Archive for February, 2015

Historically, properties in this market sell at a 25.7% discount. Today's discount is 34.4%. This market is 8.7% undervalued. Median home price is $258,700 with a rental parity value of $400,900. This market's discount is $142,200. Monthly payment affordability has been improving over the last 10 month(s). Momentum suggests improving affordability. Resale prices on a $/SF basis declined from $172/SF to $171/SF. Resale prices have been falling for 2 month(s). Over the last 12 months, resale prices rose 5.8% indicating a longer term upward price trend. Median rental rates declined $8 last month from $1,751 to $1,743. The current capitalization rate (rent/price) is 6.5%. Rents have been rising for 12 month(s). Price momentum signals rising rents over the next three…[READ MORE]

Borrowers can save money in the short term with ARMs, but these loans carry significant risks, particularly when mortgage rates begin to rise again. If someone buys in a cashflow property with an 8% yield, it's an investment with a fairly predictable return. The soundness of the investment springs from it's boring predictability, not from the more exciting caprice of resale price or speculation. Cashflow investments are wise, whereas speculative investments are lucky. During the housing bubble, many people made a great deal of money because they had the good fortune to buy right before a financial mania took hold. Most participants thought they were savvy investors, but in reality, they were just lucky: they bought the right asset at…[READ MORE]

High foreclosure rates are caused by many factors, but by far the largest is a high loan-to-value ratio because it limits the borrowers options in default. Defaults are loan disease. There are many causes of the disease, from unemployment to loss of market value, but there is only one symptom that lenders care about — defaults. Patients in good health cure from disease more often than those in poor health. Borrowers with equity cure at better rates than those who are underwater or facing a rental savings enticement, and many who see better futures in different circumstances will walk away from the debts and succumb to the loan disease. In borrower's terms, the cure for loan disease is delinquency; unfortunately,…[READ MORE]

The FHA is lobbying the Justice Department on behalf of lenders who want to make bad loans with impunity. At the most basic level, lenders, realtors, and borrowers inflated a housing bubble because they got everything they asked for. From 2004 to 2006, there were no barriers whatsoever to complete real estate transactions as inventory was abundant, prices were financeable, and buyers were motivated. It was the best of all possible real estate markets. Right now everyone who wants to see more transactions at higher prices is complaining about stringent lending standards. In their minds if qualifications were looser, more people would qualify for home loans, and they would make more money. They would be quite content to enjoy the…[READ MORE]

As houses get more expensive, marginal buyers are priced out, and without toxic mortgage products to help, a depleted buyer pool causes low sales volumes. To make people feel good for the holidays and to fill the void in real estate news from November to February, reporters entreat us to optimistic news stories and wild projections of how great the coming year will be for home sales and prices. Each year the usual suspects predict rising sales and prices, even if the optimism is completely unwarranted by market conditions. In October 2014 I asked Will the CAr 2015 housing market sales forecast be way off? After completely missing sales forecasts for 2013 and 2014 the California Association of realtors actually…[READ MORE]

Money can flow out of a high-end real estate market for many reasons, most of which relate to government policy rather than natural market forces. Local residents who don't own real estate do not benefit from an influx of foreign investment because that investment drives up house prices and forces local residents to pay more. As a result, grass-roots political opposition grows to oppose foreigners buying local real estate -- wherever that locality may be. If legislators want to see less foreign investment in single-family residential real estate, they can tax it. Taxing a commodity or a behavior makes it more expensive, which thereby lowers demand, and if legislators selectively tax non-residents, the policy lowers the prices for local owner-occupants…[READ MORE]

Historically, properties in this market sell at a 18.5% discount. Today's discount is 24.1%. This market is 5.6% undervalued. Median home price is $289,600 with a rental parity value of $389,100. This market's discount is $99,500. Monthly payment affordability has been improving over the last 9 month(s). Momentum suggests improving affordability. Resale prices on a $/SF basis increased from $165/SF to $165/SF. Resale prices have been rising for 2 month(s). Over the last 12 months, resale prices rose 7.4% indicating a longer term upward price trend. Median rental rates declined $6 last month from $1,698 to $1,691. The current capitalization rate (rent/price) is 5.6%. Rents have been rising for 8 month(s). Price momentum signals rising rents over the next three…[READ MORE]

A dramatic and unexpected decline in new home sales is either the sign of a market top or an opportunity to get a great deal this spring. Has the OC Housing market peaked for this cycle? Is the current slowdown the sign of a major change in the market, or is it merely a lull that represents a buying opportunity? There are good arguments for either case. The economy is improving, and although the new jobs aren't necessarily supportive of housing, increased economic activity generally supports house prices and sales. Further, mortgage interest rates are near record lows, so houses are more affordable on a monthly payment basis today than they were in mid 2013 when mortgage rates hit 4.5%.…[READ MORE]

When the economy creates low-paying and part-time jobs, the newly employed don't qualify for home mortgages, and they don't buy homes. The conventional wisdom is that increased job growth inevitably leads to increased household formation and increased home sales, and although the connection is real, increased home sales is not inevitable. For home sales to increase, the newly employed must have sufficient income (and sufficient desire) to move out of their current circumstances and buy a house. For that to occur, the new job needs to be a good paying one capable of supporting a mortgage payment large enough to finance today's house prices. Super low mortgage rates help, but it isn't necessarily enough. The lack of sales in 2014…[READ MORE]

Some form of stated-income loan will likely be offered by portfolio lenders in the future, but it will be limited to borrowers with large down payments. When lenders underwrite new loans, one of the fundamental tasks they perform is determining whether or not the borrower can repay; therefore, allowing borrowers to simply state their income with no verification is an abdication of an underwriter's responsibility. Stated-income loans (aka liar loans) were the worst financial innovation of the housing bubble because these loans undermined one of the pillars of lending: borrower capacity. 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…[READ MORE]

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In Memoriam: Tony Bliss 1966-2012
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