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It’s Going to Get Worse

Economist David Lereah was once the housing market's biggest cheerleader. Now he says the bust isn't near over, and home prices still have a long way to fall.

By Daniel McGinn | Newsweek Web Exclusive
May 6, 2008 | Updated: 11:15  a.m. ET May 6, 2008

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  • Posted By: LGavrich @ 05/09/2008 11:24:02 AM

    Comment: So Mr. McGinn knew Lareah was blowing sunshine the reporter's way but passed it along to his readers because that's what hype artists do? "Smart, thoughtful observer?" He was consistently wrong and deceitful as well. What definition of thoughtful is that? And smart? If Lareah thinks the housing market will remain in the dumper, then I'm buying condos fast. And if Mr. McGinn feels sorry for the teasing Lareah has received, then we should all feel sorry for Mr. McGinn's judgement.
    L. Gavrich, http://www.GolfCommunityReviews.com

  • Posted By: borrowerhotline @ 05/08/2008 4:17:40 AM

    Comment: The bottom however should be fairly easy to gauge. Here is a formula. Wall Street fund managers chasing a 50 unit apartment building can???t find anything over a 6.25 cap rate. They reconsider a 300 units SFR package acquisition (adjusted for price per apt vs SFR units) deal with similar construction al within a 5 mile radius. The effective or weighted cost to acquire the homes works out to be a 11.5 capitalization rate or nearly double the apt units. Will the average Je Lunch Bucket use a capitalization rate and 300 unit models to gauge when the guessing valuations will hit bottom and rebound? No! of course not. However, here are the key folks (http://www.360yahoo.com./borrowerhotline.com.
    The average Joe will see values drop to a point that a home will near break even commensurate with rents for the area. If rents cover the total mortgage payment with little down (say 15%: 85% Loan to value) anyone with some cash will buy all they can . Leverage, break even cash flow, rental income e and the confidence of owning good old American owned single family Real Estate....Did I say confidence and RE (housing) in the same breadth...? The guess is at what premium over the rental will the market come back as there always is a premium between the bottom and what other s are will to jump in at on a more speculative level and investment view. Maher Soliman msoliman@borrowerhotline.com Stamp out predatory lending and Fight Foreclosures NEWSWEEK AND DANIEL ARE NUMBER 1 OVER THE USA http://www.borrowerhotline.com

  • Posted By: Coton @ 05/07/2008 10:22:27 PM

    Comment: He would be the last person I would listen to.

  • Posted By: joeys101 @ 05/07/2008 7:37:50 PM

    Comment: For him to say that himself, Greenspan, and everyone else could not see this coming is delusional. I heard story after story about people lying to get a loan starting in 2001. By 2004, I personally knew 5 people who had EACH purchased between 6 and 11 houses or pre-construction deals all across the country. They had never even bothered to travel to see what they were investing in in most cases. A couple got out quickly with good profits, but rest are not so happy now. I think the reality is that everyone knew this was going on including Liarah and Greenspan. Liarah was paid to be deceitful, which speaks volumes to his character.

    Ironically, I think that now he will be paid for being truthful.

  • Posted By: Observer2000 @ 05/07/2008 2:22:56 PM

    Comment: There used to be a "Rule of 2 ". Rule of 2 - Take your gross annual household income times 2. Add in your savings. This is the maximum house you can afford. By this standard 50 % of all american families can afford a house of approximately $130,000 dollars. Anything over that and you are counting on luck. Real Estate salespeople and banks know that. They just don't care. NONE of them are going to jail.

  • Posted By: peace and love @ 05/07/2008 2:17:30 PM

    Comment: It's a great time to buy for those of us with cash and good credit!

  • Posted By: jomac @ 05/07/2008 12:54:53 PM

    Comment: Having just lost $60,000 to sell my home in Ft Myers Florida, I can tell you that some markets have lost WAY more than 15% of home values. The sucky thing is that I did it all right - took a mortgage I could pay, put a huge downpayment (all lost now) and paid on time. My home value died as a result of these bastards who overlent to the unqualified and no one is stepping up to help people like me who did everything "right" and lost our shirts. I may never be able to own again after this.

