Jun172014
Q&A with Lawrence Yun of NAr
Lawrence Yun of NAr is a paid industry shill who offers optimistic forecasts and spins housing market data for the National Association of realtors.
Can the credibility of the National Association of realtors fall to less than zero? Lawrence Yun, chief economist for the NAr, is following in the footsteps of the thoroughly discredited David Lareah, working diligently to reduce the already low credibility of the NAr to less than zero by continually spinning market data and offering optimistic housing market forecasts that frequently prove completely incorrect.
He was recently interviewed by the San Jose Mercury News about the potential for a housing bubble in the Bay Area. Today’s post embellishes that original interview by asking and answering the questions the really needed to be asked but weren’t.
Q&A: Lawrence Yun, voice of residential real estate, doesn’t see a bubble
By Pete Carey, Posted: 05/31/2014 07:42:22 AM PDT
Lawrence Yun in many ways is the voice of residential real estate. As the National Association of Realtors’ chief economist and forecaster, his predictions are followed, analyzed, praised and criticized by real estate professionals across the U.S., and noted in Congress when legislation involving residential real estate is being considered. When he speaks, he usually draws a crowd. …
Street performers at Venice Beach draw crowds too. I would go listen to Lawrence Yun speak, not because I thought he had anything insightful to say, but because I would like to witness a polished bullshit artist at work.
Q: Did you see the crash coming?A: Everything looks clear in hindsight, but during that time one had to ask the question: Is this sustainable? It was during a time when lending was opening up to a point at which there were no underwriting standards. It clearly was abnormal.
When anyone who was the slightest bit rational asked those questions, they concluded it was not sustainable. Hundreds of ordinary citizens blogged about these excesses at length, but they were loudly criticized by idiots like David Lareah, the former chief economist of the NAr as “alarmists” or “doom and gloomers.” It was even widely suggested the people who accurately pointed out that the Ponzi scheme was not sustainable were accused of being jealous over the good fortune of the fools who participated in the mania.
It was hard to say whether it would crash or taper off without price declines, but it was clearly a misalignment of all the fundamentals. During the height of the bubble, the NAR put out a brochure on subprime mortgages for Realtors to use with consumers. It said, here’s what “teaser rate” means, and here are the potential risks involved.
He is trying to diminish the NAr’s culpability by claiming they put out some literature extolling the risks of toxic lending. The real attitude of the NAr is apparent from their marketing literature. The piece below is from 2006.
Q: In the Bay Area, prices are skyrocketing again, and some fear there’s a new bubble forming.
A: It’s a little different this time, compared to 2005.
It’s different this time? LOL! I can’t believe he actually said that!
Underwriting standards are much tighter. People who get mortgages are meeting very strict standards.
That much is true. If anything provides stability to the market, it’s the solid underwriting since the bust.
Second, there are large cash transactions. People are cashing in stock options and Asian buyers are coming in with all cash.
First, the Asian buying meme is a myth, and second, what happens when China’s housing bubble bursts and those buyers become desperate sellers?
Any time there are cash transactions and higher down payments, the risk of potential decline is reduced. That is even though the price increase is fairly rapid and clearly not sustainable.
Q: What happens then?
A: The question becomes: Is it going to reverse and decline, or flat-line and taper off? I would say that first, prices are not setting new highs yet. The market is still in recovery mode. Together with tighter lending standards and crash transactions, that means there’s less risk. A decline in the tech economy would be the primary reason for a crash. I’ll add that any economic data that’s seeing a strong upper movement could have a temporary push downward before going up again. Prices in the San Francisco Bay Area might have a little volatility, but I don’t see a sustained decline.
There you have it, Bay Area buyers. Lawrence Yun of the NAr says you have nothing to worry about. Do you feel secure now?
Q: There’s also the emergence of the Asian buyer as a force in the market.
A: China’s economic growth is relatively speaking still solid, and it is creating millionaires right and left who want to divest out of China. I think there will be a continuing increase of overseas Chinese buyers in the Bay Area.
I think he is completely wrong. China’s economy is built on their real estate Ponzi scheme, and with the housing bust bursting in China, any influx of Chinese cash will likely taper off. In fact, I will go as far as to say that Lawrence Yun’s prediction of continued influx of Chinese capital marks the peak of these inflows. This will be another example where he gets it totally wrong.
Q: A major complaint here is the lack of inventory. Do you have any thoughts on that?
A: The main way to get genuine fresh inventory is for builders to build more homes.
No, the main way to get inventory to the market is to stop the banks from can-kicking with loan modifications and force them to write down their bad debts and foreclose on the people who can’t afford their houses.
Another way might be for people to decide to move out of the Bay Area, but that’s not likely to happen because of the area’s strong job growth. And building regulations in the Bay Area are stricter, broadly speaking, than in the rest of country. The only real building that can occur is in the outlying regions. That means steadily worsening commutes, unless more high rises are built.
Q: Those high rises are pricey. What’s left for the middle-income buyer?
