Realtor Chief Economist Stands By Optimistic Forecast



Original Post Date: August 24, 2010

By: Robbie Whelan

It must not be easy being Lawrence Yun. At least not in times like these.

Mr. Yun is chief economist of the 1.2 million-member National Association of Realtors—the nation’s largest trade association, by its own count—and by extension, the expert voice of the real estate brokerage industry as a whole. So it’s understandable that Mr. Yun would want to be a soothing, optimistic voice for an industry that is hurting.

Sometimes Mr. Yun toes the line between housing industry economist and housing industry motivational speaker. Today is one of those instances.

The NAR reported this morning that home-sellers closed on 27% fewer homes in July as in June, and 26% fewer homes in July 2010 as in July 2009. NAR’s news release took a surprisingly rosy view, with the headline  “July Existing-Home Sales Fall as Expected but Prices Rise.”

Mr. Yun assured the public that this historically-low level of sales could be little more than a “pause.” After September, sales seem primed to recover.

“Given the rock-bottom mortgage interest rates and historically high housing affordability conditions, the pace of a sales recovery could pick up quickly, provided the economy consistently adds jobs,” Mr. Yun writes, before predicting that annual sales will reach 5 million this year, just a hair above the average yearly sales of 4.9 million over the last two decades (today’s report correlates to a yearly, seasonally-adjusted sales pace of 3.83 million homes).

Mr. Yun is clearly on the side of analysts who don’t think home prices are headed for a big drop. While the market currently favors buyers, he says that home values have returned to their historical levels against incomes, and new home construction is very low. Consequently, he says, “there is not likely to be any measurable change in home prices going forward.”

Mr. Yun’s dispatches on the housing market haven’t always been so rosy. He has long warned of a hangover in the market once the home buyer tax credit expired. And he has warned that any stimulus means nothing without broader economic foundations. “Without a firm foundation for middle-class wealth recovery, the post-recession economic growth likely will be one of the weakest in U.S. history,” he said back in September, after a nearly 10% increase in home sales.

But today’s comments come against a backdrop where analysts and pundits give the sense that the housing market is falling back again: It’s not just that the tax credit expired, it’s that banks aren’t lending, demand is weak, foreclosure inventory is looming, and job growth is sluggish, and with interest rates on mortgages at near-historic lows, government officials seem to be at a lossabout what to do.

The position of NAR chief economist has never been a terribly fun post to hold. Mr. Yun’s predecessor, David Lereah, was widely criticized for his rosy forecasts on the U.S. housing market, outlined in similar NAR pronouncements as well as his 2005 book, “Are You Missing the Real Estate Boom?”

Mr. Yun, in an interview Tuesday, said he stands by his analysis, and maintains that a year from now, he thinks prices will be roughly the same as they are today.

“The shadow inventory theory has been around for the last 18 months, and they’ve been calling for 10 to 15% price cuts. In the mean time prices have stabilized,” he said. “Of course I could be wrong, and the prices could overcorrect to double digits … I have to go through the legacy of my prior chief economist. But I call the shots the way I see them.”