Monday, January 12, 2009

David Lereah: Only Following Orders


Read Nancy Keates article in the Wall Street Journal about former NAR lead economist, David Lereah, as he comes to Jesus about the housing market crash and the impact of NAR advice on hundreds of thousands of Americans.


Is this the part where Americans are supposed to be "shocked" by such a story?


I guess so.


Wow.


"Mr. Lereah, who says he left NAR voluntarily, says he was pressured by executives to issue optimistic forecasts -- then was left to shoulder the blame when things went sour. "I was there for seven years doing everything they wanted me to," he said, looking out his window to his tree-filled yard in this Washington suburb. Mr. Lereah now works at home, trying to rebuild his career and saddled with a sagging portfolio of real-estate investments."


Really? "Optimistic forecasts?"


Gee, whatever do you mean, David?


Realtors across the country willingly pay dues to this same association, the National Association of Realtors (NAR), which, in exchange for the cash, provides ethics training for its members (*ugh*), housing market statistics and kool-aid flavored commentary to the prospective home-buying American public, usually in the form of bullish messaging, like "Buy now!", "Rates have never been this low!", "Get in now while you still can!", and that all-time real estate agent favorite: "It's a great time to buy a home!".


And that messaging worked.


The WSJ article does not close without first appealing to our sensibilities. Afterall, Mr. Lereah has lost out as well. He's apparently lost hundreds of thousands of dollars on his own personal housing investments too. And more importantly, he may have lost credibility as an renowned economist.


Intentionally painting a rosy picture of a unsustainable housing market situation is not what housing economists are normally paid to do. They're usually paid to be objective, factual and to interpret the incoming data with great care, because Americans consumers often make financial decisions based upon those interpretations and trends. Mr. Lereah had an important responsiblity.

So it must be a steep challenge indeed for one to re-establish credibility in the shadow of intentionally misrepresenting data all in the name of satisfying an employer's crooked business objectives, or for that juicy six figure paycheck.


This is all such a huge joke.


As long as we have Realtor sales commissions directly tied to the value of home sales prices, American consumers will face a conflict of interest. The business relationship is sort of damned from the start.


Even if we choose to assume that Realtors provide a valuable service, and that this service should be paid for by consumers (for all the marketing materials, providing professional consultancy on local real estate conditions, negotiating pricing and terms on behalf of the buyer, etc.), there is no way such Realtor services should be a a function of the home sale price.


This would all go away if Realtor sales commissions were instead tied to a fixed fee not at all linked to the sales price of the house and more a function of the value of the consultancy provided (i.e. a measure of the consumer's risk in choosing the wrong home, or paying the wrong price, among other variables).


Change is needed, because otherwise we will continue to see Realtor-funded organizations like the NAR, and state-based versions thereof, do everything they can to preserve high home prices, preserve low interest rates, etc., and for what?


For their own personal gain.


Consider that right now that the best thing for our anemic American economy (and for a speedier recovery from the housing downturn) might just be the opposite of what American Realtors want:


- stronger enforcement of fundamental mortgage lending standards (documented lending processes) and borrower qualifications.


- strict adherence to realtor code of conduct


- higher bank and mortgage interest rates, increased motives to save money and a strong US dollar currency.


- lower (and more affordable) single family home prices that reflect market fundamentals like real take home earnings of prospective buyers


- 25-30% downpayment requirements


- open access for consumers (prospective home buyers) to all home listings


If Americans wish to know how we got into this financial mess, they may not need look further then their local real estate agents who cheerleaded hundreds of people to buy homes that they could otherwise never really afford, homes that "never go down in value", who tapped the shoulders of local mortgage buddies around the corner who suggestively sold poor quality, adjustable rate mortgage instruments, that the consumer could (in theory) "always refinance".


If college textbooks ever get around to printing a few case studies on the Great Housing Crash of 2006, they might mention that there was an even greater problem than David Lereah, the NAR, the Fed, the SEC, and Realtors themselves. It was the laziness of the American media and complete lack of investigative journalism.


