Archive for July, 2015

Rent-to-own offers the opportunity for homeownership to those with low savings and bad credit, but the path is costly and many don't make it. Typical rent-to-own deals are a renter's path to poverty. For instance, renting furniture often requires the renter to pay many times the actual value of the item, and the only reason anyone enters into these agreements is because they have no savings and no better alternative. This kind of imbalance in the relationship between renter and landlord is ripe for abuse (or profit). The lure of a rent-to-own deal is the ability to enjoy the house while saving money to buy it. It has the potential to be a major path toward home ownership, assuming the…[READ MORE]

Government subsidy programs promote dependency, and they are expensive, but they provide a service needed by millions of people to alleviate poverty. In a frontier society, there are no bailouts. Life on the frontier is harsh, and each family unit is self-reliant. In a frontier society, if people didn’t work, and if they didn’t produce their own food and shelter, then they died. Fear of death from starvation or exposure was very real, and anyone who wasn’t motivated to produce something of value to themselves or others faced the near certainty of painful death. We are no longer a frontier society in America, but our collective past still influences our attitudes and politics today. We have made much progress over…[READ MORE]

Properties in distressed communities surrounded by strong demand for real estate often provide opportunities for investors betting on an economic recovery. Distressed property investing is both a science and an art. Finding a distressed property market is not difficult, and anyone who understands business math enough to compute a rate of return can measure which markets are a good deal in today’s dollars -- the science. The art of distressed property investing is recognizing which of these markets the conditions are temporary and in which markets the distress is a long-term problem. I am bullish on Las Vegas because I believed the local economy would recover there because the distress was temporary. There are many distressed property markets where I…[READ MORE]

Condo prices remain low until better alternatives are removed from the market and people are forced to compete for lower quality digs. Condo prices are notoriously volatile, far more volatile than house prices. But why is that? Is it because nobody wants to live in a condo? There's something special about a detached house on a clearly defined lot that a person can point to and say, "that's mine." But why should that matter to the volatility of condo prices? When you look at the cities where prices are most volatile, and when you look at the type of housing that's most volatile, one common element stands out: the less desirable a housing alternative is, the more volatile its price,…[READ MORE]

REO-to-rental companies enabled many foreclosed former owners to remain in their homes with lower monthly payments, a genuinely positive outcome. When I went out to Las Vegas to buy houses, the banks were feverishly foreclosing and selling properties for whatever they could get. The discounts from peak values approached 80% on some properties, and every house in town was cashflow positive. This was not a good time and place to be a homeowner, but it was a fantastic time to be an investor. When REO-to-rental companies hit the scene, they were vilified by the political left despite the good they were doing for individual families. Since these families were having their names removed from the title, and most of them…[READ MORE]

The monthly housing market reports will now be made available for direct download with these weekend posts. If you want access to all reports and the archives, please register with the site and visit the Subscriber’s Reports page. Historically, properties in this market sell at a 25.7% discount. Today's discount is 34.2%. This market is 8.5% undervalued. Median home price is $268,100 with a rental parity value of $399,400. This market's discount is $131,300. Monthly payment affordability has been worsening over the last 1 month(s). Momentum suggests unchanging affordability. Resale prices on a $/SF basis increased from $174/SF to $176/SF. Resale prices have been rising for 4 month(s). Over the last 12 months, resale prices rose 3.5% indicating a longer…[READ MORE]

Peace-of-mind in retirement is attainable, affordable, and priceless. Stable income streams do more for us emotionally than does a large but shrinking pile of money. We are all born needing a lifetime of cashflow to meet our needs and wants. Except those lucky few born to parents who provide a lifetime of income, everyone else takes a job, and spends the majority of adult life working to pay the man. At some point each worker looks at when they will get Social Security and how much it provides. The timing and amount of Social Security is critical to retirement decision making as it's the last remaining source of stable cashflow for many retirees when they reach retirement age. Though many…[READ MORE]

Restoring peak housing prices required record low mortgage rates during a period of weak growth and a falling home ownership rate. It's time to celebrate! National home prices reached the peak of 2006. Surviving homedebtors are regaining equity, surviving lenders have collateral backing behind the bad debt they've preserved for the last decade, and new homeowners are stretched to the max to repay the bad debts of previous generations, albeit at lower rates. Since the housing market peaked in 2006, the powers-that-be resisted the price decline with a variety of government relief programs, and most importantly, record low mortgage rates. The recession caused by the 2006-2009 housing market crash left many people unemployed and underemployed, removing their demand from the…[READ MORE]

Dodd-Frank effectively regulates the mortgage market and greatly restricts the proliferation of unstable loan products that harm both borrowers and lenders. In the post, Dodd-Frank prevents lenders from inflating another bubble, I detailed the impact Dodd-Frank had on the housing market. Today, I want to look at the impact Dodd-Frank has on the mortgage market, the mechanism by which Dodd-Frank prevents future housing bubbles. When Congress took on the task of regulating the excesses of the mortgage industry, it ostensibly wanted to prevent a recurrence of the housing bubble. To that end, they passed the Dodd-Frank finance reform. One of the provisions of Dodd-Frank was to establish a “qualified mortgage” that establishes the parameters of what constitutes a “safe” mortgage…[READ MORE]

Paying off a promissory note early removes the mortgage encumbrance and turns a real estate borrower into a property owner. Most people realize their dreams of home ownership when they borrow hundreds of thousands of dollars to purchase a house. This is not ownership; it is debt slavery. People don’t own the property until the debts are retired, and true home ownership is the reward for those who master paying debts faster. Affordability is a measure of people’s ability to raise money to obtain real estate, a function of financing. During The Great Housing Bubble, financial innovations dramatically increased the amounts people were able to borrow; unfortunately, Affordability Products Make Prices Unaffordable. The affordability was short lived because the loan…[READ MORE]

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