Archive for July, 2015

Some people would buy the discounted house and joke about the foolish superstition of the other buyers. Some would not buy due to the spiritual taint. In May of 2008 five bodies were discovered in a house in San Clemente. Fingerprint experts were required to identify the bodies as they were in an advanced state of decomposition, a grizzly sight that required extensive clean up for a subsequent sale. The house sold in 2012 for $820,000, which was about $350,000 under comparable sales at that time. Would you buy it? How much discount would you require? How would you feel about living in this house? If a murder took place in a house, would you want to know? Do you…[READ MORE]

Speculation is fraught with risk whereas cashflow investment is stable and predictable. Most people purchase real estate in California because they believe they will get rich, not rich through periodic rental payments, but rich through rapid and neverending appreciation. During the housing bubble few wanted to spend money to provide a home for their family: most expected their home to provide money for the family. Houses were the new wage earners, not through rental cashflow, but through appreciation. Unfortunately, real life doesn’t work that way. Real estate can be a profitable cashflow investment, and it can make people rich — not through speculation on buying and selling, but through owning for positive cashflow. Cash value of real property Establishing the cash value of real property requires…[READ MORE]

When those without training, knowledge, or experience succeed wildly and want to teach others, it's a sign of a financial mania. People make profitable investments every day. Sometimes good fortune is the result of careful analysis and a disciplined approach; sometimes good fortune is a result of dumb luck. Unfortunately, most people can't tell the difference between the two. For example, profiting from adjustable-rate mortgages is lucky, not wise, yet those that benefited from taking this foolish risk are keen to convince the rest of us their financial acumen created their good fortune. During a financial mania, everyone who participates makes a fortune, and everyone believes their good fortune is a direct result of their genius, generally manifesting as buying…[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  0.6%  premium.  Today's  discount  is  4.5%.  This  market  is  5.1%  undervalued. Median  home  price  is  $574,500  with  a  rental  parity  value  of  $588,200.  This  market's  discount  is  $13,700. Monthly  payment  affordability  has  been  worsening  over  the  last  2  month(s).  Momentum  suggests  worsening  affordability. Resale  prices  on  a  $/SF  basis  increased  from  $378/SF  to  $380/SF.  Resale  prices  have  been  rising  for  5  month(s). Over  the  last  12  months,  resale  prices  rose  3.5%  indicating  a  longer…[READ MORE]

Of the various types of financial bubbles, debt-fueled housing bubbles are the most damaging. Debt is great for an economy as it grows and expands -- at least on the surface. Politicians like debt growth because when citizens borrow and spend, it stimulates the economy, and a strong economy helps politicians get reelected. Lenders like debt growth for obvious reasons: it's how they make money. Lenders celebrate debt growth along with politicians, but not because the immediate economic boost from economic stimulus but because they ensure themselves a cashflow stream when the borrowers pay their-debt service bills. Unfortunately, while politicians and lenders celebrated the initial loan and it’s subsequent economic boost, only lenders celebrate the ongoing debt-service payments. Politicians should decry the…[READ MORE]

 Coastal California real estate will be among the most susceptible to problems with affordability due to rising mortgage rates. Mortgage rates went down from 2007-2009 because it was necessary to save our banking system -- or at least to save the assets of the idiots in charge. Lenders inflated a massive housing bubble based on debt, and the total amount of debt created was far greater than what incomes could support. Since there was no way borrowers could reasonably make payments, it was necessary to lower the payments significantly in order to prevent delinquencies from getting any worse than they did. In 2006, the payments on a mortgage at 6.5% mortgage rates consumed well over 60% of a borrowers gross…[READ MORE]

Expanding credit makes lenders and realtors more money in the short term, but it invariably leads to inflated house prices and a market collapse. The real estate cycle that culminated in the parabolic rise in prices during the Great Housing Bubble was the result of a series of solutions to short-term problems that led to a major catastrophe. Imagine a housing market where prices are affordable and everyone owns a house that wants to. This would be a stable baseline condition similar to what existed from the 1950s to the 1970s. Under these conditions, when an improving economy created more jobs or higher wages, homebuilders responded by providing more supply, and house prices maintain a stable balance between income, rent,…[READ MORE]

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