For a true recovery in housing, the market needs resurgent demand from first-time homebuyers and move-up buyers. These two groups are typically the largest source of housing demand. The first-time homebuyer is the bedrock of the housing market. Without first-time homebuyers, no move-up market exists. The first-time homebuyer market is driven by job growth and household formation. When the economy is strong and creating good-paying jobs, young people form new households and use their new income to bid for real estate. This displaces existing homeowners who then execute a move-up trade and often buy a nicer home. That's how the market is supposed to work, but the collapse of the housing bubble destroyed the fundamentals underpinning a strong housing market.…[READ MORE]

During the housing bubble there were plenty of private mortgage companies underwriting low down payment loans, but they stopped after the bubble burst. Then after the burst low down payment FHA loans grabbed huge share of the mortgage market.  The FHA standards were lowered and conforming limits increased which allowed a greater number of borrowers to put a very low down payment while purchasing a home.  In addition to FHA, Fannie and Freddie conventional loans after the bubble rarely wrote loans under 20%, however this trend has reversed in the past few months.  So, you have three entities writing low down payment loans.  Now, FHA is instituting new requirements on lenders that will probably restrict lending in the future. FHA…[READ MORE]

In my opinion, the housing market has reached an important inflection point. Through May of this year, thanks to restricted MLS inventory and super low interest rates, sellers were firmly in control of the market. Anything put up for sale sold quickly, often well over asking prices with a plethora of competing bids. As prices pushed higher, many distressed loanowners found comparable sales value reaching the outstanding balance of their loan. This is an opportunity to get out from under the debt on the house they really can't afford, so many of them listed in hopes the rising bids would take them out at the ask. The influx of inventory has been significant. As distressed sellers finally saw the light…[READ MORE]

The banks changed their policies radically in early 2012 and opted for can-kicking loan modifications over foreclosure. Their plan was to dry up the MLS inventory, particularly the distressed properties, and rely on record low interest rates to fuel demand. They were very successful. In fact, they were so successful that price rose nearly 40% in beaten down markets and 20% in stronger markets like those in Coastal California. Everything was going according to plan. Investors competed with owner-occupant buyers to bid up prices for the limited available inventory. Buyers who couldn't afford housing bubble prices at 6.5% interest rates prevalent in 2006 could afford those prices at 3.5% interest rates in 2012, despite the tepid income growth during the…[READ MORE]

Everyone says they want private capital to form the basis of housing finance, but nobody is willing to accept the consequences of attracting this money: higher interest rates. Right now, the US taxpayer is on the hook for over 90% of the residential mortgage market through the FHA and GSEs. These entities are packaging mortgage-backed security pools, guaranteeing them, and selling them to investors. Without this government backing, investors would demand better returns, and the only way returns improve is if mortgage interest rates rise. Of course, rising interest rates is the last thing lenders and housing bulls want to see. Higher interest rates would reduce mortgage balances, make housing even less affordable, and ultimately will either halt appreciation or…[READ MORE]

An astonishing number of the 18-31 year age cohorts are living with their parents. This large group of young adults are not currently forming new households and stimulating housing demand. When they finally move out -- if they ever move out -- they will demand either rental housing or an ownership stake. Which way they go will have an impact on future house prices. Millennials, in Their Parents’ Basements By CATHERINE RAMPELL -- August 1, 2013, 11:00 am Last year, a record 36 percent of people 18 to 31 years old — roughly the age range of the generation nicknamed the millennials — were living in their parents’ homes, according to a new Pew Research Center analysis of Census Bureau…[READ MORE]

Like any industry that enjoys an undeserved government subsidy, the homebuilding industry is fighting to keep it. The home mortgage interest deduction does little to increase home ownership rates, particularly among low wage earners, but it does inflate housing prices, especially where high wage earners live. Homebuilders equate high house prices with greater profits and more homebuilding activity, so they are fighting to keep it despite the fact it is very costly to the US taxpayer and does little to boost home ownership rates. Supporters of the home mortgage interest deduction are very worried that Congress will curtail it in the debate over comprehensive tax reform. The National Association of Homebuilders is becoming increasingly vocal -- and increasingly desperate --…[READ MORE]

In the height of the housing bubble, banks were giving out loans to people with no jobs and no credit.  And then if equity increased in your house then the banks would offer you a HELOC loan that would allow the borrower to cash out their equity.  Then in 2008 the affordability products stopped and the ponzi scheme was over. Since the collapse of the housing market there has been types of  borrowing that has replaced the easy credit use to be at the banks for example: 401(K) loans, crowding funding scheme, farm land fraction sales,  pay day loans, auto title loans (so you can pay off your car twice), and even subprime auto loans that have interest rates greater…[READ MORE]

In early 2012 lenders embarked on a new policy of choosing loan modification and squatting over foreclosure. Their goal was to dry up the distressed inventory and create an imbalance between supply and demand that would force buyers to compete over limited inventory and drive prices higher. So far, they have been successful, and all signs are that this policy will continue to work as the banks intended. The truth as I've outlined above is not how bankers are portraying their actions in their own publications. According to their version of events, their can-kicking loan modifications and permissive attitude toward squatters who won't play their game are instead characterized as permanent solutions to a problem they've merely deferred to another…[READ MORE]

I was a housing bear. From when I started writing publicly about housing in February 2007 to September 2012, I was bearish on Coastal California real estate. In August of 2010, I wrote the post Buy Las Vegas real estate, which made the case for buying cashflow assets in beaten down markets. I was and still am very bullish on properties in these markets. Because I was completely bearish for four and one half years, and because I continue to point out the bogus manipulations of the market, some people classify me as a permabear. The reality is that since last September, I have discussed in numerous posts the reasons prices will continue to rise despite the manipulations of the…[READ MORE]