Commentary: NAR economist takes the uber-rosy road

Remember the infamous "Mission Accomplished" photo op President Bush took in 2003 in his flight gear giving the thumbs up on the he war in Iraq?

That was the image that came to mind after reading the latest forecast today from National Association of Realtors Chief Economist Lawrence Yun.

I'm all for optimism, but sometimes this outlook can tip into the realm of an irresponsible take on reality given a person's leadership position in the business world.

Let's take a look:

Recession

Yun says the recession is not happening. "A slowdown, yes, but the definition of a recession is two consecutive quarters of negative GDP growth. It's not in the cards - no matter how you look at it," he said.

OK, we'll give him the technical on this. But let's not kid ourselves -- things are not good. Thousands of jobs have evaporated already this year and the price of gas is at an astounding average $3.787 per gallon nationwide as of today.

U.C. Berkeley economist Kenneth Rosen at a conference last week said we're in recession already and that there is a 45 percent chance for a deep recession, which could mean the loss of 4 million jobs and a rise in the unemployment rate to 7 percent. Rosen gives a 50 percent chance to this recession remaining mild, and a 5 percent chance to a quick recovery.

Housing market

Yun says, "Foreclosures are being driven principally by subprime loans."

"In fact, if you look at where home prices fell the most, it's the markets where subprime loans were prevalent," Yun said. Cape Coral, Fla.; Detroit; Las Vegas; Miami; Orlando, Fla.; Phoenix and Riverside, Calif., were among the cities with a high percentage of subprime lending and where the markets suffered the biggest downturns, he explained.

Yes, all markets are local and some are doing fine. But as a whole, the nation's real estate market is still in a depressed state and the numbers show no bottom yet.

Here's the latest quarterly reading right from NAR's own machine:

Total sales of resale single-family homes and condos reached a seasonally adjusted annual rate of 4.95 million units in the first quarter, which was down 22.2 percent below the 6.36 million rate in first-quarter 2007 and down 0.9 percent from 5 million in fourth-quarter 2007.

For prices, NAR said that 28 of 149 U.S. metro areas tracked had double-digit percentage declines in median resale single-family home prices in the first quarter compared to first-quarter 2007, and the overall median price dropped at a record 7.7 percent from a year ago.

One hundred of the metro areas had price declines, according to the report, while prices rose in 48 metro areas and remained flat in Honolulu.

Context

Yun says, "It's important to keep things in context," and we couldn't agree more. That's why we feel lost when he goes on to make predictions for an upturn at the end of the year:

Today, Yun says that most of the country are poised for improvement in the second half of 2008. You can't blame him for being optimistic, but we fail to see any evidence that would support this prediction. He says the recovery will vary by market -- and this is no doubt true, just as the downturn varied by market.

But then this price forecast:

Middle-America cities that performed evenly over the past few years - like Cincinnati, Milwaukee and the Kansas City, Mo., area - are likely to experience home price gains in the 20 to 30 percent range over the next five years, while markets like Miami, Las Vegas and Phoenix could see prices go up as much as 50 percent during that time period, Yun said.

That raised a red flag with us. Miami, Las Vegas and Phoenix haven't even seen a bottom in price declines, yet they are going to fall a little further and then make up the difference by 50 percent within five years? Maybe he is basing this on pent-up demand.

Check out the latest quarterly numbers from NAR here.

Approval ratings

As with President Bush's all-time-low approval ratings, I couldn't help but think NAR is wrestling with the same problem after seeing this uber-rosy forecast. After the full-page newspaper ads in the fall of 2006 proclaiming it was the best time to buy or sell a home, it's hard for many believe what they read from this group now since that actually marked a significant slide in value for most markets -- 10%, 15%, 20% -- over the following six months to a year.

It's easy to pick on Yun. He has a tough job; all economists do. We don't claim that we could do any better. We just think it's time NAR's top economist gave a realistic outlook for members and for the general public. Only then will consumers invest trust in this organization.

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