Homebuyer optimism dodges reality

Is there too much excitement about the recent gains in the housing market? Can the jump in sales figures this past summer truly be sustained?

Some of the nation's foremost housing experts question some national data and trends and are wary about the number of adjustable-rate mortgages (ARMs) that are scheduled to adjust in the next nine months.

On the surface, the outlook heading into the colder months appears to be looking up, giving real estate salespeople and industry service providers a small measure of relief and confidence. The National Association of Realtors' Pending Home Sales Index in September was up for the eighth month in a row, reaching its highest level since December 2006.

Another one of the nation's most popular gauges, the Case-Shiller Home Price Index, which follows home prices in 10 of the nation's major cities, sharply changed direction between April and July after being down considerably between January and April. The gauge, which can be viewed as a homeowner confidence check, implies that consumers believe home prices will rise significantly in the next 10 years.

One analyst who sees this as problematic is David Lereah, the former NAR chief economist who is now president of Reecon Advisors Inc., a real estate advisory firm located in Washington, D.C.

"These results are surprising since the economy continues to shed jobs on a monthly basis and foreclosures continue to dominate the housing landscape," Lereah said. "The Case-Shiller survey indicates that homebuyer optimism overshadows economic reality. I worry that they are becoming overexuberant once again."

According to the survey, homebuyers believed (on average) that home values would increase 11.2 percent annually for the next 10 years. The median response (half above and half below) was 5 percent. According to Lereah, the numbers are overly optimistic and suggest that homebuyers are convinced that the housing "contraction" is over and it is now a good time to buy.

John Burns, who leads a national real estate consulting firm based in Irvine, Calif., recently returned from the Federal Reserve's Commercial Real Estate Symposium where analysts from all property sectors shared opinions on the industry. Commercial vacancy rates have been down in most major markets and in several areas around the globe. ...CONTINUED

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