  • Posted By: russdog777 @ 05/07/2008 2:40:26 AM

    Comment: The NAR is a joke and anyone who parrots their press releases without a lot of skepticism shouldn't be taken seriosly as a journalist.

  • Posted By: subwayvigilante @ 05/07/2008 2:04:51 AM

    Comment: Lereah's condo flips getting foreclosed upon would be the perfect epilogue in the sordid tale of the real estate bubble.

  • Posted By: subwayvigilante @ 05/07/2008 1:55:45 AM

    Comment: My favorite thing about this article is the tidbit that Lereah himself became a Miami condo flipper during the boom. Why do I have the feeling the guy sits around at night watching tivoed 2005 episodes of 'flip that house', relivin' the glory days.

  • Posted By: russdog777 @ 05/07/2008 1:28:29 AM

    Comment: The NAR is a joke and anyone who parrots their press releases without a lot of skepticism shouldn't be taken seriosly as a journalist.

  • Posted By: russdog777 @ 05/07/2008 1:26:50 AM

    Comment: Don't forget Lereah wrote an earlier book where he advocated buying overpriced tech stocks just before they crashed. Then he wrote books about how real estate was a good investment just before that bubble burst. Listening to this fuool is a waste of time & investing with this motron will cost $$$ you dearly.

  • Posted By: russdog777 @ 05/07/2008 1:26:17 AM

    Comment: Don't forget Lereah wrote an earlier book where he advocated buying overpriced tech stocks just before they crashed. Then he wrote books about how real estate was a good investment just before that bubble burst. Listening to this fool is a waste of time & investing with this moron will cost $$$ you dearly. His self-serving spin is stuff of legends! He even has his own "watch" website David Lereah watch committed to exposing his quackery and foolish spin. Do you have a website Daniel McGinn Watch? No becasue nobody can top Lereah for nonsense!!!

  • Posted By: russdog777 @ 05/07/2008 1:25:43 AM

    Comment: Don't forget Lereah wrote an earlier book where he advocated buying overpriced tech stocks just before they crashed. Then he wrote books about how real estate was a good investment just before that bubble burst. Listening to this fool is a waste of time & investing with this moron will cost $$$ you dearly. His self-serving spin is stuff of legends! He even has his own "watch" website David Lereah watch committed to exposing his quackery and foolish spin. Do you have a website Daniel McGinn Watch? No becasue nobody can top Lereah for nonsense!!!
    ewe
    He's been so consistently foolish

  • Posted By: subwayvigilante @ 05/07/2008 12:21:21 AM

    Comment: One good thing I will say about Lereah though -- Lawrence Yun makes him look like a genius. At least Lereah could communicate effectively with his industry shill lies. Yun writes like a community college freshman in persuasive writing class.

  • Posted By: subwayvigilante @ 05/07/2008 12:17:52 AM

    Comment: If Lereah had been around in the 17th and 18th centuries, he would have written titles like "Why the South Sea Bubble will not Burst - and how you can profit from it" and "The new rules for getting rich with Tulip Bulbs." The guy is a complete contrary indicator. Now that he says real estate is going to get worse, I am thinking that the worst is over. He has an unbroken streak of being wrong and I can't think it will change.

  • Posted By: subwayvigilante @ 05/07/2008 12:14:40 AM

    Comment: I actually thought that things were going to get much worse until I read this article. Lereah is such a bad forecaster that you would have done well just to do the opposite of whatever he is predicting. Did anyone know he wrote a book on getting rich in internet stocks? It was in -- guess when -- late 2000. True story.

  • Posted By: phiomalibumalibu @ 05/06/2008 9:27:53 PM

    Comment: Actually the europeans are probably waiting for the dollar to go down a little more. Then you will see massive purchasing of the lower priced homes....think it's better to hang on and refi at CreditLoanApproved.com
    That's just my 2 cents.......

