Archive for 2015

If mortgage rates are allowed to rise, the spring 2015 housing rally will be canceled. Back in February of 2013 when mortgage rates were near record lows, I wrote that future housing markets would be very interest-rate sensitive, despite assurances to the contrary from most macro-economists. The prevailing economic view is that the housing market would respond positively regardless of what happens with mortgage rates because house prices in the past have correlated poorly with mortgage rates. For example, during the 1970s, interest rates rose significantly, which should have caused house prices to drop, but instead California inflated a housing bubble. During the crash from the bubbles in the 1990s and the 2000s, interest rates declined, and so did prices.…[READ MORE]

Low or falling mortgage interest rates are better for housing costs than high or rising rates. From a consumers point of view, higher interest rates are bad because borrowing money becomes more expensive. All things being equal, higher mortgage interest rates make for a higher cost of ownership and visa versa. When actively looking to purchase a home, shopping around for the lowest rate can save thousands of dollars over the life of the loan. The Consumer Financial Protection Bureau launched a Rate Checker to help consumers verify if the rate they are quoted is good or not. Since rising mortgage interest rates makes borrowing more expensive, it's also detrimental to home prices, so nobody in real estate relishes the…[READ MORE]

House prices can only rise if wages go up, interest rates go down, or supply is restricted. Will we finally see rising wages in 2015? Yesterday I wrote about the importance of wages for house prices. Assuming mortgage interest rates are stable (probably a poor assumption), then for house prices to go up, aggregate wages must rise throughout the market. What conditions are required for wages to rise? When unemployment was very high in the aftermath of the 2008 financial crisis, employees were lucky to keep the jobs they had, so very few people left work voluntarily to take new jobs, and employees were in no position to demand higher wages as the employer could simply replace them, often with…[READ MORE]

Borrower income and mortgage rates determines how much buyers can borrow for a home purchase, making borrower income a major component of market prices. Since this is the prime season for real estate sales, many people come to this site for basic information on homebuying and the market. Today, I want to look at one of the biggest components of market pricing, incomes of local buyers. There are four variables that determine the purchase price of a property: borrower income, allowable debt-to-income ratios, interest rates, and down payment requirements. These variables are impacted by some other minor cost inputs, but for the most part, the variables above determine market pricing. Payment is a direct link to borrower gross income. The…[READ MORE]

In the next four years, 250,000 of HELOCs are due to recast in Los Angeles and Orange counties. Lenders mastered kicking the can when millions of borrowers stopped paying their debts. Rather than foreclose on delinquent borrowers, lenders collectively decided it was in their best interest to cut deals, entice borrowers to make payments, and pray house prices would recover when they could foreclose without losing billions. Can-kicking became the policy of necessity; Politicians encouraged it, some legislatures mandated it, most borrowers asked for it, but lenders required it, which is really why it happened. If lenders had foreclosed on all the delinquent mortgage squatters and liquidated the inventory, house prices would have retreated to Great Depression levels, and our…[READ MORE]

Historically, properties in this market sell at a 9.5% discount. Today's discount is 17.7%. This market is 8.1% undervalued. Median home price is $475,100 with a rental parity value of $578,200. This market's discount is $103,100. Monthly payment affordability has been improving over the last 7 month(s). Momentum suggests improving affordability. Resale prices on a $/SF basis increased from $390/SF to $394/SF. Resale prices have been rising for 2 month(s). Over the last 12 months, resale prices rose 9.5% indicating a longer term upward price trend. Median rental rates increased $15 last month from $2,486 to $2,501. The current capitalization rate (rent/price) is 5.1%. Rents have been rising for 12 month(s). Price momentum signals rising rents over the next three…[READ MORE]

Mark Hanson believes the reflated housing bubble will also pop. I think we won't see any significant price deflation going forward. The housing bears have not completely gone away. Zero Hedge, Keith Jurow, and Mark Hanson remain bearish, and they provide some of the most compelling bearish arguments in the national conversation. Mark Hanson is the Rodney Dangerfield of housing market economists; he doesn’t get much respect. John Burns, the local darling of the MSM, once said, “I give him zero credibility.” Ouch! So when Mark Hanson argues the US is enmeshed in housing bubble 2.0, he’s dismissed as a perma-bear or a headline grabber who gets on TV. Housing pundits who don’t share Mark Hanson’s views find it easy…[READ MORE]

Young people and lower-income households can't afford the high house prices in California, forcing many to move out of state. Yesterday I provided an update on the local housing market. The data in my reports show the market is relatively affordable, but this affordability is not spread equally across all buyer categories. Due to the chronic shortages of housing supply that inflates California house prices and rents, lower income and young buyers looking for entry-level housing find it very difficult to buy. So while California house prices are as affordable as they were in the 90s, since this problem has persisted since the 70s, entry-level buyers face the same problems today than they have for the last 40+ years. I…[READ MORE]

With increasing affordability from falling mortgage rates, expect increasing sales and increasing prices until rates begin to rise. Each month, I publish housing market reports for most of Southern California. The overview report covering the counties of Los Angeles, Orange, Riverside, San Bernardino, and Ventura is available to everyone in the Housing Market Reports page on this site. The individual county reports are available to registered users of this site on the Subscriber's Reports page. Also, on weekends I publish excerpts of these reports in posts for people who want an overview without downloading the reports. Since this is the prime season for buying and selling, I want to take a more detailed look at the local market to help…[READ MORE]

MLS Inventories are low because underwater owners and those will low equity aren't listing their homes. Back in 2011 lenders changed their loss mitigation policies. Rather than foreclosing on delinquent borrowers and selling the subsequent property as REO, banks made two major changes that dried up the MLS inventory: (1) lenders modified every loan they could and (2) lenders stopped approving short sales if the borrower had assets. By modifying loans and denying short sales, distressed inventory disappeared, buyers in the market competed with each other for scarce inventory, and prices rose rapidly. The simple fact is that low housing inventory is a direct result of the changes in lender loss mitigation policies. Demand has not picked up notably over…[READ MORE]

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