Archive for May, 2013

Banks are enjoying the market's recent strength as collateral value returns to back their bad loans. Homeowners who aren't distressed don't mind either, but it's the banks that benefit the most from the current situation of restricted MLS supply. To further restrict supply and really get prices to shoot upward, banks stopped foreclosure processing on May 6, 2013. Ostensibly, they did this for procedural reasons related to new regulations, but this is simply a ruse to cover their real intent of forcing prices to shoot up even more rapidly to help them avoid more losses when they finally do liquidate their bad loans. 3 big banks nearly halt foreclosure sales after U.S. tweaks orders By E. Scott Reckard -- May…[READ MORE]

HELOC abuse is one display in many of the properties I profile each day. I made my point about HELOC abuse years ago, and I originally wrote today's post back in early 2010. No matter how many of these I profile, many readers, including myself, find these stories interesting. It's one thing to know HELOC abuse happened, but it's much more entertaining and educational to see every manifestation of the disease. The thinking behind this behavior is flawed, es evidenced by the legions of people who lost their homes this way. Recognizing the mistakes of others can be very helpful in avoiding them in our lives. There is a simple truth about the housing market; people are going to buy…[READ MORE]

Back in March, I reported that low housing inventory is an indicator of residual mortgage distress. In that post, I noted that loanowners have less incentive to sell when prices are rising because they can be patient and sell without a loss. Plus, I focused on the work of Mark Hanson who points out that even those who are a little above water don't have the equity necessary to sell and pay commissions and certainly don't have enough left over to make a move up. Building on that insight, I postulated that distressed inventory can be gauged by measuring how depleted inventories are from normal levels. A baseline for comparison can be constructed if you project the line from 2000…[READ MORE]

Perhaps the news of Edward DeMarco's ouster as head of the FHFA was premature. I wrote last month that the head of GSEs Edward DeMarco faces replacement, unfortunately. The political left hates him because he won't let them buy votes by reducing mortgage principal on their constituent's loans. The political right was angry with him for vigorously pursing buy-backs from financial services firms that sold the GSEs bad loans (something which DeMarco has quietly stopped.) With the opposition from the political right waning, DeMarco has started to gain favor in the eyes of Conservatives who like that he isn't willing to give out free money at taxpayer expense to benefit politicians on the left. I'm not the only one who…[READ MORE]

In April of 2008, I wrote a post about the psychology behind the various government programs designed to help banks kick the can until conditions got better. In the five years that transpired since, their efforts went from frantic, to desperate, to sublimely ridiculous. Each step along the way, the sheeple were strung along and enticed to make a few more mortgage payments in what will prove an ultimately futile effort to benefit from occupying a property they can't afford. Over the years, others picked up on the nonsense. This in 2011 from US Congressional Representative Patrick McHenry: How Homeowners Are Hoodwinked. This in 2012: Billions of dollars wasted on program that created false hopes among homeowners. Most of the…[READ MORE]

In the 1990's and early 2,000's it was the policy of the US government to increase home ownership rates and endorse the general idea that everyone should own a home. It wasn't even framed as a right or left issue since both Presidents Clinton and Bush pushed this 100% home ownership goal.   In addition, in the early 2,000's the Federal Reserve, Freddie Mac, and Fannie joined in and changed their policies to accommodate this goal.  Of coarse, this led to an enormous amounts of  subprime lending, affordability products, and ultimately the bursting of the housing bubble. Not only was this a bad policy, because of the all the bad loans with billions in tax payer loses, it actually bad economic…[READ MORE]

In the short term, a lack of consumer spending is keeping the economy down. Of course, everyone looking for a quick fix decries the lack of consumer spending and blames the consumer for our woes. It isn't the consumer's fault they were given too much debt during the housing bubble. All this excess debt is causing consumers to delverage. Some are succumbing to their debts and declaring bankruptcy to get a fresh start. Some are walking away from their mortgage obligations and waiting for their lender to put them out of their homes -- and their debts. Some are dutifully paying off the excesses of the credit orgy of the 00s. The first two groups, the ones that declared bankruptcy…[READ MORE]

Appraisers are supposed to be impartial third-party arbiters of value. If appraisers do their job right, prices can't get out of control and rise too rapidly. For quite a while, this system worked. However, probably on instruction from lenders, appraisers are now "hitting the number" and ceasing to be a brake on home price appreciation. Lenders want prices to go up. Appraisers are ostensibly there to protect lenders and buyers by ensuring loans and prices are in line with prevailing values. However, since lenders do want prices to go up, they aren't coming down on appraisers when the appraised value has little or no bearing on reality. At this point, as long as prices are moving higher, banks don't feel…[READ MORE]

In a normal and healthy real estate market, sales are dominated by owner occupants. These owners accumulate equity through paying down a mortgage and price appreciation, and they execute move-up trades seven to ten years after they buy their starter homes. Unfortunately, that isn't the market we have today. For the last several years owner occupant sales have been stuck in a holding pattern at 1990s levels. Orange County home resale volume very weak by historic norms, and the only increase in sales volumes over the last couple of years has come entirely from investors. Unlike owner occupants, investors don't accumulate equity for a move-up purchase. Most hold the property for a while, collect some rent, and sell when they…[READ MORE]

Despite speculators hopes to the contrary, home price appreciation is expected to slow down in 2013 according to a new forecast from Corelogic. So far the rapid increase in prices is due to a small uptick in demand, entirely from investors, and a dramatic decrease in MLS inventory. Both of these factors are likely to change in ways that limit future price increases. In the short term, prices of any asset are determined by fluctuations in the balance between supply and demand. The manipulation of the housing market by lenders is taking advantage of this phenomenon by restricting supply and forcing the demand from buyers to be concentrated on fewer properties thus bidding up their value. This can only continue…[READ MORE]

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