Archive for October, 2014

Foreign and non-resident owners who view houses as an investment bid up prices in local real estate markets and price out local residents. Taxing a commodity or a behavior makes it more expensive, which thereby lowers demand, so if legislators want to see less of some behavior or resource, they should tax it. Legislators should want to see less foreign investment in single-family residential real estate because this activity prices out owner-occupants who must compete for the resource. Although lenders and loanowners may want to see higher home prices to bail them out of their foolish bubble-era loans, people who want to buy homes don't relish high prices. Current homebuyers don't like being priced out by aggressive investors, so if these investors…[READ MORE]

 When the interest rate stimulus ended in mid 2013, sales slumped. Does the market need a dose of low rates, or should we wait for jobs to improve sales? Government officials, lenders, and the federal reserve will do whatever's necessary to prop up housing prices. Over the last five years, they suspended proper accounting rules, extended tax breaks to buyers and loanowners, reduced mortgage interest rates to record lows, withheld inventory from the MLS, awarded bad behavior with bailouts, printed money, and bombarded the financial media with feel-good stories designed to stimulate buying activity even if it harmed those buyers. To people willing to bend, break, or rewrite rules of proper financial conduct, the cure for housing's woes are whatever…[READ MORE]

Soaring rents is preventing people from saving for a down payment, but saving is a critical first step to become a home owner. The biggest barrier to sales today is the lack of a down payment. In the post How restricted for-sale housing inventory saps demand, I demonstrated how stagnant wages and high rents hinders people from saving enough to obtain a down payment on a house. It's one of a number of reasons Millennials aren't buying homes at a stage in their lifecycle when previous generations did. During the housing bubble, people had access to 100% financing, so few were saving for a down payment. After the housing bubble, the Great Recession caused many people to dip into savings just to…[READ MORE]

Homeowners generally feel more confident in their ability to make ends meet, largely because they fixed their ownership costs long ago. The need for shelter is basic, often closely followed by the desire for community. In the United States, this often translates into a desire to take on a very large mortgage to buy real estate. These basic human emotions drive much of the activity in real estate markets. Most people buy because it is the right time for them. Their career, age, family circumstances all come together to push people toward ownership at different times. The most damaging aspect of our current system is the price volatility because it randomly rewards some and destroys others. Some lucky people buy…[READ MORE]

With high prices, a perception of high risk, and little appreciation potential, many young renters see little reason to buy a house. People can obtain shelter in one of two ways: they can rent, or they can own. Each method of possessing real estate has its advantages and drawbacks, and the rent versus own decision is never clear cut. Much of the work I've done with the display of property information on this site is to help people gain clarity on the financial implications of renting versus owning, but there are intangible, emotional issues that may tilt the balance one way or another. The primary emotional draw of ownership is the sense of permanence. Ownership is primal; in fact, the…[READ MORE]

Historically, properties in this market sell at a 18.5% discount. Today's discount is 21.5%. This market is 3.0% undervalued. Median home price is $290,100 with a rental parity value of $369,500. This market's discount is $79,400. Monthly payment affordability has been improving over the last 3 month(s). Momentum suggests improving affordability. Resale prices on a $/SF basis declined from $166/SF to $166/SF. Resale prices have been falling for 1 month(s). Over the last 12 months, resale prices rose 16.9% indicating a longer term upward price trend. Median rental rates increased $8 last month from $1,688 to $1,696. The current capitalization rate (rent/price) is 5.6%. Rents have been slowly rising for 4 month(s). Price momentum signals slowly rising rents over the…[READ MORE]

Delinquency rates on consumer loans hit a record low as lenders can-kick legacy loans and tighten standards to eliminate Ponzis. The financial media is abuzz with talk about tight credit and how it must be made looser to stimulate lending and the economy. This chatter, plus lenders' natural desire to increase business, combines as pressure at the bottom of the credit cycle to prompt lenders into making bad loans again. But why did credit get this tight? Once credit starts to contract, prices fall, and lending standards tighten until borrowers no longer default. If this were not the case, falling prices would cause large lender losses on the bad loans. Only the most creditworthy borrowers are extended credit, and these…[READ MORE]

Aligning two sets of mortgage rules established for different purposes, regulators provide room for lenders to make bad loans without risk retention. In a complete victory for lending industry lobbyists, the Qualified Residential Mortgage rules match the Qualified Mortgage rules. The Dodd-Frank law was designed to have two levels of defense against lenders underwriting bad mortgages. The broader Qualified Mortgage rules were designed to protect the banking system, and they provide considerable leeway for lenders to make bad loans. The Qualified Residential Mortgage rules were supposed to restrict lending within the QM framework to prevent lenders from making bad loans allowed within QM. By making these two rules match, regulatory agencies failed to comply with the intent of the legislation and set…[READ MORE]

Without affordability products the housing market depends on low mortgage rates for sales to occur at today's high prices. Back in February of 2013 when mortgage rates were near record lows, I wrote that future housing markets would be very interest-rate sensitive, despite assurances to the contrary from most macro-economists. The prevailing economic view is that the housing market would respond positively regardless of what happens with mortgage rates because house prices in the past have correlated poorly with mortgage rates. For example, during the 1970s, interest rates rose significantly, which should have caused house prices to drop, but instead California inflated a housing bubble. During the crash from the bubbles in the 1990s and the 2000s, interest rates declined,…[READ MORE]

Mel Watt announced a number of changes designed to loosen the credit box and stimulate lending. This doesn't mean a return to subprime. Those of us who watched the housing bubble and bust and detailed it's causes are greatly concerned about returning to the disastrous lending practices of the past. Although some degree of credit loosening was inevitable, the last thing any of us should want to see is a return to irresponsible subprime lending, particularly now that the US Taxpayer is liable for all the losses. Yesterday's announcement of loosening standards at the GSEs excited everyone in the housing industry. Lenders, realtors, and homebuilders all rejoice the opportunity to close more deals, but before they celebrate, they should take…[READ MORE]