Well, David Lereah and David Seiders are still heavily in CYA mode (what ever happened to ‘housing never goes down’, ‘it’s different this time’, ‘houses are different from stocks, people live in houses’, ‘if you paid off your mortgage you’re unsophisticated’, ‘not bubbles, just balloons’?):
“It’s difficult to follow the strongest year ever,” said David Lereah, chief economist for the National Association of Realtors trade group, which has about 1.2 million members. “The boom is obviously winding down. That’s what we’re all saying and observing.” Existing-home sales should drop about 4 percent to 5 percent this year, compared to the 2005 levels, Lereah said, and new-home sales should drop about 5 percent to 6 percent year-over-year.
Price drops are possible in some “very, very hot metro markets,” he added, though “it’s very difficult to know which markets they will be right now.” Nationwide, though, Lereah expects home-price appreciation to be up about 6.1 percent this year, compared to a rise of 13 percent in 2005.
Lereah said, “Investor activity is by far … the biggest risk that the housing sector is going to face this year, because investor activity had gotten to levels that we had never seen before. And we are in uncharted territory.” Speculators who bought properties to flip quickly may be left at a loss, as interest rates are rising and the market is in transition from a seller’s market to a buyer’s market.
David Seiders, chief economist for the National Association of Home Builders trade group, said, “I think the biggest risk would be for investors not only to stop investing, but to move those units back onto the market in large volume, and that could create a bigger problem. This is kind of new to us,” he said, adding that it’s a “major uncertainty” where investors would put their money if they pulled it out of the real estate market.
“All of us will be observing keenly,” Lereah said. In March 2005, the Realtor trade group released a study that showed a high level of investor activity in the housing market: 23 percent of all homes purchased in 2004 were for investment, and another 13 percent were vacation homes.
What about all those people who “bought” houses to live in with “toxic” loans or did cash-out refis? Aren’t they speculating too, betting on future greater-than-inflation price appreciation? And what happens when these marginal buyers are forced to add their houses to the existing inventory?