A: People who own a home are smiling about their equity, and other people just feel shut out. Even people on six-figure incomes have sticker shock when they see home prices. It’s leading to social tensions. Many people in the middle, who have moderate incomes, view owning a home as part of the American dream, but they are denied that dream. They are also denied that ladder of advancement, where you own a home, build equity and trade up. There needs to be more supply to moderate or taper the price growth so people can use their savings to buy a home. When prices are rising faster than savings, it’s a discouraging, demoralizing situation.
The middle class is getting priced out of the Bay Area, and Lawrence Yun is right in that the building restrictions are a big part of that problem.
The questions that weren’t asked but should have been
{the following is realistic fiction}
Q: You’ve been wrong so often, why should people take your forecasts seriously.
A: Economists are wrong 50% of the time because the economy is so complex. We analyze data and do our best to spin that data optimistically to give homebuyers comfort that they are making the right decision.
Q: Do you feel any responsibility to the homebuyers who bought houses because they believed your spin when prices were spiraling downward?
A: Each homebuyer is responsible for their own decisions. I present information to help them make decisions, but I also have a responsibility to the NAr membership that wants to see more transactions.
Q: So when weighing out your responsibilities, your duty to the NAr membership outweighs your responsibility to the public?
A: I take both responsibilities seriously, but if I am going to make an error, it will be in favor of the NAr membership that pays my salary.
Q: Do you have a formula or secret manual for spinning bad market data?
A: Providing a positive perspective is a practiced art. No matter how bad things may look, there is always a bright side. Most buyers don’t read NAr forecasts for objective information anyway; most read because they want confirmation for an emotional decision they already made. I provide the assurance they look for.
Q: Does it bother you that your forecasts have so little credibility among industry professionals and the public?
A: I would argue that my forecasts do have credibility among the buying public, at least among those who are looking for validation of their decision. It really doesn’t matter if industry professionals or people who aren’t in the market for buying a home consider me credible.
Q: So would you say your forecasts are merely dressed-up marketing propaganda?
A: There is an element of marketing to our forecasts. I doubt the NAr would employ a chief economist if they didn’t believe the work of that economist helped increase the number of commission-generating transactions.
Q: Do you see the NAr ever changing their policies to focus on providing accurate data and reporting?
A: Accurate forecasts wouldn’t serve the NAr membership. There are times when it’s not a good time to buy, and there are times when it’s not a good time to sell. If the truth be told, there would be fewer transactions, which is not what the membership wants. Since the desires of the membership to have increased transaction volumes won’t change, I don’t see them changing their policies toward spin either.
Q: Your predecessor is widely regarded as a laughing stock and buffoon. How do you think you will be remembered.
A: I worked tirelessly to advance the agenda of the NAr during a particularly difficult period. I don’t expect any recognition for my good service from industry professionals, but I think the NAr membership will favorably remember my steady guidance of the data propaganda machine.
[listing mls=”OC14125575″]
If ever unsure, just ask an economist, then do the opposite
Most economists make a great contrarian investment signal. If you sell when the consensus says to buy and visa versa, you would probably make a lot more than following the herd.
Freddie Mac bets big on low down payment mortgages
Here’s the reality: Down payment requirements are not as ridiculously costly as people believe, according to Freddie Mac.
As proof, the government-sponsored enterprise said their purchase of mortgages with down payments under 10% more than quadrupled between 2009 and 2013.
However, the demand for lower downpayment mortgage appears underwhelming.
Potential homebuyers seem significantly unaware that more than one in five borrowers who took out conforming, conventional mortgages this year put down 10% or less.
According to a recent survey by Zelman & Associates, borrowers believe the percent requirement for a down payment is ridiculously higher than what is actually necessary, believing that lenders require equity of 11% to 15%. It’s all spelled out on a recent blog post by Chris Boyle, the head of the Single-Family Sales & Relationship Management with Freddie Mac.
“Zelman’s survey of renters and people living in someone else’s house is revealing. It’s a wakeup call to the housing industry that we have more to do to let the next generation know they can get a conforming, conventional mortgage with a down payment of as little as 5 percent (sometimes with as little as 3 percent coming out of their own pockets),”
What’s more is that the people surveyed are the people who should be in their prime homebuying years.
The survey found that 38% of 25-29 year olds and 42% of 30-34 year olds said lenders demand minimum down payments of 15%.
As a whole, 39% said that the minimum down payment requirement is at least 15% of the purchase price.
Furthermore, only 28% were optimistic that they could qualify for a mortgage, including 30% of 25-29 year olds and 40% of 30-34 year olds, meaning that 72% of traditional “first-time” homebuyers could be underestimating chances for getting a mortgage.
“Depending on their credit history and other factors, many borrowers can expect to make a down payment of about 5% or 10%,” Boyle explained.
However, Boyle did note that borrowers putting down less than 20% will need to buy mortgage insurance.
Nah, I think they’re doing way too much already; the next generation will be better off thinking that 20% down is mandatory.
May Inventory Up; Home Sales Down
The housing market took an unexpected dip in May, with home sales dropping year-over-year despite a surge in new listings.
A report published by Redfin’s Research Center indicated that home inventory was up 9.1 percent in May. That number represents the highest number of new listings to come onto the market in the last four years. The biggest increases in new listings were in Ventura, West Palm Beach, and Baltimore.
