper and ultra-upper classes regardless of the eventual cost? It doesn’t really matter what should happen according to conventional capitalist theory/fantasy once you have a Global Corporate State that appears to be bent on establishing Neo-Feudal Hegemony does it?


  15. Stuart commented on Sep 29

    I’m not really surprised by the NARs’ comments. Look at the community they represent. If they come out and state things are going to get alot worse, they are effectively telling all buyers to lower their bids as they have the leverage for the foreseeable future. That’s a big no-no. Lower bids mean lower commissions for the thousands of realtors. They’d much rather tell the buyers, “hey don’t you be lowering your bids too much, these are only temporary circumstances, so on any dip it’s a great time to buy”

  16. ECONOMISTA NON GRATA commented on Sep 30



    I agree. However there are to many wolves and not enough sheep. We need to securitize and leverage the “vanishing middle class”. Oh! We did that already, didn’t we….?

    As it relates to the Professor, I hardly think that he’s a trading advisor, nor does he pretend to be one. I sense your resentment to him and would suggest that you manage your emotions, that could be the cause of your bad trades, “drawdowns”…

    Best regards,


  17. Dave Sucher commented on Sep 30

    You are forecasting such doom. Where are people going to live? Especially as the number of households continues to increase?

    Yes, the sub-prime market was stupid and we are in the middle of an adjustment but unless you are assuming that national wealth is going down, I don’t get how there is no demand for housing, which I think that if you listen to the housing bears — spoken to the many people who have a huge personal psychological investment in the housing market crashing — I think that’s what you will hear. Among other things, you are forecasting a decline in the price of natural resources which act as one element of the floor under existing home prices. From what I read about China and India, that doesn’t seem likely.

    I wonder if there is a conflation of the credit market with the housing market? Has anybody looked at this issue in terms of the secular trends in housing demand? I have looked and I have not seen anything which says that we actually have — over 4-5 years, say — too much housing. I well understand that some markets have been overbuilt and that credit has been too easy — so what else is new in real estate?

  18. Jeff commented on Oct 1

    CNBC’s Maria Bartiromo/Bill Maher Housing Bubble Video

    Here is a clip from Real Time with Bill Maher which aired Friday September 28th. I have never heard the housing slump sound or look this good.

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