Archive for October, 2013

Part of the Federal Reserve's stated mission is "conducting the nation's monetary policy by influencing the monetary and credit conditions in the economy in pursuit of maximum employment, stable prices, and moderate long-term interest rates." Clearly, the volatility in the housing market is clear evidence the federal reserve is failing its mission. The federal reserve's failure with regards to house prices was two-fold. First, they failed to identify the housing bubble and take any measures to prevent its inflation. Second, when house prices crashed back down to stable levels supportable by the incomes of ordinary citizens at "moderate long-term interest rates," they lowered mortgage rates to record low levels with the goal of creating upward price volatility in the housing…[READ MORE]

The housing bust is over. Struggling borrowers found new high-paying jobs, cured their delinquent loans, and eliminated the temporary stress on the housing market brought about by the Great Recession. ... Well, at least that's what the mainstream media wants everyone to believe. If people believe housing is on the mend, they have confidence when buying a house, and existing owners are less likely to give up and strategically default. The housing recovery narrative serves the interests of lenders, realtors, politicians, and loanowners. There's only one small problem; it's not accurate. Currently, 1.7 million borrowers are seriously delinquent on government-backed loans. In June alone, 700,000 borrowers quit paying their mortgages. The economy is still weak, and those that  have found…[READ MORE]

There has been two big gifts to banks in the last month 1) Nearly 4% mortgage rates have returned increasing affordability and 2) The government shutdown.  The biggest feat ever performed in the housing market has been the ability of the Banks, Federal Reserve, and US Government to keep million of homes off the market after the bubble.  The flood of homes hitting would have pushed home prices far below rental parity.  But in the worst recession since the Great Depression a flood homes did not hit the market.  In fact, there has been a housing supply shortage and an inability of entry level homeowners to purchase a house to do competition from cash buyers.  This is how well inventory…[READ MORE]

There is never a perfect time to buy a house. Considering all the variables that influence market timing, including sentiment of buyers and sellers, one or more of the variables will always be cautionary. I developed a market timing system to review what I believe are the most important mechanical considerations, but my system only considers what's happening with price. It doesn't take into account market sentiment, fluctuations in inventory or sales volume, nor does it consider the potential impact of policy changes. I ignore these features partly for simplicity, and partly because their influence is minor. In my opinion, it's better to focus on a few key variables than paralyze people by examining minor variables and assigning too much…[READ MORE]

Most people believe what they want to believe. Religious faith is as old as civilization, and faith in home price appreciation is religion in California. Religious faith is great for people looking for peace of mind in a chaotic world, but it doesn't apply well to investments. People who chose to believe an investment opportunity will turn out well simply because they want it to are often disappointed by the results. Financial markets generally don't respond to faith, prayer, or wishful thinking. I write about these issues frequently because I believe it's important for people to have a clear head and think rationally about the largest and most important financial transaction of their lives. If their judgment is clouded be…[READ MORE]

I see trees of green........ red roses tooI see em bloom..... for me and for youAnd I think to myself.... what a wonderful world. Louis Armstrong -- What a Wonderful World With house prices up more than 20% off the bottom, and with the chorus in the mainstream media proclaiming now is a great time to buy, it would seem we have the perfect time to buy a house. I recently asked, Can it be a good time to buy and a good time to rent? My conclusion was that it can be. Despite the euphoria, there are serious concerns many market observers have over buying in today's market. What You Need to Know Before Buying a House Yes, the…[READ MORE]

With the US taxpayer still backing more than 90% of all mortgages in the United States, it's good public policy to keep mortgage lending standards tight in order to prevent future losses. Despite this simple truth, many parties would like to see lending standards loosen so facilitate reflating the old housing bubble. Lenders want looser standards on government loans so they have less risk of a put-back loss. Both lenders and homeowners want to see looser standards on all loans to increase the size of the buyer pool to help push up prices. Politicians want to see looser lending standards to make lenders and homeowners happy, and they want to deflect complaints that they are shutting people out of home…[READ MORE]

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