Archive for 2016

Lenders utilize FICO scores to evaluate the risk that a borrower will repay the debt as agreed. The lower the score, the higher the risk, so lenders charge higher rates for lower FICO score borrowers. The availability of credit cycles from periods of tight underwriting standards to periods of lax standards. Credit-fueled markets like real estate are most stable when credit is tight because very few borrowers default. In a tight credit environment, lenders are very focused on ensuring the borrower can repay the loan and the lender can recover their capital if the borrower fails to pay. It would seem obvious and intuitive that lenders would always be focused on those things, but history shows that when times are…[READ MORE]

Homebuilders won't build what they can't sell, and household formation isn't so robust that builders must provide more to keep pace with demand. Since 2012 the financial media chronicled the reflation of the old housing bubble but portrayed it falsely as a robust recovery based on strong fundamentals. Ordinarily, when prices rally in the market for any commodity, good, or service, the rally originates from resurgent demand that outstrips the available supply, and as a result, sellers and suppliers produce more to meet demand. Since 2012 when house prices bottomed, none of the usual signs of strong demand were present. For example, consider that since the rally began, the housing market witnessed the following: 20-year lows in home ownership 6-year…[READ MORE]

IRVINE, Calif., January 2, 2016 – OC Housing News San Bernardino County Housing Market Report: January 2016 Historically, properties in this market sell at a 25.7% discount. Today's discount is 32.2%. This market is 6.6% undervalued. Median home price is $280,200 with a rental parity value of $406,600. This market's discount is $126,400. Monthly payment affordability has been worsening over the last 1 month(s). Momentum suggests unchanging affordability. Resale prices on a $/SF basis increased from $184/SF to $184/SF. Resale prices have been rising for 1 month(s). Over the last 12 months, resale prices rose 7.0% indicating a longer term upward price trend. Median rental rates declined $23 last month from $1,845 to $1,822. The current capitalization rate (rent/price) is…[READ MORE]

In its simplest form, a personal Ponzi scheme is borrowing money to pay debt service: acquiring new debt to pay old debt. It's a path to disaster. What is a personal Ponzi scheme? Aren't Ponzi schemes the advanced financial management crime of sophisticated money managers like Bernie Madoff? Not really. A Ponzi Scheme is any investment where the returns come not from the investment but from the capital contributions of new investors. If you change the terms slightly, a Ponzi Scheme is also any debt where the payment of debt comes not from wage income but from borrowed money from new lenders. In that respect, personal Ponzi schemes are easy to begin and grow. Anyone can borrow money to pay debt,…[READ MORE]

By reducing local regulatory hurdles to new development, and by providing subsidies to low-income Americans, the free market will provide more housing that will drive down costs for everyone. Housing costs too much in the United States because we don't provide enough housing to meet local demand, elevating both rents and resale home prices relative to local incomes. This problem is particularly acute in California where Potential homebuyers can’t save for down payments with high rents, trapping them in low-quality rental housing for a lifetime. Just as lenders used restricted supply to reflate the housing bubble, a lack of supply has inflated California house prices since the mid 1970s. Ordinarily, if house prices were pushed up above the cost of…[READ MORE]

The tiny house movement is the extreme of housing and possession austerity. Would anyone with the means to live with more chose to live that way? When builders and developers create new projects, they generally produce a variety of floorplans to meet a market niche where they can reasonably expect to sell their inventory in a short period of time. In a typical residential subdivision, condos will range from 900-1,600 square feet, and detached homes can range from about 1,600 square feet all the way up to the monster McMansions 4,000 square feet or larger. In higher density projects, small studio apartments as little as 450 square feet are sometimes offered, but rarely do builders and developers make product any…[READ MORE]

Only high wage earners save on taxes due to the home mortgage interest deduction, and the benefit is lost due to higher house prices paid be everyone utilizing this tax subsidy. Does the home mortgage interest deduction serve any useful purpose? Usually, when the government subsidizes something, it ostensibly serves a greater public good, but if there was ever a greater good served by the home mortgage interest deduction (a debatable claim), this benefit has long since vanished. As it stands today, the deduction rewards a small segment of high wage earners (see article below). Further, those who gain from the deduction spend this savings on higher mortgage payments to pay for houses made more expensive by others utilizing this…[READ MORE]

There are four fundamentals that determine resale value: borrower income, allowable debt-to-income ratios, interest rates, and down payment requirements. When economists write about the fundamentals of housing, they usually mention job and wage growth, both of which impact sales (of special interest to homebuilders), but job and wage growth don't establishing the housing market's equilibrium price level. Job and wage growth are only important in that they impact a borrower's income, which is a true fundamental. Fluctuations in supply and demand are not fundamentals either. Restricted inventory caused by loan modifications and denying short sales---the tactic lenders used to reflate the housing bubble---these manipulations temporarily disrupt the natural balance, forcing buyers to substitute down in quality and elevate prices above…[READ MORE]

IRVINE, Calif., April 1, 2016 – OC Housing News Riverside County Housing Market Report: April 2016 Historically, properties in this market sell at a 18.5% discount. Today's discount is 25.8%. This market is 7.3% undervalued. Median home price is $309,700 with a rental parity value of $418,900. This market's discount is $109,200. Monthly payment affordability has been improving over the last 2 month(s). Momentum suggests improving affordability. Resale prices on a $/SF basis increased from $176/SF to $177/SF. Resale prices have been rising for 5 month(s). Over the last 12 months, resale prices rose 6.7% indicating a longer term upward price trend. Median rental rates increased $15 last month from $1,815 to $1,830. The current capitalization rate (rent/price) is 5.7%.…[READ MORE]

The National Association of realtors perpetuates the myth that investors are scooping up family homes and leaving potential buyers out in the cold. Many investors use the OC Housing News to search for properties because it provides a detailed investment analysis of every home available for sale in Orange, Los Angeles, and Riverside Counties. The calculations also show the cost of ownership an owner-occupant would consider in their deliberations. Right now, there isn't much in Southern California for investors to get excited about. The major REO-to-rental funds bid prices up to where the cashflow returns are marginal, and mom-and-pop investors find the prices too high to make the numbers work too. Over the last few years, the Southern California housing…[READ MORE]

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