In the last entry we sought examples of Strategic Misrepresentation (SM), Optimism Bias (OB), and Demand Overestimation (DO). The following Q&A from cnn.com evidences SM, which might very well have led to OM and DO. This is not to point a finger at the National Association of Realtors or at Mr. Lereah, previously NAR's chief economist. As any advocate should, both the Association and Mr. Lereah were zealously representing their constituents and the interests thereof. Rather, this is merely an example of the previously discussed economic theories that could have contributed to the current demand shortfall.
Link to Article: http://money.cnn.com/2009/01/05/real_estate/Lereah.moneymag/index.htm
Text of Article:
Confessions of a former real estate bull
As chief economist for the National Association of Realtors, David Lereah was famously optimistic. Now a private consultant, he's abandoned what he calls the 'positive spin.'
(Money Magazine) --
Q. Were you wrong to be so bullish?
A. I worked for an association promoting housing, and it was my job to represent their interests. If you look at my actual forecasts, the numbers were right in line with most forecasts. The difference was that I put a positive spin on it. It was easy to do during boom times, harder when times weren't good. I never thought the whole national real estate market would burst.
Q. The NAR's latest forecast calls for a slight increase in home prices next year. Thoughts?
A. My views are quite different now. I'm pretty bearish and have been for the past year and a half. Home prices will continue to drop. I think we'll see a very modest recovery in sales activity in 2009. But we've still got excess inventories, a bad economy and a credit crunch that will push prices down further, another 5% to 10% more. It'll take a long time to get back to the peak prices we saw in many markets.
Q. Any regrets?
A. I would not have done anything different. But I was a public spokesman writing about housing having a good future. I was wrong. I have to take responsibility for that.