  • Posted By: artythesmarty @ 05/06/2008 8:59:03 PM

    Comment: What a little cretin. Of course he way say it will get worse as he is talking to people who want to start a fund to buy properties cheap to rent them. It is driving the price down and woud get anyone licensed fined and censured. Because he is just a gadfly his opinion is worth the same as a guy the bartender shoos out of the bar at closing time. You could not keep him from prancing around the business shows a few years ago saying that things would never go down.

  • Posted By: artythesmarty @ 05/06/2008 8:58:54 PM

    Comment: What a little cretin. Of course he way say it will get worse as he is talking to people who want to start a fund to buy properties cheap to rent them. It is driving the price down and woud get anyone licensed fined and censured. Because he is just a gadfly his opinion is worth the same as a guy the bartender shoos out of the bar at closing time. You could not keep him from prancing around the business shows a few years ago saying that things would never go down.

  • Posted By: artythesmarty @ 05/06/2008 8:58:44 PM

    Comment: What a little cretin. Of course he way say it will get worse as he is talking to people who want to start a fund to buy properties cheap to rent them. It is driving the price down and woud get anyone licensed fined and censured. Because he is just a gadfly his opinion is worth the same as a guy the bartender shoos out of the bar at closing time. You could not keep him from prancing around the business shows a few years ago saying that things would never go down.

  • Posted By: artythesmarty @ 05/06/2008 8:58:35 PM

    Comment: What a little cretin. Of course he way say it will get worse as he is talking to people who want to start a fund to buy properties cheap to rent them. It is driving the price down and woud get anyone licensed fined and censured. Because he is just a gadfly his opinion is worth the same as a guy the bartender shoos out of the bar at closing time. You could not keep him from prancing around the business shows a few years ago saying that things would never go down.

  • Posted By: artythesmarty @ 05/06/2008 8:58:11 PM

    Comment: What a little cretin. Of course he way say it will get worse as he is talking to people who want to start a fund to buy properties cheap to rent them. It is driving the price down and woud get anyone licensed fined and censured. Because he is just a gadfly his opinion is worth the same as a guy the bartender shoos out of the bar at closing time. You could not keep him from prancing around the business shows a few years ago saying that things would never go down.

  • Posted By: artythesmarty @ 05/06/2008 8:55:00 PM

    Comment: What a little cretin. Of couse he would say NOW that things are going down if he is talking to some firms about starting a fund to buy foreclosures that will be turned into rentals. If he was a NYSE/FIMRA licensee he would lose it but his stupid opinion is worth as much a the guy who is shooed out of the bar at closing. He could not stop prancing onto all the little business shows 5 years ago- who ever pays him will him to say whatever they want

  • Posted By: Chris Paris @ 05/06/2008 7:55:07 PM

    Comment: Instead of the sensational "Everything is Bad" or "Everything is Great" journalism, how about revealing a few facts? Like how about revealing how many people have actually defaulted on mortgage loans on their primary residence so far this year compared to the average for the same period of the last ten years? How many new mortgages were written so far this year in comparison to the same period of time last year?

    • Posted By: prettygirl @ 05/07/2008 16:44:15

      Comment: Why bog this artlicle down with such things as cold hard "facts", when we can minimize our effort and fill it with fluff and conjecture?

  • Posted By: TheBroker @ 05/06/2008 6:38:37 PM

    Comment: Yeah this guy's a moron. First he underexaggerated the problem and now he's overexaggerating. The market is starting to recover, people are buying homes and there is a much smaller backlog of homes on the market than there were a year ago. The problem is in places like CA, NV and FL, among others, where the value of homes has increased 3000% over the last 10-15 years. It's simple, you can't sustain that level of appreciation. If that appreciation continued unchecked, no one could afford a home in 10 years. I'm sick of hearing about Brokers and "Subprime" lenders. These "Subprime" lenders include, Wells Fargo, Ameriquest, Wachovia, Chase, Country Wide, Bear Stearns and a number of the other large lenders out there. Even lenders such as New Century, Franklin American, Saxon and a number of others we're offering these large banks' products under their own names. The funding was still comming from the big boys and the programs were invented by the large retail banks in the first place. It's a great cop out for the large banking institutions but it doesn't get rid of the truth. The Brokers simply sold loans based on customer qualifications and needs. They didn't invent the programs, nor is it their job to verify that what the customer tells them is true, that's an underwriters job (They work for the lender). Disgusting.

