Archive for 2016

By greatly reducing the tax advantage of mortgage debt, many high-wage renters may choose to remain renters rather than assume large debts to buy a house. However, by reducing taxes on lower-income Americans, Trump's tax plan should stimulate demand for entry-level housing. Over the years, I wrote several posts critical of the home mortgage interest deduction because it's an expensive tax subsidy that only serves to inflate house prices in areas dominated by high wage earners. While several options exist for modifying, replacing, or eliminating the subsidy, only one of these options is politically feasible -- and it's the one Trump proposed. As it stands today, only a small segment of high wage earners claim this deduction. In theory, this subsidy…[READ MORE]

The housing cycle probably hasn't reached a turning point because the far-flung suburbs haven't recovered yet. The old real estate adage says "you drive until you qualify." Potential homebuyers substitute to far-flung suburbs (exurbs) because high house prices push them away from more desirable markets closer to employment centers. Basically, if people drive far enough, they will find a house they can afford. This phenomenon causes many California homeowners to endure brutal commutes. The cost-push substitution effect explains why recoveries start in the most desirable neighborhoods closest to employment centers and radiate outward to the exurbs. In past recoveries, the most distant commuter markets fully recovered and even participated in the subsequent bull run (bubble cycle). One notable difference between this…[READ MORE]

The short-term reaction to Trump's victory was a massive selloff in bonds causing interest rates to soar. Will this be the start of an alarming new trend for mortgage rates? The financial media ascribes gyrations in the financial markets to current news events, mostly with no correlation at all. However, occasionally, developments in world affairs really cause the financial markets to react, and the election of Donald Trump prompted bondholders to sell in a panic, resulting in an interest rate spike. The stage was set for rising interest rates years ago when the Federal Reserve announced the beginning of a cycle of tightening monetary policy. Just the announcement caused mortgage interest rates to rise from 3.5% to 4.5% in about…[READ MORE]

Nobody knows what Donald Trump will do, but it's unlikely he will do anything that hurts real estate. Reporters across America reluctantly trashed their canned reports on how Hillary Clinton's presidency would impact the world. Since Donald Trump's victory was such a surprise, few thought much about how he would impact real estate, the economy, or anything else for that matter. Part of the blame is also on Donald Trump. During the campaign, he was long on rhetoric and short on detail. He didn't need intellectuals to embrace him, so he didn't pander to them with position papers or carefully crafted policies, leaving us all with a huge void of information on what he will actually do as president. Realistically,…[READ MORE]

The Chinese inflated a real estate bubble more than ten times larger than the United States. Bursting this bubble could destabilize the world economy. What would happen if the Chinese housing bubble burst? Obviously, a real estate crash would devastate China, but since the Chinese economy is somewhat isolated and export driven, would a Chinese real estate crash plunge the world into recession? Maybe. Coastal California real estate would suffer from a crash in China. Not only would a Chinese crash remove a hefty component of local demand, it could turn Chinese buyers into desperate sellers. While US lenders can keep distressed properties financed with US debt from the market indefinitely, but they don't control the entire market. If desperate Chinese…[READ MORE]

Nobody thought it would happen, but Donald Trump surprised everyone by winning the election to become our next President. Back in December of 2015, I predicted that Donald Trump would be the next President, but a coin flip could have predicted that too. I did something more: I also detailed why Donald Trump would win. Most of the pundits and pollsters didn't believe Donald Trump had a chance, but I predicted that when people actually voted rather than responding to pollsters that Donald Trump would consistently perform better than his polling. He did. The reasons I believed Donald Trump did better than everyone expected comes down to two main ideas. First, populists always perform better in elections. People vote privately and emotionally,…[READ MORE]

Since California can't properly fund its schools with property tax revenues, school districts must look to other sources. Is there a better way? What is the appropriate way to pay for schools? Most jurisdictions pay for schools with local property tax dollars, and since Proposition 13 was passed, California public schools, which during the 1960s had been ranked nationally as among the best, decreased to 48th in many surveys of student achievement. California's spending per pupil was the same as the national average until about 1985, when it began decreasing. With property taxes greatly reduced as a source of school funding, California schools increasingly depend on money from the general fund. With the many competing ends for general fund tax dollars, schools often…[READ MORE]

The current market rally shows signs of maturity. Is it due to die of old age, or will this rally last forever? Most people who speculate in financial markets lose money, and most of them fail to recognize their "safe investments" are actually risky speculative bets. The housing bubble was a speculative mania, and despite the wild rise in prices during the final two years, most buyers late to the rally lost money -- often a great deal of money on what they believed was a can't-miss deal of a lifetime. The basic problem is emotional. Once people take a position in a financial market, their emotions immediately impact their behavior. They begin combing financial media sites for confirmation of the…[READ MORE]

Both homeowners and renters face high housing costs, but only homeowners enjoy government bailouts, loan modifications, and protections to "keep their homes." Why don’t renters get bailed out like homeowners? It seems fairly obvious that homeowners think renters are degenerates and losers, and even the government robs working renters to subsidize unemployed homedebtors. But does that mean it’s acceptable to favor one group over another? What happens when renters lose their jobs? Does anyone step forward to pay their rent or allow them to squat like homeowners? Why not? Renters are no better or worse in the eyes of politicians; both renters and homeowners vote. And even if renters were a degenerate sub-species of humans, reporters and homeowners would be…[READ MORE]

For audiences ranging from academic researchers to ordinary homebuyers, housing market data suiting everyone is available free on the Internet. The future of data is free. Twenty years ago, real estate agents provided value simply because they had access to the secret list of houses for sale. Anyone who wanted to buy a house needed to use a real estate agent just to find out what was for sale. Data alone had value. Not anymore. The Internet excels at dissemination data. From the beginning, individuals and organizations that wanted to attract people to their site learned that giving away data and information was a good technique. The competition for traffic drives website owners to provide better content, including more data.…[READ MORE]

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