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‘V-eerleaders’ don’t want you to see homebuying risks

Case-Schiller indexes. (Graphic by St. Louis Fed)

Real estate fans, be wary of “V-eerleaders” trying to convince you “it’s different this time.”

Perhaps the pandemic’s most awkward economic twist has been the rush to buy homes after the early days of the lockdowns, which all but shut real estate, no less the broader economy.

Let me quantify the feeding frenzy on a Golden State scale: The California Association of Realtors reported March’s statewide record $759,000 median sales price for an existing single-family house was up 24% in a year, the largest gain since 2013. Even crazier: It took about eight days for a listing to go into escrow, the fastest-selling speed ever.

Similar fervor at the national level led Lawrence Yun, chief economist of the National Association of Realtors, to recently mock discussions of potential home-price problems in a LinkedIn post …

“People are googling more about ‘housing bubble’. Yet, home prices in no risk of a decline due to lack of supply.”

Realtor Chief Economist Lawrence Yun (Photo by Jeff Collins/SCNG)

Now, I could have authored a pithy rebuttal to Yun, who works at a trade group that obviously advocates homeownership. But somebody else crushed it so well, why try and top it?

“‘No risk of a decline?’ None? I am reminded of former NAR Chief Economist David Lereah’s book in 2005 titled ‘Are You Missing the Real Estate Boom? Why Home Values and Other Real Estate Investments Will Climb Through the End of the Decade — and How to Profit from Them.’ Look it up on Amazon. Today looks much more to me like a ‘High Risk, High Reward’ market than a ‘no risk’ market.”

That response came from John Burns, founder of the respected homebuilder consultancy that bears his name.

Burns has created a long-running and noteworthy habit of being circumspect of many popular housing trends. Clients of his Orange County-based business seem to enjoy the firm’s ability to question the logic and the data supporting popular industry thinking — whether it’s a market top, cyclical bottom or somewhere in-between.

On the other hand, Yun was part of Lereah’s economics team and made some awful predictions as the last bubble exploded into the Great Recession. He’s also part of a herd of cheerleading commentators who are extrapolating housing’s stunning V-shaped rebound — 2020’s quick bounce off a steep decline — into what they see as a widespread change in homebuying thinking.

Time to buy

“It’s different this time” is the V-eerleaders’ mantra.

This group has helped spawn near-panic buying of ever-pricier homes with spins on age-old Realtor logic that says “it’s always a good day to buy a home.”

And, to be fair, if you overpay for your “forever home” in 2021 and own it for decades, you’ll likely do fine. But that says nothing about the unhealthy nature of today’s market and what may happen next, especially in the medium-term.

What V-eerleaders won’t admit to is that homebuying’s rebound is largely due to actions by the Federal Reserve and federal regulatory agencies. The lifeline included making mortgage rates historically cheap, keeping the loan market operating, and giving late-paying borrowers generous relief.

Real estate guru John Burns of Orange County.

So the grand question — and V-eerleaders have no reasonable answer — is how will the homebuying market be weaned off this unprecedented support?

Remember, when the average mortgage rates went up to the most recent high of 4.94% in November 2018, the housing market slowed to a crawl in an otherwise booming economy.

So, imagine if rates go from this week’s 2.98% and return to that not-so-long-ago peak. House hunters would get 21% fewer loan dollars for the same monthly payment.

And whatever became of the grand “affordability” debate?

V-eerleaders counter “it’s different this time” due to a flock of young adults moving through demographic trend lines.

Of course, this expanded group of potential homebuyers includes career-minded couples who are shunning babies, creating historically low birth rates. Other members of this youthful group are living back at home, making for historically high numbers of adult kids living with parents.

And while much of the pandemic focus has been on house hunters and bidding wars, consider a key factor as to why there are historically fewer homes to buy — reluctant-to-sell homeowners.

They aren’t stupid.

Maybe their finances have been hammered and they can’t afford to sell. When forbearance offers expire, could they flood the market?

Or they’re well-off, locked in ultra-low refinancing rates and are perfectly happy to stay put.

Perhaps they don’t want to pay the way-too-expensive transaction costs a sale creates.

“Where will I move to?” is another headache.

But most likely, these owners know what an insane market looks like.

History lesson

To be fair, I’ll agree with V-eerleaders that this frenzy doesn’t feel like a repeat of the housing debacle of the mid-2000s. That insanity was powered by gobs of risk-taking by buyers, lenders and builders alike.

I’ll suggest for the umpteenth time the pandemic market could end like the late 1980s boom.

That era’s “bargain” mortgage rates — a fall below 10% (so hard to fathom today) — gave housing a temporary but unsupportable boost. Yet bubbles don’t have to explode into gut-wrenching drops.

Ponder that market’s next move: The 1990s during which housing market was stuck in an extended sluggish period.

For example: In May 1991, the California Realtors’ benchmark price set a record high at $211,000. It was a high not topped until March 1999. Eight years of essentially sideways pricing might not be a bubble bursting, but it’s still pretty painful.

Maybe history like that explains why three times more Americans are now searching the term “housing bubble” than they did a year ago.

Jonathan Lansner is business columnist for the Southern California News Group. He can be reached at

Source: Orange County Register

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