From CBS's "60 Minutes" to CNN to Fox to even the LA Times. Media outlets continue (even today) to turn to discredited NAR and CAR representatives for interpretations of the housing market data, as if they are "trusted advisors" for the real estate industry, when that claim must instead be officially surrendered for all time or until the real estate industry reforms for the better.


In the meantime, fixed rates for realtor services, full and free access to market information for consumers, and then let us allow the market shake itself out. It always does.


And as for Mr. Lereah, if that consultancy gig doesn't work out, I suppose he can always become a Realtor.










Sunday, January 11, 2009

Refinance?! With what equity, dude?


Excellent article by Leslie Berkman of the Press-Enterprise regarding desperate attempts of current homedebtors to refinance their home mortgage loans, with 75% of them unable to qualify because they bought at market peak prices and never had any "skin in the game" when they did.


Nice.


"We can help about 25 percent of those who call, because a lot of the people who want to refinance bought their homes since 2005 and therefore don't have equity. They didn't put much, if any, money down and the house has fallen in value".


- Brian Weide, owner of SunStar Mortgage in Ontario, California, president-elect of the Inland Empire Chapter of the California Association of Mortgage Bankers.


Verily I say to you that the next generation of Americans will look back on the current generation of financially inept, I-want-to-have-it-nows with utter contempt and disdain.


How can there not be a generation war in the United States of America between those that played the system and those left with the bill?


It seems inevitable to me.


If I'm between the ages of 20 and 45 right now, my degree of confidence that the next generation of Americans will look at kindly at me and then the state of the American nation and then sufficiently fund of our elderly pet projects like, oh, social security - well, it's just about null.


When today's children in America finally grow up, man, they are going to be majorly pissed at mom and dad, grandma and grandpa for their lack of vision and for messing up this country royally.












Lake Forest Elementary School Closing It's Doors




La Tierra Elementary provided a valuable service to the local community of Lake Forest, California in that it provided a top quality elementary education for local children between pre-school and 6 grade, and it was one of only 2 schools in the area that offered pre-school classes for children with special needs. La Tierra's staff offered outstanding expertise particularly to young children with autism spectrum disorder.


Thanks to the inability of elected leaders in the state to pass a balanced budget, and due to the now state-wide financial crisis, La Tierra's services to Orange County and Lake Forest will soon be gone.


So what are Lake Forest Parents parents supposed to do? Well, La Tierra students will be funneled to another school to balloon the classes sizes there. Parents of new arrival children will either need to look to other elementary schools to see if they have room for their kids, and/or determine whether they have the capability to accomodate children of special needs.

Paying for private pre-school services is of course expensive and not always offering accomodations to children with special needs.


So how is this development even relevant to the downturn in the Orange County housing market?


Well, it's relevant in the sense that one of the obvious key decision factors faced by prospective home buyers (particularly families) are the local services and performance levels of local schools.


Local realtors have had it on their 3x5 sales cue cards for years that the local schools in Lake Forest, California are "excellent". And, all things considered, including California's abhorrent 46th ranking in the nation in terms of elementary public school effectiveness (just ahead of Mississippi, Alabama and Mississippi thank you very much!), the realtors have been right.


La Tierra Elementary even won a California Distinguished School Award. It had a 2007 API (Academic Performance Index) of 850, on a 200-1000 index scale.


Not a big school. Only 220 students. But it was a very important little school for the community. And it was a performer. A solid performer.


The closing of La Tierra is likely only the beginning. The voting off of other schools by the Saddleback Unified School Board will continue on into 2009. They don't have a choice.

Other elementary schools in the Lake Forest area such as Santiago Elementary and O'Neill Elementary are on the proverbial "chopping block" as well, though O'Neill Elementary appears to have earned a temporary reprieve from the board.


Parents and local taxpayers do have the opportunity to attend school board meetings and express their support for Lake Forest schools, and judging from the O'Neill verdict last week, upcoming schoolboard meetings should be very interesting to observe.