Everywhere you look nowadays, there are plenty of "experts": 1) claiming they "predicted" the current crisis; 2) making forecasts about what will happen next; and, 3) offering "solutions" they say can help return things to "normal."
No doubt some individuals can genuinely take credit for having anticipated the kind of unraveling I've been warning about since I first wrote "The Coming Disaster in the Derivatives Market" in November 2005. They and others may also have some intelligent ideas about where things go from here.
But they are the exception, rather than the rule.
More often than not, the ones who are out there in the public eye spouting "insights" and providing "advice" have no real interest in telling the truth or in giving listeners, readers and viewers the kind of information that can help them make the most of their situations.
Instead, many are charlatans with the gift of gab looking to jump on board the publicity gravy train to puff up their personal resumes, or, more likely, paid shills who dissemble, distort or mislead in the interests of their employers or other interests.
As it happens, the New Jersey Real Estate Report, in a post entitled "Realtor Chief Economist: 'I Spun,'" helps confirm the latter reality with a smoking gun admission (in the latest issue of Money magazine) by an individual who was, for many years, treated by the media and others as though he had something meaningful to say.
AKA: Why you should ignore your Realtor and everything the National Association of Realtors Says
David Lereah was the Chief Economist for the National Association of Realtors (NAR) up until April 2007, the time period otherwise known as the “Bubble”. His outrageously bullish forecasts earned him the name the title: Baghdad Bob of real estate.
His continually rosy forecasts, in the face of a rapidly deteriorating market even led some to start blogs to keep track of his spin, the David Lereah Watch was probably the most famous of these.
Criticism wasn’t coming from bloggers alone, mass media journalists routinely took aim at Lereah, and even his predecessor Larry Yun, one of the most scathing appeared in Slate:
Worst. Forecasters. Ever?
By Daniel Gross
Posted Monday, Dec. 10, 2007As the housing decline began to take center stage, NAR forecasts were an important market event. This spurred investment research firm Investech Research to publish this gem:
Our own RentingInNJ came up with his own compilation, which spurred the wildly popular (one of the most widely linked and traffic’ed NJREblog posts ever):
1. “There’s no question there is a strong demand for housing from a growing population.” - David Lereah, NAR Chief Economist
2. “For the foreseeable future, the demand for homes will continue to outstrip supply” - Al Mansell, NAR President
3. “We’ve been expecting sales to remain at historically high levels, but this performance underscores the value of housing as an investment and the importance of homeownership in fulfilling the American dream.” - David Lereah, NAR Chief Economist
Which leads up to the January 2009 issue of Money Magazine, where Lereah admits what we’ve already known:
Former real estate bull admits, “I spun”
Working for realtors, David Lereah was famously optimistic. Not anymore.
By Donna RosatoAs chief economist for the National Association of Realtors, David Lereah was famously optimistic. Now a private consultant, he’s abandoned what he calls the “positive spin.”
Q: Were you wrong to be so bullish?
A: I worked for an association promoting housing, and it was my job to represent their interests. If you look at my actual forecasts, the numbers were right inline with most forecasts. The difference was that I put a positive spin on it It was easy to do during boom times, harder when times weren’t good. I never thought the whole national real estate market would burst.
Q: The NAR’s latest forecast calls for a slight increase in home prices next year. Thoughts?
A: My views are quite different now. I’m pretty bearish and have been for the past year and a half. Home prices will continue to drop. I think we’ll see a very modest recovery in sales activity in 2009. But we’ve still got excess inventories, a bad economy and a credit crunch that will push prices down further, another 5% to 10% more. It’ll take a long time to get back to the peak prices we saw in many markets.
Q: Any regrets?
A: I would not have done anything different. But I was a public spokesman writing about housing having a good future. I was wrong. I have to take responsibility for that.
Some fun threads from back in time:
The Big Picture: NAR and Housing Forecasts
San Diego Home Blog: Spin Class - David Lereah and NAR
Matrix: David Lereah Resigns, Spin Takes A Smoke
Patrick.net: Is David Lereah going to Hell?
The Mess That Greenspan Made: NAR Housing Report: Declining Home Prices Induces Heavy Spin
Hat tip to Chifi!
Great article.
As a buyer's broker we've almost always had issues with the information put forth by the NAR.
We need to be members for our business, but I feel ashamed every time I pay my dues.
Thank you for the important summary. I'll like to it from one of our blogs too!
Posted by: Jon Boyd Ann Arbor real estate buyer's agent | December 21, 2008 at 12:00 AM
I had regarded the NAR as a useful agency for gauging the health of the nation's real estate but as early as mid '07 I began to see increasing inconsistencies and a growing concentration on blatant and irresponsible spin.
Now, although I still review it, probably because of habit, I disregard a great deal of their comment preferring rather to visit Mr. Mortgage, Housingwire, a number of the more objective bloggers, and 'update' sites such as Google Alerts.
The question now is, can NAR ever recover from its tarnished image
Posted by: tregaron | December 21, 2008 at 12:16 PM
Q: Were you wrong to be so bullish?
A: I worked for an association promoting housing, and it was my job to represent their interests.
=================
This point is something that many people fail to realize and/or accept. Salespeople, consultants and PR hacks are paid to maintain a positive spin on whatever product, service, company they represent, regardless of their personal beliefs.
Anyone making a prediction usually has some reason to do so.
If they are on CNBC, look for the name of their brokerage employer in the background or the name of their newsletter or the hedge fund they run or the company they own, etc.
If someone is making predictions on internet boards, then they probably are front-running, having already positioned themselves for the recommendation they are going to make (buy gold (and make my holdings go up), the market will rise (I own stocks and calls), the market will fall (I am short and hold puts).
The world has always been this way, it's just easier to see the relationships today.
Posted by: Jojo | December 21, 2008 at 07:13 PM
NAR is a shameless disgrace of an organization. I am a member, for no reason other than to retain membership in the MLS. This organization is nothing more than a PAC/cheerleader for the industry. It claims that Realtors are professionals, but the public knows better.
To be a professional, you have to put the public's interest above your own. You cannot do that with the current real estate compensation structure, which is akin to how a used car dealership pays it's salespeople. OF course, the real estate industry is unwilling to change its compensation structure to fee for service because the public will not pay for fee for service. The reason the public will not pay fee for service is because the public understands that the Realtor is a commissioned salesperson who wants to make the sale, not a "professional" like a CPA or lawyer as NAR would like them to believe.
The bottom line is that NAR is built on a lie. That lie is that the Realtor can serve the public while being compensated like a salesperson. It is an inherent conflict of interest, and anyone who bothers to give it any thought sees it for what it is. Hopefully, someday soon, the Justice Department will have the stones to nail this pathetic organization to the wall. If they do, then the public will get the service they deserve, and real estate agents who want to do the right thing will be free to do it.
Posted by: Fat Man | December 22, 2008 at 11:08 AM
This is very very shameful. Retirees are looking on their home to get reverse mortgages. Now who will help these retirees. I think Lawyers need to sue NAR to receover money for all the people who bought their homes due to these pom poms
Posted by: Vnmaster Gupta | December 23, 2008 at 11:53 AM