Channeling the spirit of David Lereah

 

David Lereah, former chief economist of the National Association of Realtors and perma-bull has moved off of the radar in the news media, but apparently his spirit is being channeled by Dave Carpenter of A.P.  This article is a real blast from the past.  I had to double-check the date to be sure this wasn’t from 2005 or something.  When’s the last time you read a report that had the nerve to say this? [Hat tip M.R.]

For all the doom and gloom about the housing market, it still generally pays to own a home.
 
That might be a tough case to make right now to the 16 million homeowners who owe more on their mortgages than their houses are worth. But history suggests the American Dream is a pretty safe bet.
 
Homes have appreciated by an average of 4 percent a year since World War II. They act as hedges against inflation and bestow significant tax benefits. Real estate is a leveraged investment; a 10 percent down payment produces a 1,000 percent return if the price of a home merely doubles.
 
Of course, historical trends don’t pay the mortgage. People who wade in and out of the housing market too often — or who buy at the wrong time or price and need to sell quickly — can get burned.
 
But if you own for a decade or more, price appreciation usually overcomes even bad slumps.
 
Of course, that depends on when in the decade one jumped in and out, doesn’t it? And why do people not understand that leverage works both ways?
 
Another reason to buy a house is it’s a leveraged investment; you pay only a fraction of the price with your own money, which can produce an enormous return. If you make a down payment of 10 percent on a $200,000 house and it doubles in value to $400,000, your $20,000 investment has grown to $220,000, a return of 1,000 percent. That’s like buying a $40 stock and watching it soar to $440.
 
Do you suppose Carpenter would be interested in purchasing a bridge in Brooklyn?  It would be in keeping with this level of investment expertise.
 
If that doesn’t give you your daily fill of senseless, unbridled optimism, check out this Jim Cramer video. [Thanks L!] I guess if you can’t dazzle them with brilliance….
 
 

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7 Comments for this entry

  1. AZSALUKI says:
    October 13, 2009 at 6:50 AM

    truly brilliant. i suppose investing $40 is just like investing $20K. i’ll make that argument to my wife next time i’m in vegas playing the $2500 table instead of the $5 table….”it’s ok honey….playing the $2500 table is just like playing the $5 table.”

  2. Linenoise says:
    October 13, 2009 at 9:36 AM

    “People who wade in and out of the housing market too often — or who buy at the wrong time or price and need to sell quickly — can get burned.”

    So he even admits you can buy a house at the wrong time and lose alot of money.. yet, now is a good time to buy because houses are generally good investments. Huh?

    And 4% appreciation doesn’t quite keep up with inflation, does it? I thought inflation ran ~3% for the past few decades, on average?

  3. arizonaslim says:
    October 13, 2009 at 3:11 PM

    What Linenoise is saying correlates with something I’ve heard. And that is that the real rate of return on housing (as an investment) is 1%. Which means that, as a general rule, you’d do better by investing in a passbook savings account.

  4. desert rat says:
    October 13, 2009 at 4:35 PM

    Last time I checked the stocks I own do not come with property tax, property insurance, or maintenance costs. If I wanted insurance from inflation I would buy gold (which I have). It is easy to buy and sell and I can store more in a cigar box than that $500,000 house down the street. I think I will continue to rent.

  5. John M. says:
    October 13, 2009 at 6:01 PM

    rat -

    “… do not come with property tax, property insurance, …”

    shhhhhhhh …

  6. twist says:
    October 13, 2009 at 7:03 PM

    Rat-

    I think it was Lereah who was saying back in 2006 that RE was a better investment than stocks because stocks could lose all their value, but RE never did.

    As Russ pointed out on an earlier thread- RE CAN run down to zero. Not only that, at least when I’ve lost money on stocks, I’ve never lost more than my original investment. In this market you could have put $20K down on a house and later find yourself $100K underwater. Ah, the power of leverage!

  7. John M. says:
    October 15, 2009 at 7:33 AM

    twist -

    I’m cross-posting this from another article (we recycle ;) ) …

    ===================================
    Tobby,

    No, he left Fannie for Move, Inc. and after a short stint there moved on to Reecon (as in RE con) Advisors, Inc. You just can’t make these things up. Eventually Reecon realized they’d been a bit too clever with the name and re-branded themselves as Real Estate Economy Watch, so now Dave is watching back, it would seem.

    “Mortgage Lending Business Expected to Sink Next Year”, by David Lereah, Real Estate Economy Watch, October 14, 2009.

    “The Housing Downturn and Homeownership”, by David Lereah, Real Estate Economy Watch, July 27, 2009.

    Since the housing sector’s downturn began in 2006, [#%%$ splutter -- gasp -- gag *^&$%#] most of our focus has been on weekly and monthly indicators of housing activity. Throughout this period, home sales, new residential construction, and home values have tumbled downward at alarming rates, while housing supply, fed by mounting foreclosures, has grown to excessive levels. These indicators and others have helped us successfully monitor and track the current housing downturn. But sometimes you need to get a broader picture of market trends and the U.S. Census Bureau’s recently released report on residential vacancies and homeownership provides us that opportunity.

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