Archive for May, 2014

Artificially low interest rates and restricted inventory causes builders to focus on higher priced houses we don't really need. Homebuilding usually leads the economy out of recession. The Great Recession did not end with a building boom largely because of overbuilding during the housing bubble. A false price signal triggered excessive homebuilding, and it took five years to work off the inventories. The collapse of the housing bubble saw new home sales and construction fall to the lowest levels ever recorded — and those records go back to the 1960s. To make matters worse, rather than experiencing a sudden drop and a “V” bottom leading to a new boom, new home sales flat-lined at record lows for five straight years.…[READ MORE]

Analysts pointed to a massive housing bubble in China for many years, but property prices haven't crashed... until now. Anyone who talks about housing bubbles these days is immediately labeled a "doom and gloomer." It's a familiar refrain, often heaped on people like me who predicted a housing bust in the United States when few wanted to believe it was possible. Here in America, the bubble deniers -- and Never forget the bulls and bubble deniers were completely and totally wrong -- the bubble deniers succumb to their optimism bias and comforted themselves with fallacies and wishful thinking, even past the point where denying the obvious was no longer operative. The same is true in China. First, let's review some…[READ MORE]

There are 5 simple reasons why the financial media and housing pundits overestimated demand for homes and YoY growth in existing home sales in 2014. I like to acknowledge good writing on real estate matters when I don't think it gets enough attention. I found this article by a local loan officer, Logan Mohtashami. Senior Loan Officer DRE # 01426922 NMLS # 328173 Irvine, CA 949-291-8293 24/7 [email protected] AmcLendingGroup.com Reprinted with permission: Why the Financial Media and Housing Pundits Got It Wrong Posted on May 5, 2014 by Logan Mohtashami Logan Mohtashami, Benzinga Contributor There are 5 simple and obvious reasons  why the financial media and housing pundits got it wrong in terms of demand for home purchasing and  year over year growth in existing home sales in 2014.        Lending…[READ MORE]

Banks kicked the can for five years, but they finally began ramping up foreclosure processing to clear out delinquent mortgage squatters. The headlines in the financial media give the false impression the foreclosure crisis is past. It's not. Millions of borrowers are not paying their mortgages, and millions more are making partial payments on doomed loan modifications. The banks bought time with loan modifications, but this was a temporary measure that allowed them to better manage their REO inventories and delay final resolution on their bad bubble-era loans. The day of reckoning, though delayed, has finally arrived, and banks are increasing their foreclosure processing to finally clear out the trash. Most housing economists failed to see this coming, which is…[READ MORE]

Too-big-to-fail banks face billions of dollars in claims from their bad behavior during the housing bubble. They deserve the pain. The bailouts of the too-big-too-fail banks irritated me (and many others). I would have far preferred to see the architects of the financial catastrophe of 2008 lose their jobs, their wealth, their social status, and be demonized for their atrocious behavior. Instead, we bailed them out, allowed them to keep their ill-gotten gains, and put them back in charge of our financial system. It wasn't right. Further, this is being sold to Americans as a necessary evil; ordinary people were "saved" by bailing out the 1%. Since there is no way to test alternate realities, we have no choice but…[READ MORE]

Rising house prices is bringing more inventory to the market, but many of the sellers have unrealistic expectations for what they can sell their house for. Despite the equity-crushing housing bust of 2007-2009, a short but furious price rally from early 2012 to mid 2013 revived animal spirits and rekindled faith in home price appreciation, the official religion of California. Religious faith is great for people looking for peace of mind in a chaotic world, but it doesn’t apply well to investments. People who chose to believe an investment opportunity will turn out well simply because they want it to are often disappointed by the results. Financial markets generally don’t respond to faith, prayer, or wishful thinking. Faith in home…[READ MORE]

 Higher house prices were supposed to stimulate spending, but instead the increased debt service has taken money out of consumers pockets, reducing spending. The bailouts of banks and the housing market were sold to us on the premise that rising house prices would stimulate the economy through the wealth effect. In theory, as people saw their personal balance sheets improve, they would stop saving so much and begin spending money again, and that additional spending would cause all economic activity to increase. Rising house prices was supposed to be a panacea curing all our economic woes. Well, house prices are up, yet the economy still sputters. Were the economists and politicians who touted this idea wrong? Housing Won’t Save the…[READ MORE]

The housing bust tarnished the American Dream dream of home ownership, and a new generation chooses to rent instead. Is this a permanent change? The system of banking we have both equally and ever reprobated. I contemplate it as a blot left in all our Constitutions, which, if not covered, will end in their destruction, which is already hit by the gamblers in corruption, and is sweeping away in its progress the fortunes and morals of our citizens. Funding I consider as limited, rightfully, to a redemption of the debt within the lives of a majority of the generation contracting it; every generation coming equally, by the laws of the Creator of the world, to the free possession of the…[READ MORE]

Should the size of houses be regulated to fit within the character of the neighborhood, or should owners have the right to build what pleases them? By Russ Wetherill, May 10, 2014 They say that beauty is in the eye of the beholder, and that one man’s ceiling is another man’s floor (both physically and metaphorically). America was founded on the principle of individual rights, but how do we resolve disputes when one man is jumping both on his own floor and his neighbor’s ceiling? One man’s right to swing his fist ends where another’s nose begins; but, the indiscriminant swinging of a nose into a fist can’t be the fault of the fist, can it? It’s hard not to…[READ MORE]

So far the economic recovery created low-paying jobs incapable of supporting mortgage payments thus failing to stimulate home buying. In a housing market where lenders, the federal reserve, and government officials don't conspire to artificially inflate house prices, the primary driver of prices is job and wage growth that leads to new household formation. If businesses expand and create new, high-paying jobs, those new employees take their new wages and bid up the price of available housing alternatives. If the the jobs are low paying, the new employees will bid up rental prices or occupy new rental units. If the jobs are high paying, the new employees will bid up the prices on nearby residential real estate. The last six…[READ MORE]

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