A Real Estate Bull Has a Change of Heart

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Once a serious booster for real-estate investment, David Lereah, chief economist of the National Association of Realtors, is now sounding a note of pessism. In 2005, he wrote Are You Missing the Real Estate Boom, which suggested profits would "climb through the end of the decade." Robert Siegel talks with Lereah.

ROBERT SIEGEL, host:

As we heard from Scott Horsley, the National Association of Realtors says buyers no longer see housing as a short-term moneymaker. Over the past several years, the association has been represented often by David Lereah - their chief economist - who has been a booster for real estate investment.

Today is Mr. Lereah's last day on the job. And he has stopped by our studio. Welcome.

Mr. DAVID LEREAH (Chief Economist, National Association of Realtors): Thank you very much.

SIEGEL: Uncharacteristically nowadays, you're not all that upbeat about real estate. You recently predicted a real estate recession.

Mr. LEREAH: Well, we are in the middle of a recession right now. No doubt about it. The recession started almost 18 months ago. So this has been a regular recession for real estate. And I think the big news was that this recession is going to be longer than we thought. One of the primary reasons is the subprime marketplace, really blowing up on us. And that's going to postpone whatever recovery we thought we would have this summer.

SIEGEL: When you say regular recession, you said for the first time since the '30s, we're going to see an actual decline in real estate values.

Mr. LEREAH: In terms of values, yes. But I measure recession, any recession, by quantity, by sales. When sales are down, they were negative last year. And they're going to be negative this year. It's the magnitude of the negative that tells us if this recession was harsh or not. This recession so far has been lighter than the previous two recessions that we have experienced in real estate.

SIEGEL: But to put this in some context here, you have been a positive voice for real estate. So much so that a couple of years ago, you published a book in 2005, who's original title was "Are You Missing the Real Estate Boom?," To which I must say, I already missed the real estate boom. But you were saying, the subtitle of that book was "Why Home Values and Other Real Estate Investments Will Climb Through the End of the Decade."

What went wrong? Where was the point where you stopped seeing real estate values going up through 2010 and something happening to a recession?

Mr. LEREAH: Great question. First, the boom was a Doubleday-Random House word that put on table.

SIEGEL: Those are your publisher, you're telling me.

Mr. LEREAH: It wasn't my title, unfortunately. So, it was a poor choice of title.

SIEGEL: You're not the first person with an excuse in this studio.

Mr. LEREAH: But if you actually read the book, I say the boom is not good - it cannot sustain itself. And I actually redefine a boom to be a healthy expansion.

SIEGEL: Well, you said in the introduction leaf that this would be the golden age of real estate, to get back on this.

Mr. LEREAH: Yes, most definitely. And let me get back to that. So I just wanted to get the record straight about a boom. It's really - we're looking for a healthy expansion. And we were on the road to a healthy expansion for the remaining years of this decade. All the stars were aligned. We had a growing economy, low mortgage rates, great demographic trends with the boomer generation, boomer children, record immigration, older people living longer because of improved health care technology, the Internet, everything was aligned for great real estate expansion.

We had that from 1992 all the way to 2001. And then something happened. It was 9/11. 9/11 created a new type of real estate. Real estate became a safe haven. Money flowed out of the stock market into real estate in a substantial, meaningful way. That created a boom. And by 2004, the speculators came in. They strayed from the fundamentals. And then, the lenders started to get as much as water as they could out of the sponge by underwriting policies that were not as responsible as they should have been.

SIEGEL: But beyond the impact of 9/11, you mentioned the subprime lending market. Hasn't that been falsely sustaining demand for housing all this time by bringing in homebuyers who really don't have good enough credit to buy a house?

Mr. LEREAH: Absolutely. Absolutely. And that was the problem. That this real state expansion turned into a frenzied environment because of the speculative investors, combined with the lenders that were offering mortgage products to borrowers that were too high risked in home buying.

SIEGEL: But what do you say to the listener who says, now he tells me. A couple of years ago - when I might have been more shrewd - the realtors were saying it's gang busters.

Mr. LEREAH: Oh, I wish I could with 20/20 hindsight. But my goodness, we didn't know that the speculative investors were straying from the fundamentals so quickly and so abruptly.

SIEGEL: Well, David Lereah, thanks a lot for stopping by and talking with us.

Mr. LEREAH: I thank you.

SIEGEL: David Lereah who leaves the job today as chief economist for the National Association of Realtors.

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