Archive for September, 2014

A federal reserve study concludes weak demand in the housing sector is structural and will not be corrected by low mortgage interest rates. The federal government set up the unemployment reporting procedures to mask the depth of problems with deep recessions. During the Great Depression unemployment hit very high levels because the government counted everyone who wanted a job but didn't have one. During the Great Recession, many people fell off the reported unemployment statistics because after a certain time, the long-term unemployed are deemed to be no longer looking for work even if they are. The sharp decline in the labor participation rate in the Great Recession reflected the large number of people who were unemployed so long they were…[READ MORE]

Home price appreciation and sales volumes in housing markets across the United States stalls out because lenders refuse to make bad loans. The cycle of boom and bust is really over. Lenders steadfastly refuse to make loans to under-served borrower groups to provide the "escape velocity" of previous housing booms because lenders are unable to pass these losses on to investors or the US government. The real estate industry and a compliant financial media portrays this behavior as a hindrance to the housing recovery, but that's dangerous spin. The reality is that lenders are unwilling to make loans they know will go bad, causing them losses, in order to generate transaction income to realtors and homebuilders and to placate left-wing…[READ MORE]

The mortgage and foreclosure debacle of 2008 was cut short by government intervention. A second round of deferred distressed sales is yet to hit the market. Is the mortgage and foreclosure crisis resolved or merely delayed? Most people believe the mortgage and foreclosure crisis of 2008 is behind us, a misperception fostered by a financial media eager to disseminate good news. The common perception is that an improving economy has put people back to work, and those hard-working Americans cured their loans of past-due payments: all is well. Unfortunately, that isn't the reality. While the notion of the noble American borrower dutifully recovering from the perils of the Great Recession is appealing, most borrowers were overextended before the recession hit, and lenders made deals with these…[READ MORE]

To avoid the political backlash of thousands of foreclosures, HUD sold delinquent loans to investors who pushed the borrowers out. Federal officials touted their foreclosure avoidance programs as an alternative that would keep borrowers in their homes. Apparently, paying for a house is no longer requisite for keeping it, just signing some papers and getting a name on title is enough to make the property a sacrosanct family home. Well, as it turns out, foreclosure avoidance programs were merely political cover. Federal officials really didn't care whether or not borrowers got to keep their family homes, federal officials didn't want to be the ones directly responsible for the foreclosures, so they sold off the loans to third parties to let…[READ MORE]

High home prices is hurting new home sales, which may slow homebuilding employment growth and perpetuate economic weakness. In June I reported new and resale home sales slumped in the prime selling season this year. In July I reported the June new home sales numbers plummeted from June's poor showing. Part of the reason for weak sales is ongoing weakness in the economy, and part of the reason is that new home prices are just too high. Potential homebuyers can't afford higher home prices because wages aren't keeping up with price increases. If prices go up faster than wages, and if interest rates don't fall enough to fill the affordability gap, marginal buyers get priced out and sales volume necessarily…[READ MORE]

Higher home prices without higher wages makes housing unaffordable and only benefits existing homeowners and the bankers they owe money. What good came from the recent house price reflation rally? Did it stimulate the economy? No. Did it put millions of unemployed construction workers back to work. No. Did it stimulate housing sales? No. politicians and the federal reserve promised economic expansion and acceleration; however, so far these great benefits from higher home prices remain elusive. So why isn't the economy improving with higher house prices? The increase in home prices came with no increase in wages, so now houses everywhere are more expensive, and average Americans need to spend more of their income on housing, which makes less available to…[READ MORE]

People who live in houses they don't pay for are viewed as folk heroes by some and contemptible deadbeats by others. Have you noticed that most of the human interest stories from the housing bubble have no heroes? The housing bust has brought out the worst in mankind. Every party involved seeks to avoid any financial responsibility while simultaneously looking for ways to game the system to their advantage. The cast of characters includes lenders, realtors, delinquent mortgage squatters, holdover tenants, mortgage brokers, basically anyone involved with real estate. Are delinquent mortgage squatters heroes fighting the system or deadbeats gaming the system? These people quit paying their mortgages, many quit paying several years ago, and banks are either unwilling or…[READ MORE]

Politicians favor home ownership because it serves as a proxy for retirement savings; however, unrestricted mortgage equity withdrawal defeats the purpose. Politicians provide many reasons for supporting home ownership through policy initiatives and outright subsidies, but one of the primary reasons they support home ownership is the forced savings account properties of an amortizing mortgage. History has shown that homeowners have more comfortable retirements than renters, and an abundance of home equity is one of the main reasons. Unfortunately, politicians allow homeowners to raid this retirement piggy bank with unrestricted mortgage equity withdrawal -- an allowance politicians don't provide to retirement savings accounts. People are still allowed to borrow against their retirement savings for specific things, like a mortgage down…[READ MORE]

Home sale asking prices impact how quickly a house sells and how much a seller obtains in the sale. Higher is not always better. I sold more real estate in 2011 and 2012 than most people sell in their lifetimes. As manager of a flipping fund operating in Las Vegas, I bought and sold more than 50 properties during that two-year stretch. As a seller I can to a few conclusions about how to get the best price. First, start with a high but reasonable asking price. It doesn't pay to error on the low side. Establishing comparable value is more art than science, and someone in the market may believe a property is worth more than you do. You can't get top…[READ MORE]

Lenders bring back stated-income (liar) loans in a desperate measure to boost loan origination volumes and increase home sales. For as much as I would like to keep an open mind about "innovative" loan products, I can't see any reason stated-income loans (liar loans) should be allowed to exist. Liar loans were the worst financial innovation of the housing bubble because these loans caused investors in mortgage-backed security pools to question the financial representations of all borrowers in all loan pools. This doubt about the veracity of loan qualifications spread from the pools that specifically allowed liar loans to all MBS pools, causing investors to abruptly stop buying mortgage-backed securities -- a problem we still have today. The abrupt halt of the flow of investor money resulted…[READ MORE]

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