Archive for March, 2016

Homeowners convert consumer debt into tax-deductible debt through home equity lines of credit. Since this debt is secured by real estate, homeowners also pay much less for it. HELOCs are making a comeback! This is great news for Ponzis who want free money from stupid lenders, but it's a dangerous warning for all of us who supplied taxpayer bailout money to the stupid bankers who gave out free money last time. With rates hovering near record lows, and with banks desperate to loan money, banks are offering those with good credit very favorable terms on helocs -- and borrowers take the free money. Ten years ago heloc lending was an open invitation to theft for millions of borrowers running personal…[READ MORE]

Buying distressed residential properties, fixing them up, and holding them through the recovery is a great way to earn huge profits. I am a big fan of buy-and-hold residential real estate, but that isn't the only way to make money from this asset class. Home flipping is one extreme, and permanent buy-and-hold is another. But is there anything in between? Yes, buying distressed properties and selling them when the economic cycle is most favorable is a viable investment strategy. However, the analysis is more complex, and timing is critical to the strategy's success. The two extremes of flipping or buy-and-hold are much easier to analyze and execute. When flipping, an investor needs to know the after-repair-value and the cost of…[READ MORE]

Financial bubbles are real. A recent academic study proves people change their behavior when they witness their neighbors making money with little effort. Everyone wants free money. A new academic paper provides strong evidence that the desire to obtain free money drives the insane behavior in financial manias. It's rather shocking that some academics believe there are no financial manias, instead concluding that rapid and unsustainable price increases are the rational action of an efficient market. The reality is that most investors are clueless herd followers that merely assume that everyone else around them must know more than they do, so when the herd piles in to one asset class or another, it must be for a good reason. It's…[READ MORE]

By saddling Millennials with copious amounts of student loan debt and by trapping Generation X in overpriced starter homes, Millennials endure too much debt and too little available supply to become homeowners. The largest generation in American history is not buying homes, and it's possible, the Millennial generation will shun homeownership entirely and remake the American Dream to their own liking. It didn't need to be this way. The Millennials could have followed in the footsteps of the Baby Boomers or Generation X, but the foolish lending of the 00s and the bailout policies that followed created the circumstances where many Millennials can't attain homeownership. How did the foolish lending of the 00s create this problem? First, imprudent student debt…[READ MORE]

IRVINE, Calif., March 1, 2016 – OC Housing News   San Bernardino County Housing Market Report: March 2016 Historically, properties in this market sell at a 25.7% discount. Today's discount is 32.1%. This market is 6.5% undervalued. Median home price is $279,600 with a rental parity value of $420,200. This market's discount is $140,600. Monthly payment affordability has been worsening over the last 3 month(s). Momentum suggests worsening affordability. Resale prices on a $/SF basis declined from $183/SF to $183/SF. Resale prices have been falling for 4 month(s). Over the last 12 months, resale prices rose 7.0% indicating a longer term upward price trend. Median rental rates increased $0 last month from $1,829 to $1,829. The current capitalization rate (rent/price)…[READ MORE]

With the fear of being priced out gone, would-be home buyers see high prices as a deterrent, not as an incentive to recklessly jump into the market. Prior to the housing bust, house prices on a national level had not fallen in over 80 years. Even in California where house prices had fallen on two previous occasions, the bottom of each trough was not as affordable as previous eras. When prices never go down or only decline a small amount for a brief period, people feel a sense of urgency to buy before prices rise even higher. This is a particular problem in California where house prices have risen faster than incomes for the better part of forty years. Buy…[READ MORE]

The GSEs will implement a targeted program of principal reduction to provide false hope and stave off further strategic defaults. The demand for free money is infinite. The demand for anything free is high, but since money can buy almost anything, the demand for free money knows no bounds. The lure of free money is very enticing. One of the most effective free-money advertising programs of all time emerged during the housing bubble. Lenders offered to give homeowners money and reduce their monthly payments to boot. Not just was this money free, lenders were actually paying borrowers to take it. Of course, if something seems too good to be true, it probably won't work out as hoped. The free money…[READ MORE]

Saving the banks required reflating the housing bubble, trapping a generation in their starter homes and slowing sales in the housing market. The reason fewer homeowners than usual list their homes for sale is due primarily to loss mitigation policies at lending institutions. Many homeowners face circumstances in their personal lives that would ordinarily compel them to sell, but due to the excessive amount of mortgage debt they carry relative to the value of their homes, these homeowners fail to list their homes for sale. Some homeowners don't list because they are underwater and can't sell for enough to pay off their loans. Some homeowners don't list because they are barely above water and if they were to sell, they…[READ MORE]

With memories of the housing bust fading, lenders embrace loan products proven to destabilize housing markets and cause foreclosures and lender losses. One of the main factors preventing further home price inflation is the lack of down payment savings among the buyer pool. With super low mortgage rates, even the meager incomes emerging from the Great Recession can finance amounts in excess of the conforming loan limits, which also inhibit higher home prices. Pressure will mount to raise the conforming loan limit, and pressure will also mount to find ways to accommodate potential homebuyers with less than 20% down. During the housing bubble, lenders gave out second mortgages to anyone who didn’t have a 20% down payment. A common product…[READ MORE]

Thanks to the housing bust, suburban renters now enjoy a much better selection of houses and neighborhoods to suit their family's needs. People often complain the media focuses too much on doom and gloom. Despite this perception, the financial media is almost entirely focused on providing good news when they have it and feel-good emotional spin when they don't. When it comes to their investments, people seek out confirming evidence that they made the right choices, so the emotional biases of investors becomes the reporting biases of the financial media. The housing bust was not good news for homeowners and real estate speculators. Despite the non-stop terrible news and data during the bust the financial media always found a way…[READ MORE]

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