Archive for January, 2012

Rents are rising again. In fact since turning positive in late 2010, rents have been rising steadily and consistently in a healthy range. This is a sign of an improving economy. It's also one of the reasons rental parity calculations show improvement. Unless the US economy slips back into recession, rents will not turn negative again. As long as rents go up and prices go down, affordability will continue to improve. Renter Nation Rages On As New Reality Published: Thursday, 5 Jan 2012 | 12:52 PM ET By: Diana Olick -- CNBC Real Estate Reporter Despite record low mortgage rates reported todayand rising affordability in most U.S. housing markets, rent is the new reality for former home owners and new…[READ MORE]

Many loan owners quit paying their mortgages years ago. They enjoy a free ride while the banks wrestle with what to do with their bad loans. If the banks process their foreclosures, they must recognize the losses, and the resulting sales will find their way to the MLS. Typically, about one-third of all foreclosures go to third parties at auction. Even if lenders hold all their REO for better days, the third-party auction buyers will sell most of theirs. The result will be more homes on the MLS and lower prices. If the banks don't process their foreclosures, they will be giving away free houses. Loan owners are predictably excited about that idea, but the bondholders and shareholders of the…[READ MORE]

Affordability in many markets is at record highs. Even here locally, houses are more affordable on a monthly payment basis than any time in the last decade. Yet, houses are not selling. Why is that? Income growth is stagnant due to the weak economy and job picture, the housing wealth of the entire nation has all but evaporated, and many potential home buyers have high debt burdens from a combination of student loans and rampant credit-card borrowing during the 00s. In short, everyone is tapped out. Last week I spoke of my disdain for most economists. Nouriel Roubini is another of the group whom I respect. Don’t Believe the Good News Consumers are income-challenged, wealth-challenged, and debt-constrained. That doesn’t bode…[READ MORE]

Borrowers who owe more on their mortgage than their house is worth and who are paying more each month than a comparable rental benefit financially from strategic default. Few dispute that. The arguments against strategic default appeal to ethics and morality, and the counter-arguments either deny there is a moral component or argue that the greater moral duty is to the family. There is one financial argument against strategic default: the house will go up in value, and by defaulting now, the borrower will not obtain that appreciation equity in the future. The appreciation argument is a fantasy. Prices are currently falling, and with the abundance of inventory which needs to be cleared from the system, there is little hope…[READ MORE]

Laguna Altura is an Irvine Company Village located at the intersection of Highway 133 (Laguna Canyon Road) and Interstate 405. The proximity to the Irvine Spectrum and nearby offices are ideal for local workers who desire a short commute. The ease of access to Interstate 405 and Interstate 5 cuts down the commute time of anyone working at a greater distance. This adjacency to the freeways does make the community a bit noisy despite efforts to buffer the sound. Further, the main entrance is on Laguna Canyon Road, a busy thoroughfare bringing traffic from Laguna Beach and other south county commuters linking from the 73 toll road. The traffic situation at the entrance is less than ideal. The Village has…[READ MORE]

A reader recently emailed me his story on getting a loan on a property. I know first-hand how tough the banks are making it to get a loan, but mine are investment property loans, and they should have more scrutiny. I am always suspect when I hear complaints about the tougher underwriting standards because most people compare today's standards with the non-existent standards of the bubble. However, hearing stories from very well qualified borrowers having troubles does make me pause and wonder if perhaps we have gone a bit too far tightening standards. I am writing to provide you with a data point and possibly an idea for a blog entry.   We are about to close on a 2/2 condo in…[READ MORE]

It isn't often I find an economist I agree with. Most economists missed the housing bubble, and even six years later, they fail to understand the ramifications of it. They act surprised when their forecasts prove faulty. Basically, most economists don't know what they are doing. It's refreshing when I find one who grasps what's really going on, and today's interview is with one such economist. Economist eyes 5% home-price drop January 7th, 2012, 12:28 am · · posted by Jon Lansner Christopher Cagan is a veteran Southern California real estate economist. He’s our 19th guest for “Eyeball 2012!” This series of interviews is our holiday gift to you, Lansner on Real Estate’s sixth annual collection of outlooks on local…[READ MORE]

The federal reserve exists to create moral hazard. Their policies are designed to lessen the impact of the financial cycle, make booms less of an upswing and make busts less of a drag. However, the recessions at the end of a long boom are necessary. Unsustainable Ponzi-based business plans and lending programs must be purged. If these business and lending practices are allowed to continue, the improper allocation of resources becomes an even larger drag on the economy. Ponzi borrowing from mortgage equity withdrawal is one such lending practice that must be purged from the system. All Ponzi schemes are unsustainable. Eventually, the loan balances become too large for debtors to service, and they quit paying. Once borrowers quit paying,…[READ MORE]

The Orange County Great Park located on the El Toro airbase in Irvine is running out of money. The main source of development money was to be the development of the residential properties which have been delayed due to the housing bubble. Now the other source of funding, redevelopment agency funds, has been wiped out by governor Jerry Brown. With no cash coming in, it's hard to see how this project goes forward. Money Woes: What's a Great Park To Do? Posted: Monday, January 9, 2012 6:42 am | Updated: 5:42 am, Tue Jan 10, 2012. ADAM ELMAHREK The Orange County Great Park's chance of losing its primary funding is more likely now that the California Supreme Court has backed…[READ MORE]

The FHA has been the lender of last resort during the collapse of the housing bubble. Conventional lending dried up once they realized how lax lending standards became, and how likely it was that borrowers would strategically default and cause more losses. Without the FHA, a Las Vegas style crash of 70% or more would have been common to markets across the country. The banks would have been obliterated. The FHA insured many of the loans issued as prices declined. Since the FHA down payment is only 3.5%, and since it takes a 6% commission plus closing costs to exit a property, nearly every FHA loan issued over the last 10 years is effectively underwater. The losses are going to…[READ MORE]

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