  • Posted By: denture @ 05/06/2008 6:22:25 PM

    Comment: lereah is not a smart guy,he is a maggot.First he writes a book that was completely off the mark,and now he wants to cash in on peoples misfortune.What a disgusting imitation of a human being.Only on wall street can you reinvent yourself.Anybody who cares to listen to this self proclaimed real estate expert should hold his head under water.Wyatt

  • Posted By: animae @ 05/06/2008 6:08:04 PM

    Comment: "That got so out of hand, and none of us realized the magnitude of it until it was too late." As a long time mortgage underwriter of both prime and sub prime mortgages it was obvious to me. I find it hard to believe that it was only those of us in the trenches who knew this bubble would burst. We knew that we were not doing the borrower's a favor by putting them in these houses, but since they "qualified" there was no choice.
    I later moved to due diligence underwriting for the Wall St firms that packaged and sold the securities. It was obvious that they did not care about the quality of the borrower or their ability to repay. We saw the same loans being shuffled from portfolio to portfolio. It's a shame in some cases that the homeowner is suffering, but in many cases I feel no sympathy. If you are making $24K a year you should realize that you cannot afford a $2k/mo payment no matter what anyone tells you.

  • Posted By: Andrea M. @ 05/06/2008 5:31:01 PM

    Comment: And this is bad because...? Sorry folks, but housing prices are finally getting back down to reasonable levels, after many years of being artifically jacked up by greedy speculators and house flippers looking to get rich quick. It's about time this correction in the market began. Now hopefully the poor s******* just getting out of college can hope to have an affordable home to call their own one day.

  • Posted By: Andrea M. @ 05/06/2008 5:30:35 PM

    Comment: And this is bad because...? Sorry folks, but housing prices are finally getting back down to reasonable levels, after many years of being artifically jacked up by greedy speculators and house flippers looking to get rich quick. It's about time this correction in the market began. Now hopefully the poor schmucks just getting out of college can hope to have an affordable home to call their own one day.

  • Posted By: Andrea M. @ 05/06/2008 5:29:43 PM

    Comment: And this is bad because...? Sorry folks, but housing prices are finally getting back down to reasonable levels, after many years of being artifically jacked up by greedy speculators and house flippers looking to get rich quick. It's about time this correction in the market began. Now hopefully the poor schmucks just getting out of college can hope to have an affordable home to call their own one day.

  • Posted By: prettygirl @ 05/06/2008 4:56:47 PM

    Comment: So, in a nutshell : House prices will continue to drop in certain areas (areas not specified) for some abitrary amount of time (timeframe not included) and will be driven by these arbitrary reasons (vague and misleading)... What a delightfully insightful article...

    House prices will continue to drop... brilliant analysis!

  • Posted By: Leroy-Was-Here @ 05/06/2008 3:32:44 PM

    Comment: From the article: "...his forecasting record is mixed"?!?!? HA HA HA HA HA!!! That's a real knee-slapper, all right. And the claim made at the beginning of the article, that none of the 'experts' warned about the housing bubble, is utterly bogus. Professor Shiller at Yale, in his book 'Irrational Exuberance', certainly warned about it. So did the economics professor at UCLA who wrote 'The Coming Crash in the Housing Market'. The Economist magazine was warning about it for yyears....

