Archive for April, 2014

A housing recovery generally exhibits higher prices and higher sales volumes; however, after the 2012-2013 rally ended, home sales declined precipitously. Shouldn't home sales strengthen? Wouldn't a housing recovery based on strong fundamentals of job and income growth cause both prices and sales volumes to rise? Well, it isn't happening. Why is that? Most economists and housing pundits succumb to their optimism bias and predicted rising home sales in 2014: Trulia: 2013 was the year of the investor, but 2014 will be the year of the repeat home buyer. Investors buy less as prices rise: higher prices mean that the return on investment falls, and there’s less room for future price appreciation. Who will fill the gap? Not first-time buyers:…[READ MORE]

Lenders lower standards to qualify more borrowers and increase business, a precursor to another bubble, but only if risk is again mispriced. The recipe for a housing bubble takes many ingredients, and loose lending standards are one of them; however, it requires a gross mispricing of risk and enormous capital flows into unstable loans before prices get pushed up into bubble territory. Let's assume for a moment all qualification standards were eliminated and anyone who wanted to borrow money could get a loan, similar to what happened in 2004 through 2006. Would this cause a housing bubble? In my opinion, it would not. It would inflate prices, and it would cause a great deal of downward substitution of quality to…[READ MORE]

Rather than react with excitement and increased urgency, potential homebuyers fear rapidly rising home prices signal a new housing bubble. Does it? California endured three large housing bubbles since the early 1970s. Each one was kicked off by a huge house price rally, inflating prices well beyond any reasonable fundamental measure. From early 2012 to mid 2013, the house price rally was just as steep as previous price surges, but not as long in duration. Cautious home shoppers fear this latest rally may signal yet another housing bubble, but rather than purchase for fear of being priced out forever, buyers wait or decide to safely rent instead. I consider this cautious behavior a great sign for housing. In the past,…[READ MORE]

After years of manipulation of buyers and a callous disregard for the truth, the National Association of realtors and many agents have no credibility. When a realtor talks, do you hear "blah, blah, blah"? Why is that? At some level you know that most of what they say is bullshit, statements made without regard to the truth, usually to manipulate behavior for self-serving reasons. realtors want only one thing: to generate the largest commission possible with the least amount of time and effort. Bullshit helps reach their goal because bullshit smooths over all objections by telling people what they want to hear. The Credibility Continuum The credibility of anyone's opinions relies on the history of factual and truthful statements made…[READ MORE]

Federal reserve policy of zero percent interest rates inflates asset values and diverts money from savers to bankers. When the federal reserve buyers Treasury notes or mortgage-backed securities, it merely prints money. Unlike ordinary banks or citizens, the federal reserve doesn't need money in its accounts in order to buy things. The federal reserve doesn't usually print a great deal of money; it usually tries to print enough to match the increase in value of goods and services in the economy. The first policy response of the federal reserve in a downturn is to lower interest rates to stimulate the economy, but when interest rates hit zero, the only tool available is the printing press, and they aren't afraid to…[READ MORE]

Voters warm to the idea of reforming Proposition 13, but large financial interests would vigorously oppose any attempts to curtail their subsidy. Property taxes have long been a source of local government tax revenues because real property cannot be moved out of a government’s jurisdiction, and values can be estimated by an appraisal, so it's a convenient item to tax. In most states, local governments add up the cost of running the government and divide by the total property value in the jurisdiction to establish a millage tax rate. California is forced to do things differently by Proposition 13 which effectively limits the appraised value and total tax revenue from real property, forcing local governments to find revenue from other…[READ MORE]

Bankers around the globe learned from the US how to reflate house price bubbles by removing distressed inventory and lobbying for government subsidies. Bankers in the US discovered the formula for reflating housing bubbles: remove distressed inventory from the market through loan modification, denying short sales, and permitting long-term delinquent mortgage squatting, then lobby the government for a variety of housing subsidies and stimulants to stoke demand. This two-prong approach reduces supply and increases demand forcing house prices to go up; in fact, the more severe the housing bubble and resulting crash, the more effective the policy is because greater residual mortgage distress equates to larger supply restrictions as underwater owners control most of the inventory. Bankers in the US…[READ MORE]

Rising rents make owning an attractive alternative despite the high home prices, so rising rents will likely push more people to buy rather than rent. After the big rally in home prices and the sudden increase in interest rates, houses feel expensive. In many areas, prices have reflated back to the peak of the housing bubble, and affordability has plummeted, prompting many to become bearish on housing. Despite these signs, my monthly reports still show the market as fairly valued, and when I look at individual properties, I see most are still selling for prices near rental parity, even in nicer neighborhoods. Part of the reason for this is low interest rates, but the other part of the equation is…[READ MORE]

  How can you not adore something so cute?  How could anybody tarnish the reputation of a loyal, cuddly, lover like a Pit Bull?  Maybe because they are vicious animals that have killed people?  Personally, I don't like Pit Bulls.  And I do not have a clue as to why it is legal to own one.  I can guess as to why some people may want one, but too bad.   I am a staunch defender of liberty and our Constitution, especially the bit about gun ownership, but I don't think anyone should be allowed to own a Pit Bull, Presa, Rottweiler, Cane Corso, etc., unless they live far from most people, own livestock, and are willing to face criminal…[READ MORE]

Despite the happy-talk from realtors, the housing recovery flounders on low volume, sustained only by low inventory. Most housing analysts expected sales to increase in 2014. They believed an increase in sales and an increase in price would represent “escape velocity,” a virtuous circle where rising prices increases demand and causes more sales and rising prices; in the past, this would have worked because lenders would extend toxic financing terms to new buyers to keep the party going, but the new mortgage regulations changed how real estate markets work. With those products now banned, the party ends when prices get too high — as it should. In Bold California housing market predictions for 2014, I said sales volumes would decline…[READ MORE]

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