Archive for 2013

In 2005 a house was an investment you could live in. A house was expected to provide endless rapid appreciation that could be converted to spending money at any time. Debt on the house could always be increased yet refinanced at lower and lower rates and better and better terms so payments wouldn't go up. Further, the owner would never actually have to repay the debt as the house was expected to cover all debts when it sold. With such blissful and fallacious thinking, a housing bubble was inevitable. The housing bust revealed nearly every homeowner belief and attitude was a fantasy. House prices did not always increase rapidly. In fact, they could decline rapidly as well. The debt could…[READ MORE]

[gview file="" height="750px" width="580px" save="1"] One of the functions of this blog is to provide timely housing market information to buyer and sellers. Until recently, I could only provide good data and analysis for Orange County, but I've recently expanded my coverage area to include Los Angeles, Ventura, Riverside, and San Bernardino counties. If you've been reading this blog for a while, you will recognize the standard data analysis techniques and presentations in today's post. Since all housing markets in Southern California are related, some of this analysis may be redundant, but there are significant differences between these markets that are worth exploring. I intend to do more of these posts covering other aspects of the housing market in the…[READ MORE]

The current housing market is now testing 50% investor participation levels on closed sales. Maybe soon the market will test 55% or 60% investor participation levels.  According to this article below, all cash sales are being classified as institutional investors because rarely owner occupied sales are done with all cash which some exception of course.  However, investor purchases are negating the affect of lower rates by increasing home prices.   Lower rates are helping the banks, loan modification programs, and local governments to collect tax revenues, but lower rates are not helping the first time home buyers.  In fact, the trade up home buyers are not doing much better.  Enter the cash investor. Nearly 50% Of All Home Sales Now…[READ MORE]

Many politicians and advocacy groups lobbied for principal reduction for underwater borrowers. This was the preferred solution among loanowners because it was giving them free money and removing any consequences for their ill-timed purchase or refinance. Principal reduction was not favored by lenders or taxpayer watchdog groups because either the lender or the government was going to pay the price for trillions of dollars in principal reductions. The compromise solution was loan modification. The early efforts at loan modifications largely failed because far too many people were given debts they couldn't manage during the housing bubble, and they didn't qualify for new loans everyone knew were going to go bad. Over the course of three years from October 2008 when…[READ MORE]

When people bought homes during the housing bubble, they often used toxic financing terms like teaser rates, negative amortization, and other parlor tricks to get themselves into a home they couldn’t afford. Their plan (assuming they had one) was to refinance into a new loan in a few years when their payments skyrocketed. Ostensibly, they were going to get stable financing in the future, but realistically most would have opted for another toxic loan to keep their costs down while they made huge profits on appreciation. The process was known as serial refinancing, and many people fell for it. The false assumption they shared was that another toxic loan would always be available. The credit crunch rudely exposed the folly…[READ MORE]

The housing bust should have wiped out America's lenders. Instead, we deemed these institutions Too-Big-Too-Fail, and we pumped billions of dollars into keeping them afloat. Since the emergency cash was not enough, we suspended prudent accounting rules and allowed lenders to report the value of bad loans based on financial models rather than actual market prices. As long as lenders didn't foreclose, they didn't need to recognize the loss on their non-performing loans. But it's really worse than that. Lenders quickly realized they could turn this accounting loophole to their advantage in several ways. First, they embarked on an aggressive program of modifying loans to keep borrowers making payments. Rather than accept smaller profits, they modified the terms of these…[READ MORE]

I feel bad for loanowners (AKA underwater borrowers). When I started blogging in February of 2007, I felt a sense of urgency to convince as many people as I could they shouldn't buy a house. I knew the impending price collapse was going to have serious long-term consequences on people's lives. Many would succumb to the weight of their debts and lose their homes in foreclosure. Many more would endure years of owing more on their mortgage than their home was worth. Mortgage debt is always a heavy burden, but when it greatly exceeds the value of the house it's attached to, the crushing weight is almost too much to bear (remember Swiller's bizarre rants?) For many loanowners, the last…[READ MORE]

I recently reported the housing bubble fully is reflated in Irvine, California, and the OC housing market ricochets off affordability ceiling. Since the OC market is now priced very near its historical relationship between the cost of ownership and the cost of rent, I want to take a more detailed look at what's happening across the county and find those markets where deals still abound and those markets where none are found. With the dramatic increase in price and rising interest rates, affordability is declining rapidly. As a consequence, the OC housing market, which started the year rated a 10, is now dropping down to a 7. While this is still a good rating by historic standards, it's not the…[READ MORE]

I have been surprised that SB 30, the California legislation that would give tax relief on debt forgiveness on a principal residence hasn't been passed for 2013.  Since 2008 if you had debt forgiven by a lender, that forgiveness hasn't been subjected to both federal and state income tax.  For example, the bank gives you a $100,000 mortgage and you don't pay it back, the loan is then treated as income.  For 2013 it seems that it was just going to get another rubber stamp approval year.  However as of August 30th it still has been stalled in the California legislature.   CAr has a powerful lobbying branch in both Washington and Sacramento.  In fact, Larry Roberts just recently posted…[READ MORE]

According to Wikipedia:  The American Dream is a national ethos of the United States, a set of ideals in which freedom includes the opportunity for prosperity and success, and an upward social mobility achieved through hard work. In the definition of the American Dream by James Truslow Adams in 1931, "life should be better and richer and fuller for everyone, with opportunity for each according to ability or achievement" regardless of social class or circumstances of birth. The idea of the American Dream is rooted in the United States Declaration of Independence which proclaims that "all men are created equal" and that they are "endowed by their Creator with certain inalienable Rights" including "Life, Liberty and the pursuit of Happiness.…[READ MORE]

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