Archive for 2015

The cost of living in California is so high many lower-income people are leaving the state. It costs too much to live in California because the chronic shortages of housing supply inflates California house prices and rents. Starting in the 1970s with regulations like CEQA, California began to restrict growth. This inhibited builders and developers from bringing new product to market to meet demand in many areas. When any commodity is in short supply, prices tend to rise; houses are no exception. There are not enough houses to go around, so people substitute down in quality to obtain a place to live. This downward substitution effect lifts house prices at every level of the housing ladder and prices out the…[READ MORE]

Reduced borrowing costs increases the size of the buyer pool by pricing in marginal buyers thus stimulating demand. Last November I stated that the FHA will come under intense pressure to lower the FHA insurance fees in order to increase home sales to first-time homebuyers. So why did I believe that? I noted that first-time homebuyer participation rates hit a three-decade low, a major problem for the long-term health of the housing market. Further, Last September I noted that High loan costs cause FHA originations to plunge; in fact, FHA financing is so expensive, it’s like taking out a 12.4% second mortgage! Something had to be done if the housing market is to sustain current pricing or build any momentum for…[READ MORE]

The housing market will flourish or flounder depending on mortgage interest rates. Last year Bold California housing market predictions for 2014, was the most widely read post of the whole year. In that post, I made a number of predictions, some good, some bad, but the bold predictions were all outside the consensus. They include: Sales volumes will decline from 2013 levels Boomerang Buyers will not materialize Delinquency rates will remain stubbornly high Foreclosure processing will increase from 2013 levels Loan modification redefaults will cause foreclosures Down payments of less than 20% make a comeback Sales volumes were down as boomerang buyers did not materialize. Delinquency rates went down, but they remain elevated. Foreclosure processing was down overall from 2013…[READ MORE]

Higher mortgage rates lower the amounts borrowers can finance; thus rising rates and rising home prices are unlikely in 2015. Most housing market economists predict rising mortgage rates and rising house prices in 2015. Personally, I don't think this is very likely because the math simply doesn't work. For mortgage rates and home prices to rise together, one of three things must happen: home sales must decline as affordability crumbles, buyers must sacrifice quality, or wages must rise to offset the rising cost of borrowing. In the past, lenders commonly used affordability products to cause home sales and home prices to rise irrespective of mortgage rates; however, these were banned by the new mortgage rules, and as a result, housing…[READ MORE]

Home price affordability will be the biggest issue in housing in 2015, particularly if mortgage interest rates rise. Over the last 40 years, California inflated three different housing bubbles. Starting in the 1970s with regulations like CEQA, California began to restrict growth. This inhibited builders and developers from bringing new product to market to meet demand in many areas. As a result, demand pressures caused prices to rise. Rather than react to rising prices as a deterrent to buying, the sudden upward price movements served as a catalyst for even more buying as homeowners became speculators hoping to cash in on rapid appreciation. As with all financial manias where asset values become detached from fundamentals, the first three housing bubbles…[READ MORE]

Lessons on buying and selling real estate from a top producer over the last six years. For the last five years, Shevy Akason and I partnered to serve buyers and sellers with their real estate transactions. Based on feedback from the site, I was surprised that many readers did not realize we offer full brokerage services, and many who did know we work with both buyers and sellers didn’t understand why I chose to work with Shevy over agents. Shevy and I often discuss the various transactions he and his team help people with. From our discussions I’ve grown to appreciate how a skilled real estate agent really can add value and be a true asset to a client. We…[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 $258,900 with a rental parity value of $389,600. This market's discount is $130,700. Monthly payment affordability has been improving over the last 8 month(s). Momentum suggests improving affordability. Resale prices on a $/SF basis increased from $172/SF to $173/SF. Resale prices have been rising for 4 month(s). Over the last 12 months, resale prices rose 15.7% indicating a longer term upward price trend. Median rental rates declined $17 last month from $1,772 to $1,754. 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]

How do we taxpayers protect ourselves against Ponzi mortgage theft? Prior to the collapse of the housing bubble, when lenders gave free money to loan owners, it was theirs to give -- and to lose. But when the losses overwhelmed our banking system, the government took conservatorship of the GSEs, and they backstopped the largest banks with our too-big-to-fail guarantees. With those two steps and the dramatically increased market share of the FHA, the government now assumes nearly all risk of loss in the US mortgage market. With taxpayers absorbing future losses through explicit and implicit guarantees, lenders have every reason to inflate another housing bubble. Another bubble would generate enormous fee income at origination and interest income through ever-increasing…[READ MORE]

In the short term, foreclosure prevention laws drive up prices by restricting inventory; however, over the long term these laws drive up lending costs, making houses more costly to own and weaken the housing market. Our real property system functioned well for centuries with very little change. Prior to the housing bubble, it was widely accepted that people borrowed money to buy houses and if they didn’t pay it back according to the terms of the promissory note, the mortgage agreement allowed the lender to call an auction to get their money back. Housing was an earned reward, not an entitlement. The basic dilemma is simple, most people don’t have the cash to buy a house, and it would take…[READ MORE]

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