Archive for 2015

Rising interest rates would put money into the hands of savers, particularly seniors, who will spend it on goods and services and stimulate economic growth. Last week I wrote about interest rates. In the post Will Janet Yellen capitulate to greedy bankers and raise interest rates?, I lampooned a poorly reasoned heap of manure published by a Chase Bank lackey. The central thesis of the study was that rising interest rates could stimulate the economy. Last Friday I met with a close friend who is a professional asset manager with 30+ years experience closely watching the economy and financial markets. I greatly value his opinion and the talks we have. He thought my post was too dismissive of the idea,…[READ MORE]

Historically, properties in this market sell at a 9.5% discount. Today's discount is 13.7%. This market is 4.1% undervalued. Median home price is $509,200 with a rental parity value of $593,600. This market's discount is $84,400. Monthly payment affordability has been improving over the last 1 month(s). Momentum suggests unchanging affordability. Resale prices on a $/SF basis declined from $403/SF to $402/SF. Resale prices have been falling for 1 month(s). Over the last 12 months, resale prices rose 3.8% indicating a longer term upward price trend. Median rental rates increased $7 last month from $2,615 to $2,622. The current capitalization rate (rent/price) is 4.9%. Rents have been rising for 12 month(s). Price momentum signals rising rents over the next three…[READ MORE]

Previous loan modifications and old HELOCs face reseting to higher rates and recasting to full amortization likely leading to further loan modification. Lenders don’t want to modify loans. They would far rather have the borrower pay in accordance with the promissory note they both signed when the loan was originated. Ordinarily, if a borrower is unable or unwilling to pay in accordance with the original terms, the lender would simply foreclose, get their loan money back, and loan that money to someone who will pay in accordance with the promissory note. Unfortunately, with so many borrowers underwater, lenders can’t foreclose and get their money back, so instead they modify loans to buy time until the resale value is higher than…[READ MORE]

New home prices are too high in Orange County. There are not enough buyers with the ability and the desire to buy to absorb the inventory. Is Orange County, California, in the grips of a new housing bubble? No, but the prices are too damn high. This isn't rocket science, and I don't need to launch into a long diatribe on affordability. Local homebuilders pushed prices up so high that they don't have enough buyers with the means and motivation to absorb the new home inventory. Right now, very little of the available new-home inventory is financeable by buyers using GSE of FHA financing. It's almost entirely a jumbo market requiring sky-high incomes, $200K+ in savings, and stellar credit. Coming…[READ MORE]

The only reason interest rates will rise any time soon is because bankers lobby Janet Yellen for a bad policy that increases banking profits. Mainstream economists exhibit the same strange herd behavior that prompts most investors and economic forecasters to completely miss important developments. Throughout most of 2015, this motley crew predicted first an increase in June, then in July, then in September, then in October, and now for December. Each time they've been more certain in their predictions, culminating in an 80% chance of rising rates in October, and each time, they were "surprised" by the federal reserve's inaction. Back in February of 2015 I said the federal reserve will not raise rates in 2015. When the US dollar…[READ MORE]

While some underwater homeowners were saved by federal reserve policy, the main beneficiaries of this stealth bailout were the banks. The populace was sold on quantitative easing and mortgage interest rate stimulus as a measure to save "Main Street." It was said this money pumped into the economy would create jobs, and the combination of jobs, increased incomes, and low mortgage rates would cause a boom in housing which would elevate loanowners above water. What was sold as a big benefit to Main Street devolved into another massive bailout of the banking industry with few tangible benefits to the people the programs were ostensibly designed to help out. Proponents of these policies can point to the rapid increase in house…[READ MORE]

As the loan modification entitlement is slowly rescinded by the major banks, the emotional fallout on subsidized families will be enormous. The technical and political issues discussed daily on this blog only capture part of the loan modification issue. On a micro level, the lives of individual families are shaped in many ways, and the emotional impact of falling from entitlement is very real. Today, I want to revisit the story of a loanowner family and consider what lies in store for them. (This is an edited reprint from a 2014 post) Some time ago, I had an extended conversation with a loanowner. He bought eight investment houses during the housing bubble in addition to his primary residence in 2005.…[READ MORE]

Historically, properties in this market sell at a 0.6% premium. Today's discount is 4.6%. This market is 5.2% undervalued. Median home price is $595,600 with a rental parity value of $629,200. This market's discount is $33,600. Monthly payment affordability has been improving over the last 1 month(s). Momentum suggests unchanging affordability. Resale prices on a $/SF basis increased from $388/SF to $390/SF. Resale prices have been rising for 9 month(s). Over the last 12 months, resale prices rose 4.3% indicating a longer term upward price trend. Median rental rates increased $13 last month from $2,765 to $2,779. The current capitalization rate (rent/price) is 4.5%. Rents have been rising for 12 month(s). Price momentum signals rising rents over the next three…[READ MORE]

If Millennials were really coming back to the real estate market, first-time homebuyer percentages would not be near three-decade lows and falling. Have you noticed that many financial media reporters write stories about what their sponsors want to be true without any facts in support? I understand the urge for self preservation, and even the desire to tell people what they want to hear, but it doesn't improve the credibility of the financial media when reporters fabricate stories about trends and developments that don't in fact exist. MOPE (Management of Perspective Economics) is the false belief that economists and the media can stimulate economic growth and activity by convincing the public the economy is vibrant when it’s really not. This…[READ MORE]

Successful real estate investing involves analyzing cashflow and obtaining a return on investment independent of resale value. Imagine you lived in a place where real estate was the only viable market where you could invest money. Further imagine that properties in this real estate market that had no expenses and no income. If this were your world, how would you go about selecting which property to invest in? In such a market, you only make money if someone is willing to pay you more in the future than you paid today. Since the investment offers no other metric for returns, speculation on future values is all you have to work with. What criterion would you use to select your properties?…[READ MORE]

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