The business of interpreting the real estate market

"Realtors' Former Top Economist Says Don't Blame the Messenger," Monday in the Wall Street Journal, looks at the career and life of David Lereah since leaving the National Assn. of Realtors.

If you don't recall, Lereah was "one of many prognosticators who won professional accolades during the housing boom, only to see their reputations wither in the bust."

It seems Lereah performed his role to the satisfaction of his employer but then was left out to dry:

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.

Continues the WSJ story:

"Realtors are the most trusted resource for real estate information," says the NAR spokesman in an email, adding that the group "has gathered the most comprehensive data on real estate in the world." The spokesman says that during his tenure Mr. Lereah was "solely responsible for the content of NAR forecasts and housing reports -- both the data and the interpretation."

It seems to me consumers -- particularly those caught in this downward housing cycle -- will be too savvy going forward for boosterish spin. The question is, who are you going to trust? Your picks, L.A. Land readers?   

--Lauren Beale

Thoughts? Comments?

Photo: Bank-owned signs are common in Santa Ana. Credit: Mark Boster / Los Angeles Times

Comments

[Laker]

Lereah should be sitting in jail next to Barney Madoff.
He admits that he was "pressured to give optimistic views on RE" and "Mr. Lereah was "solely responsible for the content of NAR forecasts and housing reports -- both the data and the interpretation"

So he lied, he admits that he lied, many good people got burned, lost their life savings, have seen their dreams burn into flames just because this a$$ liar was telling everybody that there is not bubble, and that if we wait, we are going to be priced out forever...
JAIL!

[Giacomo]

Trust no one who makes money in the RE industry. In the past hey would happily have counseled you to buy a house, any year, any place, irrespective of market conditions. They will continue to do so, calling the bottom every week, indefinitely, until finally (someday) they can resume over-hyping RE as an personal investment.

[Markus Arelius]

As long as you have Realtor commissions directly tied to the value of home sales prices, consumers face a conflict of interest. The relationship is poisoned 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 marketing materials, providing consultancy on local real estate conditions, negotiating on behalf of the buyer), there is no way such services should be a function of the home sale price.

This would all go away if Realtors earnings were instead tied to a fixed fee not at all linked to the value of the asset.

Change is needed, because otherwise we will continue to see Realtor organizations do everything they can to preserve high home prices, low interest rates, etc. and for what? For their own personal gain.

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

- 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

In my view, if Americans wish to know how we got into this financial mess, they need look no further then their local real estate agents who cheerleaded people into homes that "never go down in value" and with mortgage instruments that could "always be refinances".

The greater problem is that the media is so lazy, even the LA Times continues to look to NAR and CAR representatives as if they are "trusted advisors" for the real estate industry. In my mind, realtors officially surrendered that claim as trusted advisors.

The way to fix it all is fixed rates for realtor services, full and free access to market information for consumers and then let the market shake itself out. It always does.

[MyLessThanPrimeBeef]

As a solipsist, I can honestly say that there is no one out there I trust except myself.

[Karl]

I don't really know who to trust to predict when is the best time to buy a home. Maybe I should be buying a home where I can reasonably afford it, or just stay as a renter--or don't people do that anymore?

[Laker]

Markus Arelius, you bring in good point. While listing agent commission based on sales price is 100% correct. The buyer's agent should be compensated flat fee AND be reward extra commission proportional to the savings he bring to the buyers. Call the difference between the sales price and the listing price SAVINGS.
So the larger this SAVINGS the buyer's agent gets 20% of that ! or something similar.

Then you would see buyer's agents really working hard and have 100% interest to get the buyer as large savings as possible.
The sad part is that today, they do exactly the opposite...

[JayC]

People should know that WHO they get their information from is just as important as WHAT the information is. Not everyone will, of course. It's tough for the average joe to do due diligence, and the path of least resistance is to listen to advisors without questioning their motives. I agree with earlier poster - Lereah should be jailed if he knowingly goaded americans through the misapplication of statistical information. This is pure infomration assymetry at work - he has all the information and can pick and choose what to show you in order to support the story he wants you to hear. I can't say I expect any more from a person in his position, but lawmakers should.

[Steve]

This is standard practice for any busienss,industry and especially Govt. It is the 80/20 rule, 80% of what is spilled out by someone who has something to gain is pure BS. That is way it has been and always will be. Still RE is the best investment you can make over stocks which are 95%BS. For he morins that listened to this guy you learned the hard way, hold on if you can it still beats Madoff.

[sunsetbeachguy]

Barry Ritholtz pretty much said everything that needed to be said.

http://www.ritholtz.com/blog/2009/01/david-lereah-jackass/

[TrojanDLA]

A Realtor's opinion should always be taken with a grain of salt, just like the opinion of a Mercedes salesman when he offers to explain why German cars are the best.

A salesperson is a salesperson, no matter what they sell.

[sunsetbeachguy]

I read the WSJ article and can summarize for everyone.

David Lereah: Waaahhh! I sold my soul to the devil for a tidy sum and now he actually wants to collect.

As the formerly principled Repubs used to say, "Ideas have consequences."

[Christopher Hain]

Not every realtor is unprincipled and boosterish: http://terrafirmala.com/2008/06/christopher-in-los-angeles-times.html

[Joseph The Real Estate Guy]

Should never trust anyone!

[Patrick Duffy]

We had the same issues on the development side of the equation as well, with analysts employed by builders saying just about anything to keep their jobs. Even when builders hired outside many outside consultants, it was the same story, but during the boom the most dishonest 'consultants' got the most business. I had a lot of arguments with clients about the ridiculous assumptions they made about what the future would look like in 2008 -- want to know where they are today? Mostly bankrupt or trying to rent out what they built. It's time for the real estate industry to grow up.

[Wooster]

Nice try, Duffy, you had a huge hand in the nonsense. I've seen tons of your market research the whole way up and your hands are dirty.

[papabear]

Real estate hype is one thing, but real estate cover ups in the sale of homes is another. If you are a realtor in so. cal. then you have most likely been schooled on how to spot problems inside a that will hamper the sale. My son purchased one such home which was nicely redone, only to discover mold behind the new paint,baseboards,padding, and carpet. This cover up has resulted in the suffering and seizures of my now 4 year old grandson. I am sure that between 2000, and thru present trhat many more people will show up sick from these practices. Realtors were schooled before, but now pass it on to faulty or uninsured workers in multiple fields, SHUCKS I DIDNT KNOW OR SEE IT. Sorry if it caused someone in your family to enter the home and it resulted in his BRAIN DAMAGE. REal Estate should be renamed for most as NO HONOR AMONG THEIVIES.