Archive for August, 2013

The conventional wisdom is that mortgage delinquencies are falling because the economy is improving, borrowers are going back to work, and they are resuming payments on their mortgages. Unfortunately, reality bears little resemblance to this spin. In truth, almost no borrowers resumed making payments according to the original terms of their mortgage. Delinquencies are falling because lenders are offering greatly reduced payments to squeeze a few more dollars out of debtors while everyone waits for prices to rise back to the peak. And despite lenders best efforts to make their loan modification deals too-good-to-be-true, nearly half of those given these loan modifications end up defaulting again. Mortgage delinquencies take a sharp turn up By: Diana Olick | CNBC Real Estate…[READ MORE]

I am a supporter of home ownership -- not loan ownership as it's become perverted into -- but real home ownership free of encumbrances like a hefty mortgage. Most people who achieve home ownership go through a period of indebtedness because few can save enough (or get gifts from relatives) to buy a house for cash. Those that achieve home ownership do so through disciplined repayment of mortgage debt without adding to it to supplement consumer spending via the home ATM. Anyone who plans to stay in one location for five years or more should consider home ownership. It is advantageous to fix one's housing costs with an amortizing fixed-rate mortgage, and over time, between house prices inflation and amortizing…[READ MORE]

It's no secret that I don't think consumer debt is a good idea (See: Think you want consumer debt? Think again…) With the ongoing war on savers waged by the federal reserve, it's been a difficult time to maintain a discipline of saving instead of consuming. However, buried in the new qualified mortgage rules is a loophole that may give those with little or no consumer debt a major competitive advantage when bidding on houses. The new qualified mortgage rules cap overall debt at 43% of gross income. This was in response to the enormous debt burdens exposed when lenders abdicated all lending prudence and gave Ponzis unlimited deb. The back end ratios of the average borrower, not the extreme,…[READ MORE]

Since interest rates suddenly and unexpected rose nearly 35% in a two-month period, the mainstream media and bullish housing market analysts have been busy assuring everyone that rising interest rates would have little or no impact on efforts to reflate the housing bubble. Since this is what most people want to hear, an eager public readily accepted the market spin. Unfortunately, early signs are that rising interest rates are negatively impacting the housing market -- just as anyone with common sense would think they would. Is it rational to think that raising the cost of any commodity 35% in two months would not impact sales? And for financed buyers, particularly those using FHA financing putting only 3.5% down, a 35%…[READ MORE]

The conventional wisdom is it's either a good time to buy or it's a good time to rent, but not both. Rising house prices and rising rents generally favor buying because the owner can lock in a fixed cost of ownership while profiting from appreciation. Falling house prices or stagnant rents generally favor renting because the renter's costs are not escalating while the owners are losing equity. But who gets the upper hand when prices are rising but rents are stagnant? In my opinion, it can be both a good time to buy and a good time to rent, and now is one of those times. House prices are rising, and although appreciation will likely slow significantly from its recent…[READ MORE]

First Blackrock and other hedge funds companies started to scale back or completely drop their large purchases of Single Family Residences. Actually, the very first investors of SFR's before the Blackrocks were people like IR that study the cash flow of these homes in the early days of the housing correction. Then after Blackrock this activity was picked up by small LLC type companies and cash buyers. In addition to these domestic investors, foreign investment has been a big factor for the previous 18 months. Now, this trend from foreign investors also seems to be reversing. Analysis: Higher prices sap foreign interest in U.S. real estate Reuters – Sun, Aug 18, 2013 12:03 AM EDT NEW YORK (Reuters) - Foreign…[READ MORE]

Economists and forecasters are wrong most of the time. The ones that last the longest learn to revise history and make it look like they were right when, in fact, they were dead wrong. Managing perception and reputation is more important that actually being right or wrong. Many support Janet Yellen for the soon-to-be-vacated post of Chair of the Federal Reserve Board of Governors (Ben Bernanke's job). They are trying to cast her candidacy in the best light, and in the process, they are revising history to make it look like she saw the housing bubble and bust coming. She didn't. Janet Yellen called the housing bust and has been mostly right on jobs. Does she have what it takes…[READ MORE]

Humpty Dumpty sat on a wall, Humpty Dumpty had a great fall. All the king's horses and all the king's men Couldn't put Humpty together again. Have you ever wondered why we tell out children such ghastly stories? I remember how I felt when I first heard and comprehended that nursery rhyme. It scared the hell out of me. It made me realize that actions have consequences, and some mistakes can't be undone. Americans are losing this basic understanding of behavior having consequences. The elders in charge of our society are telling the next generation that consequences can be avoided. If you behave in ways that cause you problems, someone, probably the government, will be there to bail you out.…[READ MORE]

The financial mainstream media often tells people what they want to hear. They've learned they make more money by providing emotional support to people seeking reassurance rather than providing facts and accurate analysis. This is a shame because people often make important and complex financial decisions based on erroneous or biased information they obtain from the financial press. When these investment decisions go bad, people are often wondering what went wrong. The problem is they trusted the veracity of what they read in the mainstream media. We've seen a great deal of spin and nonsense over the last few years. Barry Ritholtz wrote a post on How to Read National Association of Realtors News Release. I wrote a series of…[READ MORE]

In early 2012 lenders changed their foreclosure policies and opted for can-kicking loan modifications, most of which will fail. This dried up the MLS inventory and caused prices to bottom. Coincidentally, the low house prices and superior returns on rental homes attracted large private-equity firms to this market bringing their cash to the foreclosure sites as well as the MLS to acquire what they could. In a normal real estate market, all-cash buyers represent about 20% of sales. Ordinarily, these are empty-nesters who accumulated a lifetime of home equity, sold their properties, and downsized to a less expensive property to live in during their retirement without a payment. Plus, many people simply don't believe in debt, and with family help,…[READ MORE]

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