Archive for September, 2015

The real thieves of the housing bubble weren't the big players, the real thieves were the family next door. People are basically honest and will do the right thing if given the chance. However, people are also opportunistic, and if encouraged and enabled to steal, many ordinarily good people will go down the wrong path. Lenders led many astray. During the housing bubble, lenders were desperate to loan money in what they thought were low-risk, high yielding investments. The advertising to entice homeowners to become loanowners was both effective and too-good-to-be-true. The housing bubble turned many good people into thieves. Most were petty thieves who merely gamed the system to get free money. This same group now feels completely justified…[READ MORE]

Historically, properties in this market sell at a 0.6% premium. Today's discount is 2.4%. This market is 3.0% undervalued. Median home price is $594,000 with a rental parity value of $609,300. This market's discount is $15,300. Monthly payment affordability has been worsening over the last 4 month(s). Momentum suggests worsening affordability. Resale prices on a $/SF basis increased from $384/SF to $385/SF. Resale prices have been rising for 7 month(s). Over the last 12 months, resale prices rose 3.3% indicating a longer term upward price trend. Median rental rates increased $30 last month from $2,707 to $2,737. The current capitalization rate (rent/price) is 4.4%. Rents have been rising for 12 month(s). Price momentum signals rising rents over the next three…[READ MORE]

Quantitative easing boosted the economy to the degree liquidity was a limitation; however, with debt deflation the real problem, QE didn't accomplish much. The federal reserve sets policy in meetings of the Federal Open Market Committee (FOMC), a group of bankers. The FOMC sets target interest rates and directs its traders to either buy or sell securities to meet interest rate targets. When the federal reserve buys Treasuries, the price goes up, and interest rates go down. When the federal reserve sells Treasuries, the price goes down, and interest rates go up. Prior to the financial meltdown in 2008, the federal reserve only bought short-term Treasuries, but in an effort to rescue housing, they began what's known as quantitative easing,…[READ MORE]

Is it wiser to view a depressed market that's improving as weak or recovering? Since early 2012 when housing prices stopped going down, I characterized the price rally as a reflation of the old housing bubble rather than a price recovery. IMO, the crash was the price recovery because the prices that preceded it were a bubble with no tether to fundamental values. The price crash restored market prices to values supportable by income and rent. However, most people don't want to see this reality, particularly deeply underwater homeowners. Most want to believe peak housing bubble prices were fair value and the crash represented a deeply undervalued condition that needed to recover back to fair value prices. This viewpoint requires…[READ MORE]

Qualified mortgage standards and the ability to repay rules provide a rigid framework designed to prevent lenders from irresponsibly inflating another painful housing bubble. The rules as drafted should achieve the desired effect. The housing bubble inflated because lenders underwrote huge loans to borrowers who didn’t have the capacity to repay unless the value of the underlying collateral kept rising to bail them out. It became a massive Ponzi scheme that imploded and wiped out the housing market, the economy, and nearly our entire financial system. Regulators were wise enough to understand that much, and they were brave enough to pass the Dodd-Frank law to attempt to rein in the worst offenses. Part of the implementation of Dodd-Frank is the…[READ MORE]

Those who buy when houses are undervalued come out far ahead of those who buy at the peak of the housing cycle. When I developed the OC Housing News Report, one of the biggest challenges was to develop a rating system that would time the housing market to maximum advantage. As we’ve all seen over the last several years of constant government manipulation, its very hard to pick the exact bottom. Despite these challenges, there are certain key indicators one can look for to evaluate market timing. I discuss these at length on the market report sign up page. In short, the best market conditions are when prices and rents are rising slowly and prices are undervalued by historic norms.…[READ MORE]

In Memoriam: Tony Bliss 1966-2012