Archive for October, 2014

Whether one considers SoCal markets overvalued or fairly valued depends on how fair value is measured. What is the best measure of value in a housing market? The two most commonly accepted measures are price-to-rent and price-to-income, but both have a similar weakness: they don't consider the impact of fluctuations in mortgage interest rates. During periods of stable mortgage rates near historically normal levels of 7 to 9%, both measures of value work quite well; however, during periods of very low or very high rates, both measures give false signals. Trulia uses a combination of these methods to produce it's estimation of value. Rather than correct for the weaknesses of both methods, Trulia's methodology magnifies them. Notes: To get our…[READ MORE]

Lenders restricted MLS inventory to drive up house prices, which also drives up rent; higher rent makes it more difficult to save for a down payment. I recently asked, Do loan modifications cause rents to rise too? We know providing loan modification subsidies serves to increase home prices because it keeps these homes off the MLS and forces buyers to pay more for those properties not burdened by a loanowner surviving on a loan modification. That mechanism is well understood. What’s less obvious is the impact this has on rent as well. If the loanowner were not granted a loan modification, the resulting foreclosure would recycle the property and put it in the hands of an owner who would extract…[READ MORE]

A combination of high home prices, large debt loads, and caution about the recent housing bust deters Millennials from buying homes today. In the 60 years between World War II and the housing bust, each generation obtained an education, secured a job, got married, and bought a home in the suburbs, enshrining our nostalgic notions of the American Dream. Unfortunately, lenders destroyed all that. Irresponsible lending inflated a massive housing bubble, saddled a generation with onerous student loan debts, and poisoned the economy so many can't find a job, which caused many Millennials to postpone marriage, family, and buying a house. Most housing market analysts blithely assume Millennials will follow the same path as preceding generations once they have opportunity,…[READ MORE]

Please join me to see where I'm investing to earn 15%+ returns I'm emailing you because I want to share an opportunity with you to acquire properties for under $200,000 with a mortgage of less than $1,000/month with 25% down and earn $1500/month rent. As my friends and family know I'm a big believer in real estate as an investment. My goal has been to acquire at least two buy and hold cash flow properties for each one of my children, as many of you know, I recently had a fourth child, so it's time to buy two more properties. I try to share my strategies with as many friends, family members, and clients as possible. I believe that they can…[READ MORE]

House prices surprisingly fell in the Bay Area. Will the bursting Chinese bubble and a potential tech credit bubble cause money to flee the Bay Area? Back in January I asked, Is San Francisco, the most overvalued US housing market, going to crash? At the time, I challenged housing bears to construct a scenario where house prices could drop in the face of an improving economy and successful lender can-kicking. The premise of the original housing market collapse went something like this: People took on mortgage debt which couldn’t be sustained by current income; those borrowers were going to default, lenders would foreclose, lenders would liquidate their inventory, and the resulting flood of must-sell inventory would push prices lower quickly.…[READ MORE]

If government-backed loans carry higher costs, private lending will steal market share and get the government out of the mortgage business. Legislators and bureaucrats who protect the interests of taxpayers want to reduce the government's footprint in housing finance. Realistically, there are only two ways to do this: raise interest rates, or raise the fees on government loans. Higher mortgage interest rates would provide investors better risk-adjusted returns, and higher fees on government loans would make other sources of capital more competitive. Either method would bring more private capital to the market. Of course, rising interest rates is the last thing lenders and housing bulls want to see. Higher interest rates would reduce mortgage balances, make housing even less affordable, and ultimately will either halt appreciation or…[READ MORE]

Reverse mortgages eat homeowner equity through the power of compound interest working against the borrower, much like the growth of cancer cells. I'm not a big fan of debt, in case you didn't notice. I don't like consumer debt, and I really don't like reverse mortgages. I recently wrote that Home ownership with no mortgage is the best retirement plan. It stands to reason that I view taking on mortgage debt in retirement as the worst retirement plan. First, for those who aren't familiar with reverse mortgages, let's define what they are. According to the Department of Housing and Urban Development: A reverse mortgage is a special type of home loan that lets you convert a portion of the equity…[READ MORE]

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