At the same time, the actual number of homes sold dropped 10 percent. The drop in actual sales surprised analysts, who had been predicting a flood of new home purchases once inventory was in greater supply.
The drop in actual sales creates questions about whether potential buyers are as interested in getting into the market as they were once perceived.
“Housing is at an inflection point, where traditional buyers are needed to fill the gap in demand left by waning investors who dominated the market last year,” said Redfin chief economist Nela Richardson. “Low wage growth has stunted demand in some metros; others have been plagued by persistently low inventory. Metros that are reversing these trends, with rebounding job growth and inventory increases, will see the resurgence of traditional buyers necessary for stable housing markets.”
The report notes that real estate agents are seeing the balance of power shifting back in the buyers’ direction as higher inventory gives them more choices and more negotiating power.
“The past two years have been extremely challenging for buyers,” remarked Los Angeles-based agent John Venti. “For example, last spring it wasn’t uncommon for homes to have upwards of 20 to 30 offers. This year, I’ve seen the market shift in buyers’ favor; they are now having a much easier time finding homes and getting their offers accepted.
“Demand is still high, but the inventory crunch is easing as more listings hit the market,” he finished.
“The drop in actual sales surprised analysts, who had been predicting a flood of new home purchases once inventory was in greater supply.”
Performance reviews are apparently not standard protocol for certain career paths…
They can probably find a job with the NAr after Yun leaves.
May brings no sign of spring housing revival
Construction on new homes falls 6.5% in May and builders seek fewer permits
permits for new construction fell by 6.4% in May to a 991,000 annual pace, the slowest in fourth months. Permits are a sign of future intentions and reveal whether builders are optimistic.
The U.S. housing market has cooled off since late last year after a spike in home prices and an increase in mortgage rates from decade-low levels. Economists had expected construction to pick up once warmer weather arrived but so far there’s little sign of a spring revival.
In May, housing starts declined for both single-family homes and the more volatile multi-unit segment. Starts rose slightly in the Northeast and Midwest but fell 7.3% in the South and 15.2% in the West.
http://www.marketwatch.com/story/may-brings-no-sign-of-spring-housing-revival-2014-06-17?dist=beforebell
It is being reported that the world’s central banks own $29.1 trillion worth of stocks out of the total world stock value of $62 trillion. I wonder how much of the Fed’s $4.5 trillion balance sheet is in stocks.
Not much I guess. I’ve seen their “beige book” a year or so ago. It’s mostly short to medium term treasury. But bond buying [by the FED] does create stock bubble beside driving rates down and some central banks with no money printing mechanism like the FED need to create some returns so they buy stocks. So basically the FED is exporting asset inflation to the rest of the world via their QE purchases. Every one’s a gambler in this global casino. Eventually someone will get burned.
I know little to nothing about central banks other than the Fed. Where do central banks without a money printing mechanism find the funds to buy stocks?
I tend to think that it is a given that the buyers, central banks, must have printed/created the money with which to purchase. World GDP is about $70 trillion.
Central banks do print money based on the following: economic growth (money supply increase) or stimulus measures (aka money printing). However, the US does have large trade deficit plus being the reserve currency so the central banks is using the account surplus and reserves to invest to get a return. Traditionally it has been U.S and other bonds but since everybody is driving interest rates so low. That is creating a dilemma of where to park the money and the double whammy is equities present the best investment with the lowest perceived risk at this time due to the high public debt levels everywhere.
But I’m not sure how much higher can stocks goes if they already own nearly half of the shares market. But if they do sell than the dash for cash will create one epic sell off. This is setting the table for the eventual long term rise in interest rates due to risk of default rising. Eventually, the high rates will get to equities.
What “Low-Flation”? Core CPI Jumps Most In 3 Years As Food Costs Push Higher
While housing may be getting worse in the US, it seems entirely possible that matters are much, much worse than previously imagined in China. Hurray for sub-prime mortgages? I mean, why not? What could possibly go wrong?:
“To its credit, the government is warning consumers to beware of too-good-to-be-true housing pitches. But the clampdown is cosmetic at best. As long as the real focus in Beijing is on meeting the official 7.5 percent annual growth target, the odds that authorities will choke off all these financing shenanigans are slim. Subprime lending has become both a way to fuel economic activity and to convince Chinese families that their wealth is rising enough not to challenge the Communist Party. It’s delaying an economic, and possibly a political reckoning.”
Link: http://www.koreaherald.com/view.php?ud=20140617000462
If they are resorting to subprime, they are eliciting the final group of bagholders to take the fall.
China has a subprime bubble for banks, builders and wealth management companies. Different time and group but same problem (so no it’s not different this time). This is being driven by the government to create the illusion of growth, but they are probably realized that it has gone too far. I believe China count building construction as part of GDP. Look at the Chinese stock market, it has topped out in 2007 very much similar to the US stock market topping out in 2000 and later the real estate top of 2006/7 (during this time the us stock market does not top in nominal value) . So for China the real estate top was probably 2013.