Archive for November, 2014

Renters who save and invest can acquire wealth just as well as homeowners who rely on their house as their biggest asset. Over the long term, home ownership is superior to renting because homeowners fix their housing costs whereas renters pay an ever-increasing housing cost. In fact, I believe owning a home without a mortgage is the best retirement savings plan available because it provides the opportunity to permanently and dramatically lower an owner's housing costs. In addition to the fixed cost of ownership, an amortizing mortgage serves as a forced savings account, providing financial discipline that may otherwise be lacking. Of course, lenders pervert this benefit by offering mortgage equity withdrawal, but the forced savings benefit is still significant,…[READ MORE]

The financial media perpetuated the fantasy that the foreclosure crisis is past. Now, can-kicking ends and foreclosures rise once again. The foreclosure crisis never ended, it was merely delayed by lender can-kicking. Bankers designed policies to promote loan modification over foreclosure, specifically to drive down the reported delinquency rates. Further, HUD sold off non-performing loans to hedge funds that don’t report their delinquencies, which also lowers the reported rate. Lowering delinquency rates should be a big plus; however, lowering delinquency rates through methods that don’t permanently cure the loan (can-kicking) is a farce designed to influence public perception. Lenders want to report better delinquency rates to improve confidence in the housing market to encourage buyers to bid up prices to aid lenders in…[READ MORE]

Mel Watt's announcement of 3% down loans pandered to left-wing constituents, but credit standards haven't changed, and some lenders won't offer it. Whenever home sales slow down, people who depend on transactions to make a living cry and complain about tight lending standards. Lending standards are not tight today -- they appear tight compared to the complete lack of enforced standards of the housing bubble -- but compared to what preceded the housing bubble, credit standards have merely reverted to the normal and prudent standards of the 1990s. Prior to the housing bubble, lenders verified borrower income and applied rational debt-to-income ratios to ensure repayment, a practice lenders embrace again today. The notion of “tight” lending standards stems from the…[READ MORE]

Historically, properties in this market sell at a 9.5% discount. Today's discount is 12.1%. This market is 2.6% undervalued. Median home price is $475,700 with a rental parity value of $548,500. This market's discount is $72,800. Monthly payment affordability has been improving over the last 6 month(s). Momentum suggests improving affordability. Resale prices on a $/SF basis increased from $386/SF to $387/SF. Resale prices have been rising for 8 month(s). Over the last 12 months, resale prices rose 13.7% indicating a longer term upward price trend. Median rental rates increased $17 last month from $2,465 to $2,482. The current capitalization rate (rent/price) is 5.0%. Rents have been rising for 12 month(s). Price momentum signals rising rents over the next three…[READ MORE]

Socialists want to regulate outcomes and deny or ignore the forces of markets. Their solutions to difficult housing problems are dangerously foolish. "Show me a young Conservative and I'll show you someone with no heart. Show me an old Liberal and I'll show you someone with no brains." Winston Churchill Back in September I reported on the big right-wing housing bubble lie. In that post, I pilloried the gross misrepresentation of facts spewed by the right-wing spin machine to advance their political agenda. I also recently lamented that Republican victories may doom mortgage finance reform, and I've been a strong supporter of the Dodd-Frank financial reform legislation. From those posts and facts, it appears I favor a left-wing political agenda.…[READ MORE]

As home prices go up, homeowners can't resist tapping their home equity to restart their personal Ponzi schemes. When the credit crunch of 2007 abruptly curtailed the flow of money into residential mortgages, every homeowner who ran a personal Ponzi scheme was suddenly cut off. Many perished financially; they lost their homes in foreclosure because they couldn't afford to make payments or pay bills without the infusions of borrowed money -- the essence of a Ponzi scheme. But now lenders underwrite HELOCs again, and many homeowners take advantage of the free money at very low rates. Lenders today evaluate repayment capacity better than before, and lending standards remain prudent and loss averse; however, lenders succumb to competitive pressure to reduce…[READ MORE]

The National Association of realtors predicts home sales will rise in 2015 despite rising mortgage rates -- not going to happen. A project manager is concerned with time, quality and price, and in any project it's only possible to get two of the three. To obtain high quality work quickly, the price will be high; to obtain high quality work and a good price, it will take longer; and to finish the job quickly for a low price, quality will suffer. It isn't possible to maximize all three. Similarly, in real estate markets, there are three related variables: mortgage rates, sales price, and sales volume, and it's only possible to obtain two of the three. In order to obtain higher…[READ MORE]

Record low first-time homebuyer participation and low savings rates will force bureaucrats to lower the FHA insurance premium to stoke demand. I believe the FHA will come under intense pressure to lower the FHA insurance fees in order to increase home sales to first-time homebuyers. So why do I believe that? I recently noted that first-time homebuyer participation rates hit a three-decade low, a major problem for the long-term health of the housing market. My market studies show the housing market is still relatively affordable, yet home sales are weak, particularly among first-time homebuyers. My reports measure affordability based on conventional mortgages with a 20% down payment because those terms don't require mortgage insurance, a costly add-on that has varied…[READ MORE]

The US Justice Department used the threat of whistleblower testimony to extort an additional $6 billion out of JP Morgan Chase. 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. The anger toward the banks is deeply rooted. Many people who lost their homes blame the banks (even if it was really their own fault), and many people decry the way banks were…[READ MORE]

Historically, properties in this market sell at a 0.6% premium. Today's discount is 1.6%. This market is 2.2% undervalued. Median home price is $568,100 with a rental parity value of $585,500. This market's discount is $17,400. Monthly payment affordability has been improving over the last 4 month(s). Momentum suggests improving affordability. Resale prices on a $/SF basis declined from $375/SF to $374/SF. Resale prices have been falling for 1 month(s). Over the last 12 months, resale prices rose 6.8% indicating a longer term upward price trend. Median rental rates increased $33 last month from $2,616 to $2,650. The current capitalization rate (rent/price) is 4.5%. Rents have been rising for 12 month(s). Price momentum signals rising rents over the next three…[READ MORE]

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