Archive for September, 2016

Forecasters begin their yearly extrapolation of existing trends and pass it off as a genuine forecast. A few weeks ago I announced that I began a new position as Market InSite's Chief Economist. When people hear about what I do, one of the first questions they ask is "what's going to happen in the real estate market?" I never answer this question directly. I usually tell them it depends on what happens with job growth, income growth, and mortgage interest rates. So far, I haven't been asked to issue a forecast, and I hope they don't. I could issue a forecast. I'm fully capable of projecting future performance by examining past trends, but is that really forecasting? In my opinion,…[READ MORE]

Permitting mother-in-law suites will increase supply, but it also brings more potential problems to neighborhoods that allow it. There goes the neighborhood. Most homeowners fear what might happen if their neighbors rent out rooms or convert their garages to makeshift apartments. These new tenants in the neighborhood might park cars in front of their house, block their driveway, party all hours of the night, and generally behave like the degenerates and loser renters they were trying to escape when they bought a suburban house. Neighborhood character matters. If developers were permitted to purchase properties in existing neighborhoods of single-family homes, demolish them, and then put up a factory, it would turn the neighborhood into something other than what the remaining homeowners bought into.…[READ MORE]

It costs so much to live in California that many people flee the state in search of lower cost housing and a better quality of life. California is an expensive place to live. Due to the chronic shortage of housing supply that inflates California house prices and rents, many people can't afford to live in the state. The problem is particularly acute for low-income Californians who often spend 50% or more of their income on rent, sometimes doubling or tripling up with other families to afford the cost of housing. When housing is in short supply, the substitution effect forces buyers at every price level to buy a lower quality house than they otherwise would. At the very bottom of the housing…[READ MORE]

Many new companies form in Silicon Valley because they gain access to capital and a large well-trained workforce. But high housing costs forces wages up to attract talent, raising the start-up costs, and reducing the number of start-ups funded. Many entrepreneurs with great ideas for new businesses flock to Silicon Valley, the largest incubator of start-ups in the country. Many wealthy investors and funds with the specialized expertise to identify and nurture start-ups live and work in Silicon Valley, so entrepreneurs looking to start new ventures go where the money is. Once these start-ups secure funding, they must execute their business plans. Just as the entrepreneurs flock to Silicon Valley, the influx of venture capital draws workers with the unique skills…[READ MORE]

Hawaii tops the list of the states with the highest percentage of borrowers who refuse to pay their mortgages for three years or more. A free house in Hawaii handsomely rewards bad behavior, doesn't it? Millions of Americans borrowed money under unstable loan terms during the housing mania of the 00s. When these loans reset or recast to higher payments, millions of borrowers stopped paying, which precipitated the 2008 recession, causing millions more to stop paying their mortgages. The downward spiral lead to over six million foreclosures nationally. Once these borrowers failed to make payments, banks foreclosed on them -- at least at first. By late 2008, it became apparent that foreclosing on all these delinquent loans at once and…[READ MORE]

Dodd-Franks limitations on affordability products ensure housing cycles won't see raucous rallies and devastating declines. To everything (turn, turn, turn) There is a season (turn, turn, turn) And a time to every purpose, under heaven A time to build up, a time to break down A time to dance, a time to mourn A time to cast away stones, a time to gather stones together The Byrds (and Ecclesiastes 3) Prior to the 1970s, there was no housing cycle. There were periods where housing did well and periods when housing did poorly, but this was generally in response to larger economic cycles. Starting in the 1970s many jurisdictions began restricting housing type and location, leading to shortages and the first major…[READ MORE]

Do Millennials reject the American dream of home Ownership, or does it reject them? When the Baby Boomers and Generation X entered the workforce, their student loan debt was manageable, they found good jobs, and when they wanted to buy a family home, prices were affordable. Those generations assumed it was their birthright to enjoy the American Dream of a stable job and a family home of their own. For the Millennial Generation, that isn't their reality. It's difficult for the previous generations to imagine borrowing $100,000 or more to obtain a degree only to find that after struggling to graduate that a high-paying job didn't materialize. Further, the older generations can't comprehend searching for a house only to find…[READ MORE]

Borrowing money to pay debt is the most common form of personal Ponzi scheme. Lenders cloak debt consolidation and HELOC spending as sophisticated when it's really a fool's errand. The Millennial Generation was too young to participate in the housing bubble of the early 00s. Instead, Baby Boomers and Generation Xers were the sophisticated financial geniuses who over-borrowed and overpaid for housing on a grand scale. What's the main reason they did this? They wanted free money. Rather than learn from the mistakes of the previous generation, Millennials embrace the same foolishness. Apparently, sacrifice and planning for tomorrow are overrated concepts. Carpe diem — “Seize the Day” — The first Ponzi Why do people make foolishly irresponsible financial decisions? Sometimes…[READ MORE]

Higher priced houses are affordable to many families with high incomes, but many families lack the hefty down payments necessary to close the deal. Last year I reported that Housing inventory is abundant at prices buyers can’t afford. The constant refrain in the financial media is that home sales are weak because sellers refuse to list and sell their homes. This is only partially true. Sellers' reluctance to list at reasonable prices constrained sales, but not for the reasons commonly stated in the financial media. Sellers list their properties in sufficient numbers, but not at prices affordable to buyers. Since sellers must net enough at closing to pay off their supersized bubble-era loans, they ask too much money, and they resist lowering…[READ MORE]

Suburban sprawl doesn't create affordability. Instead, it's a sign of community policies that encourage production of all kinds of housing. Affordability is a function of the quantity of housing, not housing type. Most urban planners and landscape architects dislike suburban sprawl. Admittedly, much of suburbia is a bland, placeless morass of cookie-cutter houses, underserved by poorly designed transportation systems. Well-designed suburbs like Irvine are more the exception than the rule. The uninspired past of suburbia warrants criticism, but communities like Irvine prove that nothing about suburbia is intrinsically negative. Urban areas can be just as poorly executed as suburban ones, and favoring high-density development near transit hubs does nothing to guarantee the quality of life will be any better for residents…[READ MORE]

In Memoriam: Tony Bliss 1966-2012