Archive for February, 2014

In the absence of rising wages, when mortgage interest rates go up, one of two things will happen: either sales will fall, or prices will fall. Since we don't have a free market in housing, sales will fall and remain depressed for a very long time. Assuming a consistent payment, higher mortgage rates decrease the size of the loan and reduce the amount borrowers can bid on real estate. While it is possible the federal reserve may print enough money to spark wage inflation, given the high levels of residual unemployment and a low labor participation rate, wage inflation is a long way off, almost certain to come later than rising mortgage rates. Therefore, if rising mortgage rates results in…[READ MORE]

As Baby Boomers retire, they may want to sell their McMansions and downsize. They may discover finding a buyer is more difficult than they currently imagine. I recently read Ayn Rand's Atlas Shrugged, all 1,167 pages of it. The core idea of the book postulates what would happen if society's productive people went on strike and refused to produce anything of value. Not to spoil the book, but if society's most productive people went on strike, commerce would come to a halt, and society would devolve into barbarism. When I read today's featured story on Baby Boomers, I wondered what would happen if succeeding generations simply decided not to buy their houses. Who will fund the retirements of Baby Boomers?…[READ MORE]

Home sales volumes are down across all market segments. Investors and owner-occupants alike find prices far too high for their liking. Home sales are down despite hopeful predictions from economists and financial reporters that the housing market had finally achieved "escape velocity." The theory was that investors would cause the housing market to bottom, and owner-occupants, seeing less risk in purchasing a home, would step in and purchase homes once prices started rising. In the past, owner-occupant buyers often would purchase even when prices were rising briskly because they believed house prices couldn't go down, so they needed to buy before prices became too high; plus, many wanted to make a fortune on appreciation. The housing bust changed all that.…[READ MORE]

The cost of ownership is rising and will soon outpace rents. Will buyers still want to purchase homes when it costs them more to do so? During the hight of the insanity of the housing bubble, it cost nearly double to own a house than to rent it (assuming a conventionally amortized mortgage, which nobody was using). Despite the huge premium for ownership, people bought houses, several if they could. Being one of those cautious fools who never considered using any of those innovative loan products, I couldn't understand why anyone would pay so much more to own than to rent. It never occurred to me that people paid so much because they believed they would make a return on…[READ MORE]

Reporters in the mainstream media convince beleaguered homeowners and potential homebuyers problems with bad mortgages is past; however, this may not be an accurate depiction. The mainstream financial media, in it's insatiable desire to please and tell people what they want to hear, churns out story after story about a recovering housing market. To be sure, house prices are up, but as I asked in Home sales down, household formation down, purchase applications down: Housing recovery?, if house prices are up yet all fundamentals are weak, can we really call it a housing recovery? I've stated many times my contention that the housing recovery is built on a foundation of market manipulation; distressed inventory dried up because lenders opted to…[READ MORE]

... and Thursday, and Friday, and Sunday, and Monday; ok already, the whole rest of the week. Last time, we left off with some fool opening a water valve while looking directly into the out flow.  After he dried himself off, and after drying off the bathroom, it was time to install the "custom" vanity.     See, I told you the space was odd shaped and there was no off the shelf vanity that would fit.  The plumbing can not be installed until after the countertop is installed and the countertop can not be installed until it has been fabricated.  So, it's off to the internut, Lowe's, and Home Depot to have a "custom" countertop fabricated.  My understanding of…[READ MORE]

When borrowers and lenders petition the government for relief through debt forgiveness and bailouts for losses, you are the one paying for whatever the borrower did with that money; the government is merely a middleman facilitator of a tax heist. In a bygone era, lenders lost money if they made bad loans to irresponsible borrowers. With the advent of securitization, much of this risk of loss transfered to investors, and with the economic catastrophe of 2008, lenders learned the government would bail them out for any losses they were unable to pass on to investors. The too-big-to-fail banks no longer attempt to conceal the moral hazard behind their actions; they know they will be bailed out, so they act accordingly.…[READ MORE]

The financial media blames the weather to cover up the underlying weakness in housing. “It is better to offer no excuse than a bad one.” ― George Washington The housing recovery sputters badly; housing starts are down, mortgage applications are down, and buyers evaporated -- at the time of year when all of these factors are supposed to increase. These unexpected developments, unexpected by brilliant economists, demand explanation. Mainstream media reporters, the paragons of insightful analysis and objective reporting, explain how these events caught reporters and economists completely by surprise the only way an apologist knows how; they make up a lame excuse: the weather. Cold weather sinks U.S. home building in January By Lucia Mutikani, WASHINGTON Wed Feb 19,…[READ MORE]

Investors buy delinquent mortgages from lenders with plans to foreclose, boot out the mortgage squatters, and convert the property to rentals. This strategy may cause an increase in foreclosures nationwide. REO-to-rental investment hedge funds exhausted the supply of homes they could acquire at auction or on the MLS for the prices they need to make the investment profitable. Desperate for more homes to add to their portfolios, investors turn to lenders to buy the non-performing loans on their books so these investors can foreclose on the delinquent borrower and obtain a rental property. This new strategy may cause a dramatic increase in the number of foreclosures. I didn't see this coming. Like most industry observers, I assumed that once house…[READ MORE]

The next generation of homebuyers, Millennials, have too much debt to buy their first homes. As a result, first-time homebuyer participation is at near-record lows, and the situation isn't likely to change any time soon. The typical sources of housing demand are largely absent; in particular, first-time homebuyer participation is at near-record low levels. First-time bomebuyers only make up 29% of the market today, compared to 40% in normal times, and without first-time homebuyers, long-term homeowners are unable to execute move-up trades. This causes sales volumes to flag across all market segments, which is what we're seeing now. Some point to the lack of first-time homebuyers as a significant source of pent-up demand; for example, more Millennials are living at…[READ MORE]