Archive for May, 2016

Orange County Housing Market Report: May 2016 Historically, properties in this market sell at a 0.6% premium. Today's discount is 6.3%. This market is 7.0% undervalued. Median home price is $601,600 with a rental parity value of $647,100. This market's discount is $45,500. Monthly payment affordability has been improving over the last 3 month(s). Momentum suggests improving affordability. Resale prices on a $/SF basis increased from $397/SF to $398/SF. Resale prices have been rising for 11 month(s). Over the last 12 months, resale prices rose 5.5% indicating a longer term upward price trend. Median rental rates increased $21 last month from $2,740 to $2,761. The current capitalization rate (rent/price) is 4.4%. Rents have been rising for 12 month(s). Price momentum…[READ MORE]

A cabal of bankers conspired to remove the supply of homes from the MLS so when they later foreclose on their delinquent borrowers, they can recover more money on their bad loans. In a conspiracy a group of people band together to act in ways that benefit the group. Often these actions are contrary to how the individuals would have acted on their own. When the group is a business it acts as a cartel, usually with the intention of controlling prices through manipulation of market supply: OPEC is a classic example. Since the collapse of the housing bubble, I posit that a cartel of too-big-too-fail banks conspired to manipulate pricing in the housing market by engaging in actions that…[READ MORE]

In a bold statement against local development opposition groups, a new movement touts the positive aspects of providing new housing for the next generation. Local community opposition groups, also known as Nimbys, are a potent force in California politics. Overcoming nymbyism requires local politicians to stand up to emotional and vociferous constituents and approve projects for the greater public good. Often such a move is political suicide, so politicians take the easy way out and give in to nimby demands. A classic example of rampant nymbyism is the local opposition to affordable housing in Huntington Beach, California. In order to comply with State law, the City of Huntington Beach is required to provide affordable housing. Residents of the city strongly…[READ MORE]

Dodd-Frank curbed lending and contributes to the ongoing decline in the home ownership rate, but the lending that Dodd-Frank prevents is the toxic lending that caused the housing bubble and crash that pummeled the home ownership rate. For nearly 100 years, Presidential administrations crafted housing policies to maximize the rate of homeownership and the rate of home price appreciation. Both Democrat and Republican administrations touted homeownership as the best investment a middle-class family could make, and home ownership became synonymous with the American Dream. We reached peak American Dream in the early 00s. At the time, the surface conditions appeared great: house prices appreciated rapidly, mortgage equity withdrawal fueled an economic boom, subprime lending provided homeownership opportunities to nearly everyone,…[READ MORE]

The real estate wealth effect is really a Ponzi scheme built on debt, not a passive byproduct of naturally rising house prices. When many individuals act for the same reasons at the same time, they take on the characteristics of a herd. In those instances, the behavior of the herd can largely be explained by the behavior of the individuals that comprise the herd. Macro economists seek correlations to infer causations for economic events; however, they often fail to investigate the individual incentives driving the herd behavior that shows up in their data. As a result, macro-economists often conjure up completely erroneous interpretations for trends in data, trends easily explained by looking at the micro-economic level. My favorite example is…[READ MORE]

California home sales weaken because prices are higher than most potential buyers can qualify to borrow, a problem that will worsen if mortgage rates rise. Borrowers face real limits on mortgage debts thanks to Dodd-Frank. Prior to Dodd-Frank lenders would extend credit without regard to a borrower's ability to repay because lenders could sell these loans to eager investors willing to accept the repayment risk. The ability-to-repay rules mandate that lenders must document a borrower's income and demonstrate the borrower has the ability to repay on a fully-amortized repayment schedule; thus Dodd-Frank eliminated liar loans and Option ARMs, two toxic loan products that destabilized the housing market. Without toxic affordability products, the four fundamentals of housing market pricing, borrower income,…[READ MORE]

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