Jeff Ostrowski
Alexandra Clough
Home > Real Time > Archives > 2008 > October > 28 > Entry
NAR’s Lawrence Yun: Don’t believe the hype about the real estate market
As the housing market’s chief cheerleader, National Association of Realtors Chief Economist Lawrence Yun never fails to find a ray of sunshine in the gloomy housing market.
His cheerleading has bordered on the absurd amid plummeting home prices, but Yun sounds quite sensible in this analysis of the housing market’s myths. Here are three of the 10 myths Yun tackles:
Myth: Peak-to-trough home price declines to date have been about 20 percent.
The Reality (according to Yun): Measurements of home price declines can be skewed depending on which homes in which markets are being measured. For instance, the Case-Shiller Index, which indicates that home prices are down 20 percent, is skewed towards homes with subprime loans and other distressed sales. These troubled homes have experienced a steeper decline than home prices in general. Government data based on loans backed by Fannie Mae and Freddie Mac and data from the National Association of Realtors suggest much more modest price declines.
Myth: The smaller number of new homes now under construction reflects the dismal outlook for housing.
Reality: The inventory of homes on the market is very high, so the last thing we need now is more new homes being built. Home builders have cut back sharply on production, which will help lower inventories and stabilize prices. The builders have done exactly what market forces are dictating under current conditions, Yun says.
Myth: Even when the housing market recovers, home price growth will be only 4 to 6 percent per year — less than historical average returns for the stock market.
Reality: Most buyers put less than 20 percent of their own money into a home purchase; this borrowing power can translate to a greater rate of return. This is how Yun explains it: Home price appreciation historically has been about 1 to 2 percentage points higher than consumer price inflation, which translates into about 4 to 6 percent per year. But this growth rate cannot be viewed as a rate of return like the stock market. The reason is that most people do not buy a home for all cash, instead making a cash down payment and borrowing the rest. The leverage this borrowing creates can magnify returns — and losses. If price growth returns to historic norm, the price growth of 4 percent can easily turn into 20 to 30 percent rate of return if the home buyer makes a down payment of 10 or 20 percent.
Permalink | Comments (11) | Post your comment | Categories: Jeff Ostrowski
Comments
By Get in the Game
October 28, 2008 11:17 AM | Link to this
God Bless this guy - Yun!
What a job!
In the face of ridiculous odds AND supporting evidence, THIS GUY is still stating the housing market is:
1) the fault of the media
2) not as bad as it seems
3) originated with sub prime
4) more and more excuses
THE problem is that houses are for quiet use and enjoyment.
They are NOT investments as Myth #3 states.
And the idea of households taking on MORE DEBT is
DUMB!!!
Households should be saving money not borrowing more from Asia.
Again, plenty of places to rent, in great neighborhoods, at attractive prices.
By Mr. Solvent
October 28, 2008 11:19 AM | Link to this
Jeff, I can’t believe you’re giving this guy any press at all. I deal with sales in this market all day, every day. We’re looking at declines of up to 50% in MOST communities, not just some even more in others. One just came across my desk today, purchased in 2005 for $390K…sale price today $180K.
By JJ
October 28, 2008 12:25 PM | Link to this
On the bright side, the incessant production of clearly inane drivel is allowing people to truly see Yun for the liar he is paid to be.
Even his own ilk would love for him to shut up.
By Larrry Y
October 28, 2008 1:30 PM | Link to this
This guy makes a lot of sense - at least to me. Like all good investment decisions it’s best to buy when the market is most negative like today. I think he is on to something here and it makes want to look closely for a good deal soon! See ‘ya..gotta call my RE broker.
By delray dude
October 28, 2008 7:43 PM | Link to this
+++++ following the case-schiller (which IS THE MOSE ACCURATE - it tracks SAME home sales) over 20 years, one sees peak for “miami area” was december 2006. Extrapolating the normal linear inrease which was pretty constant for most of that time means that we should be at AUGUST 2002 prices today. 12/2006 peak to 8/2002 prices is a drop of 47% from peak prices.
The raw data is available from Case-schiller and you put it into Excel yourself and see
If you pay more than that you are gonna get screwed in the long term.
