The National Association of Realtors this week lost a good man, David Lereah, though he is staying close to home by moving to Move. Lereah did not get it all right, but who did? If you read his words closely, he sent out warnings, but he also got caught up in the housing market exuberance.

Here is a synopsis from Lereah’s book, “Why the Real Estate Boom Will Not Bust – And How You Can Profit from It: How to Build Wealth in Today’s Expanding Real Estate Market“:

“Although some economists believe that the real estate market may be headed for bubble territory, Lereah disagrees, arguing that continued low interest rates, a healthy boomer population, and the ‘boomer echo’ of next-generation buyers should keep the market healthy for at least the next 10 years.”

The demographics-as-destiny argument broke down in the last year, as a loosey-goosey subprime mortgage program has stopped propping it up. And the housing market is much worse because of it.

Lereah was in a precarious seat. NAR by the nature of its members must remain optimistic. Realtors are commission-based advisors like stockbrokers. If the market were not rising then why would people invest in real estate or stocks? Nevertheless, there is a clear line between cheerleading for the market and overstating home price gains. Realtors who blow smoke should not be trusted; the stakes are too high. 

Hoopla no doubt was central to this market. The ballyhoo was generated by a host of characters in the real estate value chain, including Presidents Bush and Clinton, Wall Street, the mortgage and real estate industries and the average Joe who got caught up in the paper profits from buying a home.

In 2003, when my son Cal was in college he told me stories of his friends who were flipping real estate. I discouraged him, though I was nervous that I was being too cautious. This raises the long-term-versus-short-term-benefits discussion.

After the Savings and Loan crisis of the 1980s, the U.S. government quickly liquidated its property holdings that were foreclosed on by bankrupt financial institutions in which the government held insured deposits. If the government had held onto these buildings, it would have paid for the financial crisis many times over.

The same is true now with homeowners who got in over their heads: people who are being foreclosed on would eventually realize value from home ownership if they could hold on. Many cannot.

Right now, the long-term benefits of real estate seem like an empty argument against the short-term consequences of shoehorning people into a first-time financial experience that they cannot afford.

Oddly, this failed experiment has broken the back of the market driver — demographics. I suspect recovery will be painfully slow.

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