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Strategies & Market Trends : The Residential Real Estate Crash Index -- Ignore unavailable to you. Want to Upgrade?

To: ggersh who wrote (210774)	7/16/2009 10:50:23 AM
From: Pogeu Mahone	Read Replies (1) \| Respond to of 306849

A few months before the US housing market started a sickening slide which would last more than four years, David Lereah published his life’s work. As chief economist for the National Association of Realtors, Lereah was a media darling, jetted around the country in luxury, made a fat association salary and bought a massive McMansion. His book, “Why the Real Estate Boom will not Bust,” predicted an endless appreciation for American real estate, just as he did in nonstop TV interviews, even as the historic slide in sales and prices started. In 2007 he was still pumping. “It appears we have established a bottom,” he said. And then the bottom fell out. These days Lereah is unemployed, admits he “spun” for his former employer and has apparently given up trying to sell his house. And while a mini-boom has erupted in some markets as vulture buyers fight over homes selling for 50% of their value three years ago, most observers think US real estate will not bottom for another year or two. It’s ended up being the greatest destroyer of middle class wealth in modern history. Lereah came to mind today as I read the latest news release from the Canadian Real Estate Association. While realtors always say they lust for a ‘balanced’ market, it seems they just can’t resist trying to turn stability into a circus. Like now. “Potential buyers who moved to the sidelines late last year when economic uncertainty peaked,” says CREA president Dale Ripplinger, “are returning to the housing market now that the worst of the recession may be behind us.” Meanwhile Re/Max executive spokesguy Michael Polzler says, “recent buyers had been lucky to snap up some of the best real estate deals in years.” And adds LePage’s Phil Soper: “We believe this improvement represents a sustainable change across the country.” There you have it, from the trio of media housing experts: The recession is virtually over. Today’s buyers are scoring bargains. And the housing rebound is going to last. The inevitable result, then: Higher prices. Along with politically-engineered cheap mortgage rates, this is why a lot of young couples are buying. Because the Canadian clones of David Lereah are telling them it’s more than safe – it’s smart. The reality is neither Ripplinger, Polzler nor Soper know this to be true. But as experienced real estate professionals, they must know that real estate sales and prices can only increase sustainably when affordability also does. That comes from one of three factors – higher family incomes, lower prices or cheaper financing. Today family cash is stalled out, unemployment is rising quickly, over 2 million people are out of work and household debt equals almost 140% of disposable income. No luck there. Prices, according to CREA, have just reached a new all-time high, surpassing the record set in the second quarter of 2008. Another strike out. So, it is cheap financing – the availability of oceans of debt at half the cost of last year – that has caused this real estate renaissance to occur. And interest rates have but one direction in which to move. This is why the Canadian Davids are so dangerous. These conditions will not last and are not the new normal. Mortgage debt entered into now will be with the borrowers for years, perhaps decades – at escalating cost. And how can buying an asset when its price has never been higher be a bargain? I’ll say it again. These are the greater fools CREA is celebrating, when it should responsibly be cautioning them. Out of the ashes of a recession hardly finished burning, our realtor shills are fanning the flames of a new pyre. Thanks to them, we’re almost there. Peak house. And now, one of the reasons I write this blog. Thank you. Garth, I am a 30 year old full time single dad who makes a good living. I had been getting a lot of pressure from friends over the last couple of months to ’secure my future’ and buy a house. When I started looking into housing in Burlington (close to family support and trains to work in Toronto) I was amazed and felt that something was seriously wrong. For the money I make I could qualify for insanely high amounts of money that would limit my lifestyle (coupled with day care and car payments). As my search to figure out what was really going on started, I found your site. This site put everything into perspective for me. I have now happily continued renting, plan on reducing my lifestyle accordingly and waiting for the right time, 5 years or 10 years from now. The thing that scares me is that only one out of all of my friends, who recently sold his house to start renting, understands the reasons not to get into the market right now. Neither of us knows anyone else who do not look at us like we are crazy for sitting out on the ‘free money’. We both are amazed at how many people we know who are not only leveraged as far as possible but truly believe they have protected themselves for the future. Had I not found this blog, which I am now sharing with as many people as I think can stomach going against the grain, I may have ended up in the same horrifying predicament. At this point I am content with the fact that my savings should allow me to save significant amounts for retirement, my daughter’s education and potentially for a house at a reasonable price one day in the future. If for some reason everyone else is right and housing prices never go down again (I believe it would take a miracle for them) I will at least be able to sleep at night knowing that I, unlike many in my age bracket, will be able to pay for retirement and education for my child. I really can’t see how I could possibly lose by not buying now. Thank you for confirming my concerns and finally putting reality into perspective. — Cam -------------------------------------------------------------------------------- Read comments at greaterfool.ca. Visit xurbia.ca "for those who can't stand reading the financial news any more!"