Just remember, in order to buy a 300k home one needs an income of almost 100k. How many people make that much money?. ++++++
By Local guy
October 28, 2008 8:15 PM | Link to this
Did anyone complain when the prices went up 50%? They had to come down, just because people paid stupid money for a home has no merit. They sould drop like a rock the went up based on borrow as much as you can. Mr solvent that deal that came across your desk may be the real value of the home, it may have sold 2 to 3 times in a few years,
By Mike Fink
October 28, 2008 8:41 PM | Link to this
“Just remember, in order to buy a 300k home one needs an income of almost 100k. How many people make that much money?”
About 15% of the households in the United States:
http://en.wikipedia.org/wiki/Sixfigureincome
Not NEARLY enough to come close to absorbing all the 300K+ homes on the market. That’s why the 400K (and 300K) median prices are SO insane, especially in FL (which has even fewer 6 figure earners due to our low wage status), only 10-15% of the population could possibly afford them!
Also, 3X income is pretty aggressive in FL, carrying costs are VERY high, property tax and insurance are much higher then most areas of the country, which reduces the buying power even further.
By Eric
October 28, 2008 8:52 PM | Link to this
Mr Yun’s job is to spin good news out of bad. REALITY CHECK:…look at recent sale prices and current housing inventory! Short sales and repo’s are what’s selling. There will be more of both in the next few years.
By Not necessarily true
October 29, 2008 6:04 AM | Link to this
You don’t have to make that much to buy a 300,000 dollar home. My husband and I own our home outright (zillow priced at 500,000). We also have over 75% equity on three other homes (zillow valued over 350,000). How did we do it when we have never earned close to 100,000? The old fashioned way…we saved and put the max down on a fixer-upper in a good neighborhood. We have always matched the appraiser price of the seller but purchased the ugliest house in the best neighborhood. We then rented it out and let our tenants pay the mortgage. Sure, we haven’t made or lost money. You don’t see any earnings for decades (until you sell). Sure, it is a great deal of work and you don’t get to enjoy life like all of your friends. Our tenants live much better than us because they have disposable incomes. We do not. Everything goes to our investment. Now after 20 years of sacrifice, Obama will consider us to be making too much when we sell. No problem, we just won’t sell. We will rent because no one in their right minds will invest in real estate and in short time, the rents will skyrocket so it will benefit us. It makes no sense to withhold enjoyment for half of your life and make lower than average income to be considered rich when you sell the only asset you have. If someone else would have wanted what we acquired, they should have done the same thing we did. Excesses are created by those who put off enjoyment. If there is no incentive to do so, there will be no excesses for anyone. This is why communist countries are the most desperate places to exist…everyone is in a race to the bottom due to a lack on incentive to be productive.
By Jack McCabe
October 29, 2008 9:20 AM | Link to this
In my opinion Lawrence Yun, just like his predecessor David Lereah,has prostituted his academic credentials in order to be a paid shill spewing the propaganda and fairy tales of the NAR. I view his rhetoric with the same value as Aesop’s Fables, or the “make you rich real estate “gurus” on late night infomercials. What is really amazing to me is that newspapers for years now have been a conduit and distribution service for the Realtor’s Association dissemination of self serving propaganda, and continue to do so. When are any reporters or news services going to seriously question Yun for the absolute crapola he’s spread in the last two years since relieving Mr. “Why the Real Estate Boom Will Not End - And How You Can Profit By It” David Lereah. With so many people losing their homes because of believing the ludicrous misinformation they have spewed, I’ve often wondered how these two “economists” sleep at night.
By Old Real Estate Lawyer
October 31, 2008 4:10 PM | Link to this
Well, finally someone points out the TRUTH…the news media’s four year GANG-BANG on the real estate market is TOTALLY RESPONSIBLE for the CRASH! With SLEAZY REPORTERS like Jeff Ostrowski and Linda Rawls MASQUERADING foreclosure consultants as IMPARTIAL REAL ESTATE EXPERTS with fabricated housing horror stories and FALSIFYING and INFLATING monthly foreclosure statistics by 300% to SCARE AWAY HOMEBUYERS. The Palm Beach Post wants to DESTROY THE VALUE OF YOUR HOME and wants your property taxes to increase! Some home-town newspaper this liberal propaganda rag has become!! They sabotage property tax cuts by misleading readers and pimping for worthless leeches like illegal aliens, crack addicts and welfare cheats while attacking middle class homeowners!