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Punishing shareholders with corporate fines does little to deter bad behavior among corporate executives. Some of them need to go to jail. If I had to narrow my list down to the people most responsible for the housing bubble, Anthony Mozilo would be near the top of the list. The Option ARM loan was the primary loan product that inflated the housing bubble. Using negative amortization and teaser interest rates, people were able to borrow more than twice the amount than they could afford with a conventional 30-year fixed-rate amortizing mortgage. Once the Option ARM imploded and... [Read More]
When lenders began denying short sales, underwater owners were forced to wait for higher prices to sell, and with flattening prices, they are stuck. Lenders caused the housing market to bottom and to rally in 2012 and 2013 by favoring loan modification over foreclosure and by denying short sales to greatly reduce distressed inventories and overall supply. It worked fabulously for them, and prices rocketed upward for nearly 18 months. The abrupt rise in interest rates in mid-2013 lowered the ceiling of affordability, and the house price rally was stopped dead in its tracks. When... [Read More]
British legislators want to curb housing bubbles to avoid the economic pain, whereas American legislators want to reflate our housing bubble. During the 00s lenders attempted foolish financial innovations that proved dismal failures; these loan products, deterioration of standards, and securitization of mortgages inflated massive housing bubbles in several countries around the world. Each country dealt with the problem in its own way. China, Canada, Norway, and Australia still deny their market bubbles, and so far, none popped (although China's may be bursting now). Housing bubbles... [Read More]
Today's high home valuations are only justified by record low interest rates. Will today's buyers become bagholders when interest rates rise? Will rising mortgage rates cause house prices to crash again? It's a valid question, and a valid concern for today's homebuyers. Nobody wants to be an underwater bagholder trapped in a debtor's prison awaiting lender approval of a sale to move on with their life. At a minimum, the prospect of rising rates curbing appreciation should temper buyer's enthusiasm toward making a fortune on home-price appreciation. How likely is it that rising... [Read More]
Americans are moving less than ever before causing a weaker economy and slower home sales. America has long benefited from a mobile population capable of moving to take new jobs and delivering their skills and expertise where it's needed most. Over the last 25 years, Americans have been moving less, and the mobility rate continues to hit new lows. Some of this may be a sign of changing lifestyle choices, but with 9.7 million Americans trapped in their homes because they owe more on their mortgage than the house is worth, many Americans are immobilized by the banks, and that is a drain... [Read More]
Housing sector weakness may be a sign of a change in attitudes away from home ownership as defining the American Dream. When house prices crashed in 2008, we had an opportunity to usher in a new era of affordable housing with a lower percentage of income devoted to housing in the United States. With less income going toward housing, more income is freed up to spend on other goods and services, stimulating the economy in a sustainable way. However, that isn't what politicians decided to do. No, they decided to bail out the banks with a plethora of bailouts aimed at supporting the... [Read More]
Federal Reserve's zero interest rate policy made debt cheep and widely available to investors who inflated asset values setting the stage for another crash. Pundits like to call asset bubbles; it attracts attention and helps make a name for the analyst. Most often they are wrong, but every once in a while, someone calls a bubble just before one pops, and they look like a prescient genius -- and sometimes they are: Robert Shiller called both the internet bubble and the housing bubble right at the peak of each, and he won the Nobel Prize for his efforts. The pundit sounding the alarm... [Read More]
People who quit making payments and allowed their homes to be auctioned want another chance to own a home, probably for more free loan money. Many people who lost their homes because they stopped making payments and allowed the house to fall into foreclosure would like to get back into the housing market. If the standards are lowered and the waiting period after a foreclosure is decreased, these former owners could buy again and stimulate housing. But is that a good idea? A small number of former owners endured a foreclosure because they lost their jobs and couldn't make even a... [Read More]
Unexpectedly low mortgage interest rates allow buyers to raise their bids and push house prices higher on stagnant incomes. In my opinion, the housing market has been boring lately, as prices have been flat, and sales volumes are low. The market is in a new "normal" pattern of low inventory, low demand, and low sales volume. The lack of volatility makes for a wonderfully boring housing market. We all dance around one big question: is it a good time to buy? Housing market is a 'crapshoot' By Heather Long @byHeatherLong July 7, 2014: 1:55 PM ET The housing market is a "crapshoot"... [Read More]
As prices near the peak, lenders allow loan modification payments to reset forcing people out who can't afford the payments. Lenders give loan modifications to desperate borrowers ostensibly to keep them in their homes, but more importantly for lenders, loan modifications keep properties off the MLS and force buyers to compete for diminished inventory driving prices higher; but once prices near the peak, will lenders be so accommodating to struggling borrowers? Loan modifications are not an entitlement, and banks don’t want to make them one, but that’s not how borrowers see it.... [Read More]
Loan modifications inflate house prices by reducing for-sale inventory; it also inflates rents by keeping potential rental homes off the market. Lenders embarked on a policy of aggressive loan modification to dry up the MLS inventory and force house prices to bottom in order to restore collateral value behind their bad bubble-era loans. Nobody disputes this, not even lenders. Lenders didn't have much choice but to pursue this policy because the alternative of curing their bad loans through foreclosure, besides being politically unpalatable, would have bankrupted the banks with... [Read More]
Higher prices bring out sellers but turn off buyers; the result is more inventory and a shift away from a seller's market. California's housing markets are nearly always a seller's market because we have a chronic shortage of available housing. This causes people to substitute down in quality relative to their incomes and live in smaller, less opulent abodes than their income would accommodate in other areas of the country. The cost of housing is high in California, and it probably always will be. Disruptions in the housing market quickly tip the balance in housing from one favoring... [Read More]