Archive for March, 2014

The unemployed consist of both homeowners and renters, but all assistance programs only bail out homeowners because this money is really intended to bail out the banks. Why don't renters get bailed out out like homeowners? It seems fairly obvious that homeowners think renters are degenerates and losers, and even the government robs working renters to subsidize unemployed homedebtors. But does that mean it's acceptable to favor one group over another? What happens when renters lose their jobs? Does anyone step forward to pay their rent or allow them to squat like homeowners? Why not? Renters are no better or worse in the eyes of politicians; both renters and homeowners vote. And even if renters were a degenerate sub-species of…[READ MORE]

The OC Housing News provides detailed ownership cost calculations for every family home for sale on the local MLS. A point-in-time analysis Today is reality; tomorrow is a fantasy. The ownership cost calculation is a snapshot of the cost of ownership at the time of first payment. It makes no projections for future changes such as home price appreciation. This analysis purposely does not project future changes for two reasons: First, the costs at the time of first payment are concrete and knowable. It requires fewer assumptions and no crystal ball. Second, most people who estimate future appreciation wildly overestimate. Very small changes in rates of appreciation make very large differences over 10 or more years. Overestimating appreciation always makes…[READ MORE]

Rental parity is the price of real estate where the monthly cost of ownership equals the cost of rent. It is the best benchmark for establishing residential property value. The importance of rental parity Rental parity represents a crossover point where renting and owning have an equal monthly cost. When prices are above rental parity, it costs more to own than to rent, so owning is often not a wise financial decision. Owning may still be right for people, and many are willing to pay the premium to own to obtain the emotional benefits of ownership; however, on a purely financial basis, paying more than rental parity creates a negative cashflow situation where owners pay more to enjoy a house…[READ MORE]

Home mortgage interest deduction encourages high wage earners to borrow more; capital gains tax exemption encourages wealthy to invest more in personal homes. The combined effect inflates house prices. Politicians promote home ownership through a variety of subsidies and tax loopholes, ostensibly to promote a sense of community and quell civil unrest, the modern bread and circuses. A recent Republican tax reform proposal curtails homeownership subsidies, and the proposal is vigorously opposed by realtors, homebuilders, and lenders who benefit from the subsidies. Supporters of the subsidies generally control the perception of their largess through planted stories in the financial media appealing to homeowners who rely on the subsidy to reduce their tax bills; however, those who want to reduce these subsidies…[READ MORE]

Exempt from qualified mortgage rules, the GSEs and FHA originate 24% of new loans with debt-to-income ratios that exceed the 43% limit. Not long ago, Senators unveiled a Fannie Freddie reform plan. The politicians in Washington recognize that the US taxpayer must not remain responsible for over 80% of home loans, but the parties disagree on how to remove this backing and potentially wind-down the GSEs. The basic dilemma is the cost of money: withdrawing the government backing will increase the cost of money in order to attract private capital. Raising the cost of money is raising mortgage interest rates, and Higher mortgage interest rates lead to lower sales or lower prices, neither alternative is palatable in Washington. A seldom-discussed problem…[READ MORE]

HAMP loans were bundled into mortgage-backed security pools purchased by the federal reserve with printed money, making foreclosure politically impossible. Borrowers were granted loan modifications either through HAMP or through a private program. Most borrowers don't realize the loan modification program matters a great deal. HAMP loan modifications will become a permanent entitlement; private loan modifications will become a future foreclosure. Private loan modifications are tomorrow’s distressed property sales. The path of a HAMP modification When a borrower can't afford their payments, they may be eligible for a HAMP modification. As Mike noted last year defaulting on your home now includes automatic enrollment into a loan modification program because the Obama administration broadened the parameters so much that nearly everyone…[READ MORE]

The spring house price rally of 2014 shows signs of weakness because buyers can't afford higher house prices at higher interest rates. Most housing analysts predicted a robust spring rally with increasing home sales and increasing prices. In the post Bold California housing market predictions for 2014, I outlined my reasoning for why it would not come to pass. The new mortgage regulations change how real estate markets work, and real estate analysts, realtors, and financial reporters failed to grasp the implications of the new changes. When house prices go up absent an increase in wages, affordability declines. In simpler terms, if potential buyers don't make more money, but prices go up anyway, fewer buyers can afford to buy, and…[READ MORE]

Contact us before you register with the builder we will accompany you to the registration and refund you anything over 1.5% offered by the builder. Welcome to the first of the Great Park Neighborhoods. A community of beautiful new homes on tree-lined streets, designed to celebrate the very best of Irvine. With a focus on family and friends. Personal health and well-being. Walking and biking. The bounty of nature and food fresh from the garden. Top-ranked public schools. And this is just the beginning… The Big Picture In Irvine, around the perimeter of the Orange County Great Park, there is a new kind of community taking shape. A collection of unique neighborhoods joined together by walking and biking trails, which…[READ MORE]

A housing bubble bust in China may prompt Chinese investors to dump their California investment properties to generate cash to pay debts to Chinese banks. Chinese citizens invest in housing because it's one of the few investment opportunities available to them. Until recently, there were no property taxes in China, so it cost very little to own property, so many Chinese invested in real estate as a store of wealth. Once valuations became detached from any fundamental value based on cashflow, the Chinese housing market became a Ponzi scheme similar to the US housing market during our bubble -- except that the Chinese bubble is much, much larger. Is it ready to burst? A Chinese housing market crash could be…[READ MORE]

Housing analyst and consultant Christopher Whalen is advising clients that home price appreciation passed its cyclical peak in mid 2013. Is the party over already? Kool aid flows, realtors promise double digit home price appreciation forever, and the financial media convinces everyone the so-called recovery is on solid ground. Happy days are here again: buyers brim with excitement; sellers count their equity; realtors imagine big commissions. Isn't that the way it's supposed to be in California? Unfortunately, with the abrubt taper of institutional home buying, and the levling of home prices on low volume, the wild rally of 2012/2013 petered out, but the market will be "normal" now and appreciate slowly, won't it? Christopher Whalen: The single biggest question facing…[READ MORE]

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In Memoriam: Tony Bliss 1966-2012
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