Archive for August, 2015

Resting on a foundation of stable loan products and backed by can-kicking loss mitigation practices, the risk of future real estate declines is low. Real estate prices do not always go up. Prior to the housing bubble, and despite two previous bubbles in California where house prices went down, most buyers clung to the belief that real estate prices only go up. The housing bust ended this delusion forever, and in the process created a latent fear of future price declines. The fear of falling prices is rational. Without this fear, buyers become foolish and pay any price even when it's way, way too much. The lack of fear of falling prices contributed to the housing bubble. But is this…[READ MORE]

Historically, properties in this market sell at a 25.7% discount. Today's discount is 33.8%. This market is 8.1% undervalued. Median home price is $273,500 with a rental parity value of $408,600. This market's discount is $135,100. Monthly payment affordability has been worsening over the last 2 month(s). Momentum suggests worsening affordability. Resale prices on a $/SF basis increased from $176/SF to $178/SF. Resale prices have been rising for 5 month(s). Over the last 12 months, resale prices rose 5.9% indicating a longer term upward price trend. Median rental rates increased $23 last month from $1,828 to $1,851. 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]

realtors lobby for the same foolish policies that caused the housing bubble and ended with millions of families losing their homes. realtors care primarily about obtaining a large check from escrow after closing. What happens after that is not their concern. I assume most of them wish their commissions clients well, and if they think about these people for a nano-second after closing, they imagine them living happily ever after in their newly acquired properties. However, in the real world, if those buyers face challenges because the buyers believed the realtor's sales pitch, well... that's not as important to the realtor as closing the deal and getting paid. The evidence of a realtor's lack of concern for buyers was clear…[READ MORE]

The flow of money into the US from China slowed recently. Is this an alarming new trend, or a temporary setback? Stories about foreign buyers circulate periodically in the mainstream media. The plot is always the same: foreign buyers loaded with cash are buying houses as an investment. The nationality changes from time to time, but the narrative is always the same, and the implied urgency to buy before a foreigner buys your dream home is always present as well. Foreign homebuying has been part of the landscape in California since the gold rush, comprising a steady 5% to 7% of the housing market. These news stories imply the number of foreign buyers is large and growing, but the reality…[READ MORE]

If increasing the federal funds rate causes inflation expectations to drop, mortgage rates may actually fall, causing further rises in home prices. Mortgage interest rates are the single-most important factor determining the borrowing power of a potential house buyer. When rates are very low, a borrower can service a large amount of debt with a relatively small payment, and when interest rates are very high, a borrower can service a small amount of debt with a relatively large payment. Mortgage interest rates are determined by market forces where investors in mortgages and mortgage-backed securities bid for these assets. The rate of return demanded by these investors determines the interest rate the originating lender will have to charge in order to sell the…[READ MORE]

It's difficult to imagine paying more for a single parking space than most houses are worth, but some urbanites do. Like any form of real estate, the sales prices of parking stalls are subject to the laws of supply and demand. If the demand is high and the supply is low, bidders compete with each other for the available spaces and bid prices up. If prices rise high enough, it becomes economical to build more parking garages to add to supply, but in places where adding new supply is difficult or impossible, there is nothing stopping prices from going as high as buyers are willing and able to push them. Luxury parking spaces are not generally bank financed unless the…[READ MORE]

The United States inflated a massive housing bubble in the early 00s that burst painfully and upset the housing and retirement plans of three generations. Last year I wrote A Brief History of the Housing Bubble, and for anyone wanting a more detailed recap, you can download my 2008 book on the subject. The Great Housing Bubble was a true financial mania, and today, I want to recall the psychology, or as I described it, Southern California’s cultural pathology. With any financial mania, large groups of people come to hold erroneous beliefs about the current and future value of an asset, and they act on this belief -- an action that generally means buying into an overheated bull market. While…[READ MORE]

Historically, properties in this market sell at a 18.5% discount. Today's discount is 22.2%. This market is 3.6% undervalued. Median home price is $305,200 with a rental parity value of $387,400. This market's discount is $82,200. Monthly payment affordability has been worsening over the last 3 month(s). Momentum suggests worsening affordability. Resale prices on a $/SF basis increased from $170/SF to $171/SF. Resale prices have been rising for 5 month(s). Over the last 12 months, resale prices rose 3.8% indicating a longer term upward price trend. Median rental rates increased $22 last month from $1,733 to $1,755. The current capitalization rate (rent/price) is 5.5%. Rents have been rising for 12 month(s). Price momentum signals rising rents over the next three…[READ MORE]

The housing ladder has many levels, and the first step above homelessness and shelter life is to live in cheap and often unsafe motels. Everyone wants to move up to better housing accommodations. Despite a few frugal outliers, most people spend most of their lives enjoying the highest quality of housing they can afford. Years ago I toured the Tijuana subdivisions of URBI. One of the homes was a 288 SF single-family detached home -- basically a cozy, free-standing two-car garage. When I asked one of our guides who bought such a house, he beamed with pride and said the buyers were generally families moving out of the squalor of the shanties. These new homeowners were thankful to have working…[READ MORE]

The lingering effects of the housing bust still distort market action eight years after the crash. One thing most real estate market observers do agree on is that our current market conditions are not normal. But what is a “normal” market anyway? A normal market would be characterized by a steady or increasing values for each of the following: home ownership rate, home sales, first-time homebuyer participation, purchase originations new home construction, and household formation Perhaps one or two of these metrics may be low or declining due to unusual and short-lived circumstances, but a healthy, "normal" market would see strength in these areas. Unfortunately, we witness the following: 20-year lows in home ownership 6-year lows in home sales 30-year…[READ MORE]

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In Memoriam: Tony Bliss 1966-2012
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