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Home Publications Blogs Beat the Press Recovery In the Housing Market Does Not Mean Higher Prices: Is the Post Still Listening to David Lereah?

Recovery In the Housing Market Does Not Mean Higher Prices: Is the Post Still Listening to David Lereah?

Saturday, 03 September 2011 08:19

During the days when the housing bubble was inflating to ever more dangerous levels its main source on the housing market was David Lereah, the chief economist at the National Association of Realtors (NAR) and the author of the 2006 best-seller, Why the Real Estate Boom Will Not Bust and How You Can Profit From It. Remarkably, its main source now for the housing market is Lereah's replacement at the NAR, Lawrence Yun.

It seems that the Post still doesn't understand that there was a housing bubble. This means that prices fell from bubble-inflated levels and that they are not coming back. This is just like the NASDAQ which peaked at over 5000 in March of 2000. More than 10 year later it stands at less than half this level.

It's the same story with house prices. They peaked at levels that were more than 70 percent above their long-term trend. They still have not fully returned to their trend levels, having about 10 percent more to decline. There is absolutely zero reason to think that nationwide house prices will rise from current levels.

There continues to be an enormous excess supply of housing which can be most directly demonstrated by the fact that the housing vacancy rate remains near the record high set in 2010. There is nothing in the fundamentals of the supply and demand of the housing market that would indicate that we should expect house prices to rise from their long-term trend. 

This means that when the Post or anyone else refers to "speeding a housing recovery" in a way that implies higher prices, they are trying to tell you that they know nothing about the housing market.

Comments (5)Add Comment
written by izzatzo, September 03, 2011 12:04
Bubba, call Mr Lereah and tell him his keynote speech at the Bubba Banquet for Betting Baggers on the future value of Krugerrands has been cancelled.
written by denim, September 03, 2011 2:13
Charting trends should not dictate policy. There are more than enough Americans available to live in those vacant houses and even not yet built ones. What is missing is a housing policy like after WWII that had the goal of housing Americans. Those with the sharp pencil would do the country a service by concentrating on what needs to be done to house Americans rather than making a lot of poor us excuses.
housing bubble politics
written by Pat, September 03, 2011 5:15
"What is missing is a housing policy like after WWII that had the goal of housing Americans."

Is this a joke? For those not living under a rock, the Federal Govt directly fed the housing bubble with massive Govt policies to encourage home ownership, with Fannie / freddie backing of subprime loans, CRA rules to dictate to banks to loan to 'under-served' folks aka people who cant pay back their no-doc ARM loans, the mortgage interest deduction, and a blind eye to the package mortgage backedsecurities that were over-bought. that is on top of longstanding FHA and VA loan subsidies, ALL designed to subsidize home ownership. It all blew up.
And btw, we still have taxpayers on the hook for Fannie's bad decisions, and no politician or banker went to jail for the fraud that cost billions. Go figure.
Wishful Thinking
written by Scott ffolliott, September 04, 2011 11:08
"Recovery In the Housing Market Does Not Mean Higher Prices: Is the Post Still Listening to David Lereah?"

Wishful thinking of the better class, n'est-ce pas?
written by Moopheus, September 04, 2011 7:22
"It seems that the Post still doesn't understand"

You keep using this phrase as if the problem is that the Post's (and many other newspapers) editors are just unaware or incapable of understanding. This is clearly not the case. Well, it may be in some cases, but overlooks (or perhaps just glosses over for the sake of politeness) that newspapers normally have a strong pro-real-estate industry position due to the advertising revenue it brings in. They see their job as selling real estate. it's easier to understand what the papers say if you look at what their actual position is. We know that the pre-bubble historical trend was for housing to appreciate long-term at a rate equal to or maybe slightly ahead of the rate of inflation. In other words, housing retained value but wasn't a huge profit-maker (local markets could vary, of course). Which means in these low-inflation days, we wouldn't expect to see much appreciation anyway. The bubble days were so crazy, people have forgotten what it was like before: the market is closer to normal now than not.

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About Beat the Press

Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C. He is the author of several books, his latest being The End of Loser Liberalism: Making Markets Progressive. Read more about Dean.