Economist tells Boca seminar there is no real estate bubble

More than 50 people turned out for an investor seminar recently hosted by Keyes Company/Realtors and held at Belaire Boca, a community of luxury condominiums and townhomes in Boca Raton.

The featured speaker for the evening was David Lereah, senior vice president/chief economist for the National Association of Realtors. Lereah is also the author of “Why The Real Estate Boom Will Not Bust & How You Can Profit From It: How To Build Wealth In Today’s Expanding Real Estate Market.”

Lereah was quick to make his message clear: “You don’t need a boom for real estate to roar. The real estate boom is over but the real estate expansion is still here.” Although homes are not selling as quickly right now, prices are still up. “There are no real estate bubbles, only balloons that expand and contract,” he said.

Lereah substantiated that good news by presenting numerous facts. The 14-year real estate expansion (1991-2005) resulted in a U.S. mortgage market that increased tenfold during that time. Low mortgage rates resulted in a refinancing boom, as consumers became more comfortable with the process.

He said the real estate boom was caused by factors such as lenders being able to reduce financing costs; baby boomers reaching their peak earning years and trading up or buying second, third and vacation homes.

“Forty percent of all home sales in 2005 were second homes – investment properties and vacation homes – compared to about 9 percent 10 years ago,” Lereah said.

Baby boomer children are in their first-time home buying years, and immigrants have also impacted home sales across the nation.

“Real estate is not an irrational investment, but speculators purchased irrationally during the boom, especially in areas like Miami. This drove prices up, and many speculators took out interest-only loans. This produced a vulnerable real estate market,” Lereah explained. “In 2006, we are cleansing the market of speculation.”

In 2007, Lereah believes that the real estate market will continue to expand even if mortgage rates increase to 7 percent. “That is still low,” he said.

Buying real estate has advantages, too. “It is the most leveraged asset and there are tax advantages…Real estate needs to play a role in your investment and retirement portfolio. You should diversify,” Lereah said.

He added that he is bullish on Florida, Arizona and Nevada because of even greater population increases. “The law of supply and demand works.”

All of Lereah’s real estate investments are in condominiums and townhomes because he doesn’t want to be involved in maintaining them. “If you’re Mr. Fix It, then it’s okay to invest in a single-family home,” he said.

Lereah also pointed out that he has invested in several condominium conversions. “Condo conversions are good because the property is already there.”