Lawrence Yun in many ways is the voice of residential real estate. As the National Association of Realtors' chief economist and forecaster, his predictions are followed, analyzed, praised and criticized by real estate professionals across the U.S., and noted in Congress when legislation involving residential real estate is being considered. When he speaks, he usually draws a crowd.
Yun was born in South Korea, but his parents moved to Columbia, South Carolina, when he was in the fourth grade, where he completed his secondary education. He graduated from high school and went on to Purdue, where he graduated with a degree in mechanical engineering. A Ph.D. from the University of Maryland followed.
He takes part in several forecasting panels, including the Harvard University Industrial Economist Council. The following interview has been edited for clarity and length.
Q: This has been a pretty interesting period to be a real estate economist.
A: Yes, both the bubble and the crash. I've been working at NAR since 2000. I started out as a junior economist and was promoted to chief economist in 2008.
Q: Which was more interesting as an economist, the bubble or the crash?
A: Any time there is movement in economic data, it naturally raises questions as to why it is happening. It was a very interesting period academically, but in the real world this was a terrible situation for the country and for the industry to go through.
Q: Did you see the crash coming?
A: Everything looks clear in hindsight, but during that time one had to ask the question: Is this sustainable? It was during a time when lending was opening up to a point at which there were no underwriting standards. It clearly was abnormal. It was hard to say whether it would crash or taper off without price declines, but it was clearly a misalignment of all the fundamentals. During the height of the bubble, the NAR put out a brochure on subprime mortgages for Realtors to use with consumers. It said, here's what "teaser rate" means, and here are the potential risks involved.
Q: In the Bay Area, prices are skyrocketing again, and some fear there's a new bubble forming.
A: It's a little different this time, compared to 2005. Underwriting standards are much tighter. People who get mortgages are meeting very strict standards. Second, there are large cash transactions. People are cashing in stock options and Asian buyers are coming in with all cash. Any time there are cash transactions and higher down payments, the risk of potential decline is reduced. That is even though the price increase is fairly rapid and clearly not sustainable.
Q: What happens then?
A: The question becomes: Is it going to reverse and decline, or flat-line and taper off? I would say that first, prices are not setting new highs yet. The market is still in recovery mode. Together with tighter lending standards and crash transactions, that means there's less risk. A decline in the tech economy would be the primary reason for a crash. I'll add that any economic data that's seeing a strong upper movement could have a temporary push downward before going up again. Prices in the San Francisco Bay Area might have a little volatility, but I don't see a sustained decline.
Q: There's also the emergence of the Asian buyer as a force in the market.
A: China's economic growth is relatively speaking still solid, and it is creating millionaires right and left who want to divest out of China. I think there will be a continuing increase of overseas Chinese buyers in the Bay Area.
Q: A major complaint here is the lack of inventory. Do you have any thoughts on that?
A: The main way to get genuine fresh inventory is for builders to build more homes. Another way might be for people to decide to move out of the Bay Area, but that's not likely to happen because of the area's strong job growth. And building regulations in the Bay Area are stricter, broadly speaking, than in the rest of country. The only real building that can occur is in the outlying regions. That means steadily worsening commutes, unless more high rises are built.
Q: Those high rises are pricey. What's left for the middle-income buyer?
A: People who own a home are smiling about their equity, and other people just feel shut out. Even people on six-figure incomes have sticker shock when they see home prices. It's leading to social tensions. Many people in the middle, who have moderate incomes, view owning a home as part of the American dream, but they are denied that dream. They are also denied that ladder of advancement, where you own a home, build equity and trade up. There needs to be more supply to moderate or taper the price growth so people can use their savings to buy a home. When prices are rising faster than savings, it's a discouraging, demoralizing situation.
Q: Aren't some homeowners just afraid to sell?
A: It's a rational decision. Even though they want to trade up, move to a better school district or for whatever reason, they don't want to give up their home and not be able to buy another.
Q: How long will it take for the housing market to get back to normal?
A: The housing construction activity taking place is insufficient in relation to job growth, so I'm afraid that prices may continue to rise, though not so rapidly. Hopefully, they'll begin to flat-line and give people a chance to save up for a down payment.
Contact Pete Carey at 408-920-5419. Follow him at Twitter.com/petecarey.
Born: Sunchon, South Korea
Current job: Chief economist, National Association of Realtors
Previous jobs: 2000-08, junior economist, National Association of Realtors; 1999-2000, economic consultant to the U.S. Department of Veterans Affairs and the U.S. Department of Education; 1995-98, economics adviser, U.S. Agency for International Development
Education: B.S., mechanical engineering, Purdue University, 1988; Ph.D., economics, University of Maryland, 1995
Residence: Arlington, Virginia
Family: Married, one son
Five things you didn't know about Lawrence Yun
1. He developed graduate school economics curricula for several universities in Kazakhstan.
2. He speaks "basic, conversational Russian."
3. He's a recreational cyclist.
4. He loves to read.
5. Despite his degree in mechanical engineering, his wife complains that he cannot even fix a doorknob.