Greed is good ... until things go bad

LAS VEGAS -- Greed fed the rise and fall subprime mortgage market, National Association of Realtors chief economist Lawrence Yun said today during a presentation at the association's annual conference.

The title for his presentation, which may be appropriate considering it was delivered in a Vegas hotel/casino: "From the roulette table to the closing table: Lessons for serious buyers."

"Many mortgage lenders said, 'Well, where are the high commissions?'" Those lenders were drawn to the subprime market's high commissions, and global investors also sought a "juicy return" that subprime offered, Yun said. While there were risks, Wall Street promised to "slice and dice those risks away" with financial products such as collateralized debt obligations, he said, and ratings agencies assigned top ratings for subprime-related investment products.

"What they did not realize -- when you lend to risky people there's a potential that they may not pay it back." And while many others have similarly summed up the spiraling problems in the mortgage and credit markets, Yun has a rosier outlook than some economists -- he predicts a return to a healthier real estate market next year.

John Tuccillo, a real estate consultant and former chief economist for the NAR, said Realtors and mortgage lenders share some blame for the mortgage problems by encouraging some buyers to purchase homes they couldn't afford, and he said economic problems could drag out the housing market slump into 2009 (see Inman News story).

Also today, NAR announced that existing-home sales are projected to fall from 6.48 million in 2006 to 5.67 million this year and remain roughly flat at 5.69 million in 2008. And the median price of existing homes is expected to fall 1.7 percent this year compared to 2006. An NAR index that gauges pending home sales, based on purchase contracts, fell 20.4 percent in September compared to September 2006.

All rights reserved. This content may not be used or reproduced in any manner whatsoever, in part or in whole, without written permission of Inman News. Use of this content without permission is a violation of federal copyright law.