It’s Going to Get Worse

Whenever a boom goes bust, there's always a round of finger pointing and blame assigning, of people asking "Why didn't the experts see this coming?" So as the housing bust has morphed from a cyclical downturn into a full-blown crisis, there's been no shortage of culprits. Some blame Alan Greenspan for badly orchestrated monetary policy, a charge against which he's lately been fighting back. Some blame the subprime lenders and the brokers who found clients for them; together they underwrote many of the loans that are now causing so many foreclosures and so much pain.

And at least a few observers include an industry economist in this lineup: David Lereah, the former chief forecaster for the National Association of Realtors, whose irrational exuberance for real estate has led to some measure of ridicule.

Let me confess at the start: I spoke with Lereah frequently during the boom, and I always found him to be a smart, thoughtful observer. Sure, his assessment of the real estate market was consistently upbeat, but that's hardly surprising given that he served as chief spokesman for a trade organization that believes it’s always a good time to buy a home. And the truth is I feel a little sorry for the teasing he has absorbed since the housing bubble burst. Yes, he did publish a book in 2006 with the unfortunate title "Why the Real Estate Boom Will Not Bust"—but he didn't pick the title, the same way columnists like me aren't always thrilled by the headlines our editors put atop our stories. And while I thought it was funny when my colleague Daniel Gross and others compared Lereah to Baghdad Bob, the Iraqi information minister who repeatedly announced his army's military successes even as U.S. tanks were overtaking the capital, I can't help feeling bad for him. But if you judge from the blogosphere, I'm in the minority with my sympathy.

It's been more than a year since Lereah left NAR, so I called this week to check in. It turns out he has recently set up a new firm called Reecon Advisors, which is advising Wall Street firms and institutional investors about the real estate market. "Wall Street has an intense interest in [this], because they're looking for when is the recovery going to come, and at what point does the cycle turn," Lereah told me.

His answer: not yet. "We're not at the bottom," he says. "[People] want it to be near the bottom, but we're not there yet. The leading indicators are still very bad. Pending home sales are still in bad shape. Mortgage applications are low … There's still supply out there in abundance … This thing is going to get worse before it gets better."

Lereah says that the industry may begin to see a slight uptick in sales later this summer, which could signal the start of the recovery. Home prices, however, will continue to fall. According to the latest numbers from the Case-Shiller index, the average U.S. home has lost around 15 percent of its value since the market's peak. "We're probably going to end up with a 20 percent [decline], but if I'm wrong it will be even more than that," he says.