Payment affordability is very high by historical standards. That means people who borrow most of the money to buy a home -- which is about 70% of buyers -- the cost of monthly payments is low relative to a borrowers income. But is this a good measure of affordability? A recent paper argues it is not. Further, they argue that affordability is still a major problem hindering demand. [gview file="http://ochousingnews.g.corvida.com//wp-content/PDF/AndrewDavidsonpaper0612.pdf" height="725" width="550" save="1"] I recently wrote about this issue in Record low interest rates fail to spur demand. Interest rates are at record lows, and prices are at or below rental parity in most markets, yet demand is low and sales volumes are weak. Most real estate shills blame intransigent…[READ MORE]

Foreclosure Radar just released its report on May foreclosures. The change in bank's behavior since the beginning of the year is becoming apparent. Lenders are determined to steadily reduce their standing REO inventory. At current liquidation rates, they will have cleared out the backlog of standing inventory by the middle of next year. Of course, this comes at a price. Lenders are not making headway on shadow inventory, and those who have been delinquent on their mortgages for a long time are going to get to squat even longer. Lenders are hoping these people will opt to short sell their properties. In all likelihood, since doing nothing gets them month after month of free housing, most will stay committed to…[READ MORE]

What separates homeowners from people who don't own homes? The answer is not as simple as you might think. If you go back to antiquity, the person who "owned" a house was generally the strongest warrior who was capable to taking it and holding it against all rivals. Over the last 500 years the development of government and stable laws of land ownership made it possible for ordinary people to have claims to real property stronger than the edge of a sword or the barrel of a gun. One of the first attempts to establish property title was the English Doomsday Book of the 11th century. The King set out to establish who owned what so he could better establish…[READ MORE]

People are basically honest and will do the right thing if given the chance. However, people are also opportunistic, and if encouraged and enabled to steal, many ordinarily good people will go down the wrong path. Lenders led many astray. During the housing bubble, lenders were desperate to loan money in what they thought were low-risk, high yielding investments. The advertising to entice homeowners to become loanowners was both effective and too-good-to-be-true. The housing bubble turned many good people into thieves. Most were petty thieves who merely gamed the system to get free money. This same group now feels completely justified asking for principal reduction as if that were an entitlement instead of what it is, government graft. Over the…[READ MORE]

Several months ago, I had a meeting with a representative of the OC Register who wanted to sell me ad space. During the conversation, he said the realtor community in conjunction with the OC Register needed to create a "buying frenzy" to help liquidate the abundance of distressed inventory. Obviously, he was not a reader of the blog. Perhaps in the era before blogs, a coordinated mis-information program conducted by realtors and the local media would succeed in persuading buyers to act when it is not in their best interest to do so. We have certainly seen consistent examples of ludicrous statements from the NAr that vacillate between spin and utter bullshit. However, in today's world of citizen journalists who…[READ MORE]

As a renter, I find the behavior of lenders, loan owners, and politicians galling. Lenders and loan owners inflated a massive housing bubble and priced me out of home ownership for over a decade. To make matters worse, politicians decided my tax dollars should go toward bailing out both parties and subsidizing this atrocious behavior. Politicians are compelling me to pay money to the very people whose avarice made it impractical for me to obtain a family home. True homeowners, responsible buyers with equity, should also be incensed by this foolishness, but since the housing bubble folly served to increase the value of their holdings, homeowners have said very little. In fact, most homeowners applaud the efforts to prop up…[READ MORE]

I have written extensively on strategic default. I have been an advocate of strategic default because it is generally the best financial decision for a family. When a loan owner is underwater and making payments far larger than the cost of a comparable rental, they are throwing their money away on mortgage interest to support a depreciating asset. That's pretty stupid. One reason millions of underwater loan owners don't strategically default is because they perceive it as immoral. We have debated this issue at length in the astute observations of this blog, but it comes down to a simple choice between competing values. Is a borrowers promise to repay their debt a greater moral obligation than their need to provide…[READ MORE]

Low house prices are good for the economy because low house prices make for low loan balances and less debt-service. When borrowers have excessive home debt, the excess comes directly out of disposable income. Since consumer spending is such an important component of the economy, the excess interest payments are a direct financial drain. As long as the debt on real estate is excessive and capital is tied up in non-performing assets, the economy will suffer. It’s really that simple. The solution is equally simple: foreclose on delinquent borrowers, wipe out the debt, and extract the remaining capital value. With the excess debt removed, borrowers can use their wage income to buy goods and services rather than giving it to…[READ MORE]

Quite predictably, pending home sales have declined precipitously due to the lack of available inventory. Lenders have a variety of reasons for withholding inventory right now, but among the biggest reasons is their desire to cause house prices to bottom. Lenders make the false assumption that supply and demand controls all pricing. It does not. Withholding supply may help buoy prices in the short term, but affordability puts a cap on prices stopping them from rising. Lenders hope active buyers raise their bids and push prices higher. After all, that's what buyers did during most of the housing bubble. Buyers have some ability to raise their bids by substituting to inferior housing stock, and some buyers do raise their bids…[READ MORE]

FHA has always been the lender of last resort. It was started in 1934 during the depths of the Great Depression to provide mortgage lending at a time when private money wouldn't do it. Of course, by then the housing market had bottomed, so the FHA loans from the Great Depression didn't cause huge losses, and since there was almost no other mortgage lending during that period, it was a welcome jump start to a beleaguered housing market. That isn't the function the FHA played in the collapse of the Great Housing Bubble. FHA was loaning money when nobody else would, and it did serve as a lender of last resort. However, since housing prices were just beginning their decline,…[READ MORE]