The federal reserve in conjunction with government officials are working diligently to reflate the housing bubble. Banks are still exposed to $1 trillion in unsecured mortgage debt, so reflating the bubble is considered necessary to restore collateral backing to lender's bad loans. Whether or not this is a good idea depends on your perspective. If you're a renter whose tax dollars are being diverted toward this endeavor, these efforts are not particularly welcome. Renters receive no benefit from this intervention, and the resulting high home prices make it more costly for renters to become homeowners, so it's a double whammy. If you're a homeowner, it's a very welcome government intervention. It costs homeowners nothing, and they get all the benefits.…[READ MORE]

Will they build the right stuff? As the Southern California housing market comes back to life, existing inventory is running low. That means new homes will be built, which is good news for the area’s planners, architects, builders, real estate agents and loan providers. However, who will buy those homes? Recent data indicates the majority of new home buyers will not be the same as those before the recession. Rather, it will be Millennials, and they don’t want the same old features as the previous generation. In its April 29 cover story, Barron’s magazine published, “…Widely dismissed as a lost generation with few job prospects, towering student loans, and a bleak future, the so-called Millennials, most of whom have reached…[READ MORE]

The desire to push defaulting homes into shadow inventory and keep them off the market is manifesting itself into new programs.  Let's briefly review, remember when banks didn't want borrowers to default and when the borrower defaulted, banks had very strict guidelines to get out default and back into the good graces of the bank?  Banks didn't even want to publicize the fact they were having defaults or foreclosures to give appearance of financially soundness of their institution. Now banks in conjunction with Fannie Mae and Freddie Mac are giving defaulted loanowners virtually an automatic enrollment into a new loan modification process.  So, why is it opposite from a few years ago, because it's in the best interest of the…[READ MORE]

I postulated that loanowners would begin listing their homes as soon as prices reached near-peak levels when they could get out without completing a short sale. Upon further reflection, I've concluded that we may not see many more MLS listings once loanowners are above water. We will certainly see some, and we are seeing some of these WTF listing prices now, but the cloud inventory may remain in the clouds until rising housing costs force these over-extended borrowers to leave. Conversation with a loanowner I recently had an extended conversation with a loanowner who doesn't make enough money to afford the house he currently owns. We talked about his situation and options, and here is what he told me. First,…[READ MORE]

Home ownership hurts the economy. That's the startling conclusion of a new report that demonstrates a strong correlation between high rates of home ownership and high rates of unemployment. While correlation may not be causation, the correlation is too strong to be ignored. Whether or not home ownership itself is the cause of unemployment is debatable, but whether it does or not, the report will be useful to politicians who need political cover to scale back the home mortgage interest deduction. I've covered the merits of the home mortgage interest deduction in many posts. The bottom line is that the HMID does nothing to improve home ownership rates, it inflates the values of houses in neighborhoods dominated by high wage…[READ MORE]

Historically, in housing markets that displayed robust price increases, the rally was driven by increasing employment and rising wages. This has long been considered a fundamental of all housing price movements. The logic behind this is simple. New jobs need to new household formation which puts greater demands on the available housing stock. Further, rising wages allows these new buyers to bid more for the supply available pushing prices higher. But what happens to a market where home ownership rates are declining? Is it really possible to have a sustained rally in house prices when the traditional fundamentals are absent? Housing Headlines Mask Unsettling Trends by Jann Swanson -- May 13 2013, 10:35AM In its April Housing Data Wrap-Up Wells…[READ MORE]

Lenders created a kinder, gentler euphemism for their stupid bubble-era loans; legacy loans. The word legacy has a regal connotation conjuring up images of revered ancestors and royal traditions. In reality, label is being applied to some of the most unconscionably stupid and irresponsible loans ever underwritten. What lenders call legacy loans should be called cancer loans because they are a malignant tumor on the balance sheets of lenders everywhere. Since the credit crunch of August 2007, lenders clamped down on their foolish underwriting standards. The stopped making all sorts of loans nobody would ever repay. Unfortunately, that also meant prices would need to come down significantly, so even though their underwriting improved immeasurably, the loans from late 2007, 2008,…[READ MORE]

Thanks to record low mortgage interest rates, monthly payment affordability is very high. In fact, it costs the same on a monthly payment basis to own a house in Orange County as it did in 1989 (see chart below). This allows buyers to raise their bids on the limited inventory available. This is highly desirable for the banks who want to recover as much as they can on their bubble-era legacy loans. Existing homeowners are not complaining. There is a limit to how much buyers can raise their bids. Gone are the days of liar loans, so now borrowers much qualify based on their verifiable income. Also gone are the affordability products including interest-only and negative amortization loans with teaser…[READ MORE]

House prices are rising rapidly, and the conditions creating this rally will persist for the foreseeable future. Prices will continue to rise until affordability becomes a limitation, or cloud inventory makes its way to the market, and even then prices will continue to rise, just less rapidly than they are today. As long as prices are financeable and supply is limited, buyers will bid up prices on the available housing inventory and prices will keep going up. This sounds like the ideal set of circumstances for continued price appreciation, so why are the housing bears still roaring? Because its a completely artificial market price manipulation masking weak underlying fundamentals. The bearish case for another leg down in housing points out…[READ MORE]

realtors, homebuilders and others who profit on real estate transactions hold the false belief that lenders are holding back the market with tight lending standards. It's an easy position to hold for those who have no risk of loss when loans go bad. The reality is that lenders are not willing to make bad loans anymore because if the do, they will lose money -- which is how it should be. Lenders are supposed to be the adults looking over real estate transactions. After all, it's mostly their money being used to fund the purchase. During the housing bubble lenders abandoned lending standards entirely because they weren't held accountable when loans went bad. Now, with buy-back provisions in most securitzation…[READ MORE]