Okay, so who’s the genius at NAR that decided that a “balloon is a much better image” to represent the strength of the real estate market?
Are we the only ones who remember week-old birthday balloons lying shriveled on the floor? Or popping balloon after balloon in failed attempts to overfill those little water balloons? Regardless, David Lereah, chief economist of the National Association of Realtors, seems to be firmly on board.

“His prediction for the housing market’s future is, with a few exceptions, a remarkably sunny one: low interest rates, continued annual appreciation, a lean supply accompanied by demographics guaranteed to produce a strong demand.”

“The factors that have some real estate economists worried, which include a decline in sales and appreciation, higher interest rates and reduced affordability, Lereah says, are merely signs that some air is slipping out of the balloon.”
“More air will come out in some areas than others,” says Lereah. “But you can’t sustain double-digit price increases forever. You need a cooling-down period. It’s healthy for the market. It’s still a sound balloon.”
“The fundamentals haven’t changed,” Lereah says. “It’s still a great time to invest in real estate.”

We agree, air is slipping out of the balloon and double-digit price increases are not sustainable. We do, however, disagree that the “fundamentals haven’t changed.”
The fact that the majority of new Bay Area housing “investments” would lose money on an income producing basis challenges a basic fundamental of investing. And widespread speculation (i.e. banking on asset appreciation) in the housing market signals a fundamental shift in “investor” behavior (and risk).
Why the Real Estate Boom Will Not Bust [Amazon]

2 thoughts on “The Bull”

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