It was a crazy year — the residential mortgage market went into crisis,
the housing market got weaker in the U.S. (even though the city stayed
relatively healthy), and the commercial market started showing signs of
slowing too. Who would have thought? Read on to see The Real Deal’s check of the forecasters. Here’s who got it right, and who got it wrong.
The predictions range from dead-on to dead wrong. Former chief
economist of the National Association of Realtors, David Lereah, for
example, last year titled a book he wrote “Why the Real Estate Boom
Will Not Bust,” as the national market started taking a beating. On the
flip side, there was Lon Witter’s famous piece in Barron’s predicting
the fallout in the mortgage industry.
David Lereah former chief economist, National Association of Realtors
Lereah was one of the most prominent boosters of the residential real
estate market during the boom in his stint at the National Association
of Realtors in 2005 and 2006, but he was derided by some critics as
wildly over-optimistic, and perhaps irresponsibly so. In 2005, he
published a book titled, “Are You Missing the Real Estate Boom?” In
2006, even as the national market started to slow significantly, it was
updated and re-released as “Why the Real Estate Boom Will Not Bust.”
This year, Lereah published a new book, “All Real Estate Is Local.”
Since the national housing market started slowing two years ago,
conditions have certainly disproved Lereah’s notion that “the real
estate boom will not bust.” Housing starts in the U.S. have fallen to a
14-year low. Economists expect the housing market’s slowdown to be a
drag on the economy next year. Lawrence Yun, Lereah’s successor at NAR,
has forecast the national median price for a previously owned home to
fall by 1.3 percent in 2007 — the first drop since the Great
Comment: Lereah, now an executive vice president at Move Inc., could not be reached for comment.
Michael Youngblood managing director of asset-backed securities research, Friedman Billings Ramsey & Co.
Prediction, June 2006:
Unveiling a new economic model, which he claimed was more predictive
than other methodologies out there, Youngblood forecasted that national
housing prices would rise 3.5 percent year over year in the first
quarter of 2007, while New York City would jump 17.5 percent.
While Manhattan apartment prices did rise by 7.3 percent per square
foot, the average sales price remained roughly flat over the forecasted
period. In the greater New York area, the S & P/Case-Shiller index,
which measures home prices nationwide and which does not include
apartments, fell 1.1 percent from the first quarter of 2006 to the
first quarter of 2007.
Comment: Youngblood could not be reached for comment by press time.
Jonathan Miller president, Miller Samuel, recently acquired by Radar Logic
Prediction, October 2006:
Miller forecast national housing weakness, citing flaws in how money is
lent: “I have long vented about the perils of weak underwriting
standards and the pressures placed on appraisers by the structure of
the lending system, namely collateral valuation.” Also in 2006, Miller
drew on work by Lon Witter, an investment strategist, and Barry
Ritholtz, a research strategist, to complain about an “appraisal
inflation problem … much more serious than reported.”
In summer 2007, the New York State attorney general’s office asked many
appraisers to submit a formal declaration that they had been pressured
by the lending community to provide specific appraisal results. Last
month, Attorney General Andrew Cuomo announced that he was suing First
American Corp. and its subsidiary, appraisal company eAppraiseIT, for
allegedly colluding with Washington Mutual. Cuomo accused eAppraiseIT
of inflating the value of homes it appraised for mortgages, under
pressure from WaMu. He said that the case is just one example of a
“systemic flaw in the mortgage industry” with far-reaching implications.
“I am thrilled it is on the front burner now,” Miller said of the
attention now being paid to problems in the appraisal industry.
Lon Witter founding partner at Witter & Westlake Investments
Prediction, August 2006:
Citing that 32.6 percent of new mortgages and home equity loans in 2005
were interest-only, up from 0.6 percent in 2000, Witter penned a famous
article in Barron’s, predicting a drop in the real estate market and
comparing the situation to the junk-bond era of the 1980s. “Lenders
have encouraged people to use the appreciation in value of their houses
as collateral for an unaffordable loan,” he wrote.
Reality, December 2007: The nation’s mortgage market has been shaken by increasing numbers of subprime defaults.
Witter noted that more than $1 trillion in adjustable-rate mortgages
are scheduled to reset in 2007 and 2008 at an average of 2 percent
higher than the present rate. “Foreclosures will rise dramatically,”
predicted Witter, who noted that he expects the next three years to
yield a 30 percent drop in housing prices.
Maria Sicola executive managing director, research, Cushman & Wakefield
Prediction, December 2006: Aggressive rent growth in Midtown Manhattan for 2007, forecasting rent averages of $75 per square foot.
In June, average Class A rent for Midtown Manhattan reached $80.88 per
square foot. In the third quarter, the figure stood at $81.74 per
While the commercial leasing market appears to be showing signs of
slowing, particularly in terms of leasing activity and big deals
signed, over the past year, Manhattan rents have risen appreciably
enough that Cushman & Wakefield added a new category, properties
offered at $150 per square foot. Fourteen properties had hit this mark
or higher by October.