  • Posted By: Leroy-Was-Here @ 05/06/2008 3:32:34 PM

    Comment: From the article: "...his forecasting record is mixed"?!?!? HA HA HA HA HA!!! That's a real knee-slapper, all right. And the claim made at the beginning of the article, that none of the 'experts' warned about the housing bubble, is utterly bogus. Professor Shiller at Yale, in his book 'Irrational Exuberance', certainly warned about it. So did the economics professor at UCLA who wrote 'The Coming Crash in the Housing Market'. The Economist magazine was warning about it for yyears....

  • Posted By: Kilikia @ 05/06/2008 2:30:13 PM

    Comment: I wouldn't call it a slump. Housing prices are just settling back down to where they should be after years of over inflated prices set on by greedy sellers and super low interest rates that suckered naive buyers into thinking they could afford twice the house with half the down payment. I can't believe national economists pretend to have not seen this coming. I predicted it as soon as Bush elected to start a seemingly senseless war that would produce nothing but a downturned economy .

  • Posted By: SlyFrog @ 05/06/2008 2:11:58 PM

    Comment: Swampysgirl wants to sell a house, so the media needs to be quiet long enough for her to rip off some sucker buyer for an overinflated price.

    Why must the media report that housing prices are overinflated? Swampysgirl has money to make osuckers!

  • Posted By: swampysgirl @ 05/06/2008 1:32:04 PM

    Comment: This is absolutely ridiculous....as long as the media publishes crap like this this industry is NOT going to be able to heal. Yes, there are problems, but quit harping on it and let things settle - quit scaring the sellers and potential buyers. Yes, there are some people who are in rough situations, unfortunately - but I wish the media would QUIT with the gloom and doom - its really hindering the industry more than anyone knows! I'm so sick of hearing about this DAILY.

    I work in real estate and when articles like this are published it just hurts the industry a whole. You don't hear stories like, while home sales may be down, property values are inching up and holding steady...no, all you hear about are negative things that I care not to mention - report on the guy who saved a life down the street or something postive...

    • Posted By: summer4077 @ 05/07/2008 09:19:01

      Comment: You're right, the industry DOES need to heal. "Healing" doesn't mean pushing prices back up to insane, unaffordable levels, though. It means allowing the chips to fall where they may...even if that means banks lose money and people lose their houses. The real estate industry played a major part in this fiasco, too. Houses were reaching unattainable levels, perpetuated by the feeding frenzy of banks and realtors on the American public. Of course, you seem to be one of those predatory sharks who only care about profit and don't even flinch when putting someone into a house they know they can't afford.

    • Posted By: SlyFrog @ 05/06/2008 14:14:09

      Comment: Yes Swampysgirl, god forbid the media get in the way of buyers getting ripped off by overinflated house prices. Lord forbid we prevent the industry from "healing," which appears to be code for the good old days of realtors and brokers suckering people into paying more than they can afford for a house that is worth far less than the price tag on it.

  • Posted By: swampysgirl @ 05/06/2008 1:31:52 PM

    Comment: This is absolutely ridiculous....as long as the media publishes crap like this this industry is NOT going to be able to heal. Yes, there are problems, but quit harping on it and let things settle - quit scaring the sellers and potential buyers. Yes, there are some people who are in rough situations, unfortunately - but I wish the media would QUIT with the gloom and doom - its really hindering the industry more than anyone knows! I'm so sick of hearing about this DAILY.

    I work in real estate and when articles like this are published it just hurts the industry a whole. You don't hear stories like, while home sales may be down, property values are inching up and holding steady...no, all you hear about are negative things that I care not to mention - report on the guy who saved a life down the street or something postive...

    • Posted By: Terrils @ 05/07/2008 15:58:01

      Comment: "I work in real estate"

      Aha. Rant explained. It isn't the media who screwed things up. They're merely letting people like us know what the real story is, so people like YOU won't be able to rip us off.

  • Posted By: swampysgirl @ 05/06/2008 1:25:04 PM

    Comment: ARTICLES LIKE THIS ARE REDICULOUS! Stories with headlines like this article WILL NOT help anyone. The more the media preaches gloom and doom the worse things may get. I wish media outlets would just leave it alone and let the industry heal from the damage the media has done. Sellers that have their homes listed for sale now, need to sell and then there's the buyers, who are wanting something for practically nothing.

