Nice to start the New Year with some sunshiny optimism, courtesy of our local King of Real Estate:

“Going into 2008 mine may not be the only optimistic voice you hear, the majority opinion is that we have passed the worst of it. The National Association of Realtors is predicting a slight increase in existing home sales for 2008. While the market may not bounce back to what it was a couple of years ago, things are not expected to get any worse.”

Well, the 10th largest bank in the US, National City, just closed its wholesale lending division today and cut its shareholder dividend by 50%. Other lenders, such as Countrywide, are discontinuing stated-income and low-downpayment programs on an almost daily basis. So…where are all the buyers going to come from that will sustain the market at its current levels?

There’s no more funny money available out there, and no more buyers will enter this market until prices take another radical dip lower. It’s not about rates anymore; it’s about affordability. And, NJ housing will need to drop another 20-25% in price- across the board- before we’ll see any significant uptick in sales.

Sellers in the current environment deserve some straight talk about what’s going on right now. And, what’s transpiring amounts to the beginning of the biggest real estate crash in American history. A seller’s best opportunity right now may be to get things done ASAP, thereby cashing out as much equity as possible, before things get worse. “The worst has passed”??? This thing hasn’t really even started yet. Every real estate boom in US history has been followed by a bust of equal proportion. That means a local market which ran up 100% from 2001-06 will retrace 50%. To date, we’ve only shaved maybe 15-20% off the highs of that market.

Of course, making a statement like the one I’ve made above doesn’t get you on MSNBC or get you invited to be a guest speaker to groups of real estate agents. However, consider that The King of Real Estate relies on a statement made by the National Association of Realtors to bolster his case. That’d be nice…except for the little problem NAR has with the accuracy of its predictions and its credibility. In 2007, NAR issued 12 (yep, one for every month) monthly housing reports, which were then followed by 12 monthly revisions of its forecast and outlook. That’s right: for the calendar year 2007, NAR batted .000. Of course, NAR finished off its stellar ‘07 by predicting a slight increase in existing home sales in ‘08. Amazingly, NAR’s new Chief Economist, Lawrence Yun (who, in mid-’07, replaced the totally discredited David Lereah) seems to have developed a projection algorithm based entirely upon hope and wish, as no statistical evidence exists to back his assertion.

I’m not down on the long-term ownership of real estate. I do not- as I have been accused- hate my own profession. There are narrow opportunities for both buyers and sellers in the current environment, and I do believe that falling prices will act as a purge that will ultimately strengthen the market by forcing a return to fundamentals in both financing and pricing of the asset class.