Archive for 2013

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]

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]

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