    Yes, its true that there's a credit mess out there, but if you keep publishing crap like this - its not going to get any better.

    Drop it already!

  • Posted By: cdugga @ 05/06/2008 1:02:00 PM

    Comment: Affordable housing. That is the biggest problem and the largest contributor to the housing bust and the economic disaster it precipitated. Wages for at least half if not allot more people than that have been stagnant while the wealthy continue to find new financial tools to invest their extra monopoly money. So real estate developers have been building huge expensive houses that in fact most people could not afford but were able to finance with the funny money that was shelled out by the mortgage industry. Do you really think the housing crises would have occurred if allot of the new real estate developments had built smaller more affordable homes which most people could have gotten reasonable loans on? Like instead of neighborhoods of 5000ft monstrosities for more than a quarter million each, how about a more realistic neighborhood of 2-3000ft homes for less than 100 thousand dollars? But what developer is going to do that when wall street investors are demanding higher returns on the investment tools they created to take advantage of the cheap money (demanded by those same investors). And now people like me who bought an affordable house have had the risk and cost of the Mcmansion bust passed on to us. My 40k house is almost payed off now, but during the first few years of financing while the boom was going on there wasn't a week that did no go by that I did not rcv phone and mail offers for equity loans far surpassing the real value of the house. I say let the people who made this mess pay for it. That is the wall street investors, ignorant home buyers and especially the mortgage industry.

  • Posted By: cdugga @ 05/06/2008 1:01:35 PM

    Comment: Affordable housing. That is the biggest problem and the largest contributor to the housing bust and the economic disaster it precipitated. Wages for at least half if not allot more people than that have been stagnant while the wealthy continue to find new financial tools to invest their extra monopoly money. So real estate developers have been building huge expensive houses that in fact most people could not afford but were able to finance with the funny money that was shelled out by the mortgage industry. Do you really think the housing crises would have occurred if allot of the new real estate developments had built smaller more affordable homes which most people could have gotten reasonable loans on? Like instead of neighborhoods of 5000ft monstrosities for more than a quarter million each, how about a more realistic neighborhood of 2-3000ft homes for less than 100 thousand dollars? But what developer is going to do that when wall street investors are demanding higher returns on the investment tools they created to take advantage of the cheap money (demanded by those same investors). And now people like me who bought an affordable house have had the risk and cost of the Mcmansion bust passed on to us. My 40k house is almost payed off now, but during the first few years of financing while the boom was going on there wasn't a week that did no go by that I did not rcv phone and mail offers for equity loans far surpassing the real value of the house. I say let the people who made this mess pay for it. That is the wall street investors, ignorant home buyers and especially the mortgage industry.

  • Posted By: Where'sOsama? @ 05/06/2008 12:11:27 PM

    Comment: This Lereah guy is an idiot. He has done his part to screw up the economy with his big, dumb, greedy mouth. How did this guy get so far in life? Oh yeah, he's a republican and I'll bet he and his former organization supported The Bush-Cheney gang. Another loser (book title) looking to get back into the field again to rob someone else. He should go to jail with the rest of them. Pure idiot.

  • Posted By: ThePrairiePrankster @ 05/06/2008 11:47:43 AM

    Comment: "Today's real estate market is the result of rational decision making based on supply and demand conditions," he wrote. "With today's economy, home owners are in no danger of experiencing a widespread fallout of home prices."

    Why should any of us believe one word David Lereah says? Great minds like his caused the bust and all the disinformation he provided was nothing more than empty words, hollow without facts or logic. Thank God my home is paid for, fool bankers tried to get me to take a new mortgage repeatedly to enjoy the benefits of my home ownership and I laughed at them. Why mortgage a house that is paid for? So what if I did not drive a new car every 2 years and go overseas to vacation, I still got a paid for house and a good job. I count my blessings everyday and am glad I did take the "advice" of greedy imbeciles such as Lereah.

 
 
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