Archive for 2014

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]

The recovery in house prices has produced unusual weakness in home ownership rates, home sales, first-time homebuyer demand, and new home construction. Wouldn't a durable housing recovery based on improving fundamentals be hard to deny? A real recovery would be characterized by resurging new home construction and steady gains in sales and prices commensurate with strong job growth and rising incomes. To say the recent recovery is unusual doesn't fully capture the extreme oddities marking efforts to reflate the old housing bubble. The most unusual and bearish features of the housing recovery include the following: 20-year lows in home ownership 6-year lows in home sales 30-year lows in first-time homebuyer participation 20-year lows in purchase mortgage originations New home construction less than 50%…[READ MORE]

If Republicans take initiative and find common ground among themselves concerning mortgage finance reform, it's unlikely Obama would sign the legislation. The Republicans won control of the US Senate to go along with their control of the House of Representatives. If they wish to take the initiative, and if they can agree among themselves about what reform is best, they could pass legislation without a single vote from Democrats, effectively freezing Democrats out of the process (other than the threat of filibuster). Despite this opportunity to push forward their agenda and undo years of left-wing Democratic initiatives in housing finance, most observers don't believe Republicans will act prior to the 2016 election. Why Republicans won't enact housing finance reform Ruth…[READ MORE]

Alan Greenspan thinks it's impossible for the federal reserve to remove stimulus without disrupting asset prices in real estate and other markets. Nobody is perfect. We hope we put people in positions of power who know what they are doing; however, sometimes these people fail, and when they do millions suffer for their arrogance and their ignorance. The financial meltdown of 2008 and the collapse of the housing bubble were avoidable disasters. If a few key people in power had made different decisions, we could have averted a housing bubble and the near meltdown of our financial system. Alan Greenspan is one of those people. It is shocking — and a little frightening — to see how clueless and inept the people in…[READ MORE]

Both resales and new home purchases by first-time homebuyers are well below historic norms. What does that mean for the future of housing? First-time homebuyers are the bedrock of the housing market, the foundation upon which all housing activity rests. The amounts first-time homebuyers can borrow determines the floor of housing market prices because first-time homebuyers generally have limited savings to push prices up beyond what lenders will loan them. Most first-time homebuyers don’t have 20% down for a house, particularly at today’s high prices, so many opt for a 3.5% down FHA mortgage or a 5% or 10% down conventional mortgage with private mortgage insurance. The federal reserve has done all it can to enable first-time homebuyers to borrow prodigious…[READ MORE]

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