Archive for 2011

The economy is being dragged down by massive debts taken on by insolvent households. We have tried loan modifications, and they failed. Voluntary principal forgiveness is not forthcoming, so that leaves only one alternative to purging the excess debt: massive strategic default. Massive default is best way to fix the economy Commentary: Clearing away the debt is the only way forward Brett Arends -- Sept. 12, 2011, 12:00 a.m. EDT NEW YORK (MarketWatch) — You want to fix this economic crisis? You want to put people back to work? You want to light a fire under the economy? There’s a way to do it. Fast. And relatively simple. But you’re not going to like it. You’re not going to like…[READ MORE]

There are too many market indicators. Anyone who has studied technical analysis of stocks quickly realizes there are far too many ways of parsing data, and most of them are useless. As I pondered what I wanted to present to give an overview of the housing market, I considered many ways of looking at the data. I rejected many of the indicators I felt were irrelevant to answer the basic questions buyers have. What do buyers want to know? Most buyers want to know two things: (1) am I paying too much, and (2) are prices likely to go up or down in the future. These are important questions. People asked these same questions in 2006 and came up with…[READ MORE]

As most of you know, I have been operating a flipping fund buying auction properties in Las Vegas and selling them on the local MLS. The business has had its ups and downs, and I have learned a great deal about Las Vegas and operating in the local business culture. One of the reasons I selected Las Vegas was due to my own research on the housing bubble. Prices have crashed well below rental parity to price levels where cashflow investors find the returns attractive just as I have described in many posts going all the way back to my first week of writing for the IHB in What is Past is Prologue: ... market prices enter the range of…[READ MORE]

Equality has power. Rental parity is a powerful price point because the cost of ownership is equal to the cost of rental. Theoretically, buyers should be indifferent at rental parity, but in the real world kool aid intoxication prompts many buyers to bid prices up above rental parity. The true power of this threshold doesn't become apparent until prices fall and owners find themselves paying far more than comparable rentals for properties worth less than they paid. Today's post will be heavy on math, but I want to give everyone a look inside the black box of aggregate rental parity calculations. I use this analysis in Las Vegas to locate neighborhoods with the best rental property deals, but owner occupants…[READ MORE]

Throughout my posts on the IHB, I make references to what I believe is happening in our local housing market. The IHB serves as a valuable market resource to people considering buying Irvine and Orange County real estate. The message for the first nearly 5 years has been simple: don't buy a home yet. Over the last couple of years as the plethora of market props have been removed, the message has evolved to the more nuanced advice: buy below rental parity if you have a long holding time. That advice will remain our mantra over the next few years until conditions in the market change. Why are you afraid to buy? If you have been reading the IHB regularly,…[READ MORE]

I was sitting in a meeting not long ago with a group of homebuilding industry insiders. During our discussions, the topic of future home prices came up, and I was astounded to hear the assembled group say they wanted to see the market props removed so that house prices could fall to a level that clears the market. The people who make a living from real estate are finally waking up to the idea that artificially high house prices is hindering sales, making acquisition decisions problematic, and ultimately delaying the recovery of the homebuilding industry. My only comment was "Halleluia." I preached that gospel for 3 years to no avail, and suddenly people came to the same conclusion on their own. There comes a point when you have to give…[READ MORE]

Anyone who has ever done any self promotion knows how difficult it can be. The little voices of doubt inside work to keep you down. "You're not that good." "You don't know what you're doing." "You can't succeed." When those voices become a paralyzing distraction, you need to go look in the mirror and say, "Hot damn, I'm great." California realtors have launched a new promotional campaign. To judge by the videos they produce, you would think they are great. And some are, but many are not. I always enjoy a little parody to remind us of the dark side. Calif. Realtors Launch Testimonial Campaign by Tanya Irwin, Thursday, August 25, 2011, 5:04 PM The California Association of Realtors is launching an integrated…[READ MORE]

Real estate investors during the housing bubble put their money to work on faith. There is no logical reason to believe house prices only go up. In fact, there have been two prior periods in California's recent history where house prices did, in fact, go down. However, with kool aid intoxication, otherwise known as faith-based investing, reality is ignored. If you truly believe house prices only go up, no price is too high, and you don't have to worry about a backup plan if house prices don't go up. There is only one viable backup plan when a speculative play on appreciation does not pan out: renting the property until you get out at breakeven. For some people, this was…[READ MORE]

There is an old saying in investments: the herd is always wrong. This is only partially true. The herd is wrong about 80% of the time, and for a short time, the movement of the heard makes it right. However, once the herd has taken a position and nobody is left to buy, the herd realizes their mistake and panics to get out causing epic financial disasters. The latest movement of the herd is into apartment development. As the only asset class related to real estate that makes sense for institutional investors, it stands to reason that some capital flows are warranted. However, in our era of cheap money, more than a little capital is flowing into apartment development. Cheap…[READ MORE]

Home is not an address, it is a state of mind. I felt "at home" growing up. I lived in a small community with my parents and extended family. I had roots which ran deep. My family owned their property, subject to a conventional mortgage which they dutifully paid off. The thought of losing the family home never crossed our minds. My parents never did anything to imperil it. I bought my first home at 29. I bought a lot and contracted its construction. I overbuilt and over-borrowed, and when I had to move to take a job, I had to sell for a loss. I wrote a check at the closing table. Nobody had heard of a short sale…[READ MORE]

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