Archive for 2016

As home prices move higher, existing homeowners cheer, but new homebuyers assume excessive debts to climb the property ladder. Most people accept the idea that ever-rising house prices are good, and that a decline in house prices is bad. However, this idea appears to only apply to housing. People don't cheer when food or gas prices go up, but they do when house prices rise. Of course, food and gas are immediate consumption items, whereas a house is both an item of consumption and an asset. This fact often prompts people to pay absurd prices to satiate their desires, believing that it's a "good investment." Most of the time, buying a house is a good investment, but late in the…[READ MORE]

The mainstream media litters the internet with articles about how rising mortgage interest rates won't hurt the housing recovery. To better understand why rising interest rates are such a big issue to housing, it's worth reviewing the impact falling interest rates have had on house prices for the last 25 years. House prices and rental parity The basis of all house prices valuations is rental parity, the price point where the cost of ownership equals the cost of a comparable rental. Rental parity is a tether on house prices because if resale values become detached from their fundamental values, once the kool aid intoxication wears off, prospective buyers benefit more from renting that owning, and prices invariably fall to this…[READ MORE]

Have you ever been in a hurry to start something, and in your enthusiasm, you began too soon? Well, for those of you that set your bookmarks to, I apologize. I'm migrating back to the OC Housing News. I may try again to migrate to a new site in the future, but for now, we're back at the OC Housing News, probably for good. I'm sorry for any inconvenience, and I appreciate your continued readership.[READ MORE]

The future home comes equipped with solar panels that charge home batteries and an electric car. My grandfather loved new technologies. He bought a handheld calculator in the early 1970s for over $50. Over the 30 years that followed, calculators became much more complex, and much, much less expensive. The first calculators had no advantages over the mechanical adding machines of the time, but as prices fell and capabilities improved, the technology became widely adopted and the old adding machine technology largely disappeared. More recently this same phenomenon occurred with cell-phone cameras displacing snapshot cameras. It isn't only individual products that see advances and displacements. In oil production, the cost of oil fracking was so high that it was rarely used,…[READ MORE]

Rent control would be unnecessary if politicians allowed developers to build enough housing to meet the demands of our growing population. Rents (and resale prices) spiral out of control in California, pressuring family budgets all across the state. Many people believe the solution is to put an artificial cap on rents, but this band-aid approach accomplishes very little and creates other problems. The dilemma of high housing costs in Silicon Valley, and in all of California for that matter, finds root in the lack of housing supply. The extreme shortage of housing relative to job growth forces employees to compete for housing, driving up rents and resale prices. Dramatically rising rents naturally flows from such circumstances. Short of approving more…[READ MORE]

Real estate gurus scam people with high-pressure sales, leaving their customers with little to show for the money wasted. When I set out to raise money to buy properties in Las Vegas in 2010, many long-time readers weren't thrilled about the idea. One of them created the graphic above to lampoon my sales pitch. I display it as a badge of honor. Some people didn't believe in the opportunity in Las Vegas, but most were more concerned that I might head down the path of becoming a cheesy real estate guru. Real estate gurus serve as front men for high-pressure sales organizations. These groups generally care little about the product they deliver, focusing instead on how much money they extract…[READ MORE]

The marijuana industry needs financing and real estate for it's expansion. New REITs spring up to meet the need. Investing in real estate offers many opportunities to earn high returns -- in the case of catering to medical marijuana growers, the "high" is literal. Because the entire industry was illegal not long ago (and technically still is on a federal level), very few support businesses service the marijuana industry. Growers came out of hiding first, and among the first businesses to service them were retail property owners, generally those who couldn't find other tenants. For owners of vacant commercial space in bad areas, these tenants were golden because not just did they want the space, they paid a premium for it.…[READ MORE]

VOTERS WARM TO THE IDEA OF REFORMING PROPOSITION 13, BUT LARGE FINANCIAL INTERESTS WOULD VIGOROUSLY OPPOSE ANY ATTEMPTS TO CURTAIL THEIR SUBSIDY. California legislators face limits on their ability to tax real estate due to Proposition 13, which limits the tax rate to 1% of purchase price with a small inflation multiplier allowing yearly increases. Ostensibly implemented to prevent government profligacy during periods of rising real estate values, the measure devolved into a tax-shifting mechanism that greatly benefits owners of commercial real estate. California legislators found other taxes to increase revenue. Proposition 13 tends to limit move-up trading because trade-up owners must endure higher property tax bills, sometimes dramatically higher. There are basis transfers and ways around this problem for certain…[READ MORE]


The specter of rising mortgage interest rates or an end to the flow of foreign investment concerns speculators in US real estate. Many investors in real estate worry that the current recovery may be coming to an end. Economic expansions usually don't last as long as this one, so many people worry that we are due for another slowdown. The anxiety level among real estate investors is particularly high because so many of them were crushed during the last recession, and they would prefer to avoid that damage. When pressed for reasons behind their anxiety, many can't point to anything specific. The economy is growing, but not so fast as to suggest overheating, and few indicators suggest a recession is imminent.…[READ MORE]


Real estate investment trusts profit from cheap debt, and their value depends on low discount rates. Rising interest rates hurt them both ways. House prices depend on debt. Of the four factors that determine house prices, three of them directly relate to financing terms. If mortgage interest rates go up, housing becomes more expensive even if prices don't change. Wages must grow significantly to make up the difference in even a small increase in mortgage rates. The prevailing view among economists is that the housing market would respond positively regardless of what happens with mortgage rates because house prices in the past have correlated poorly with mortgage rates. For example, during the 1970s, interest rates rose significantly, which should have…[READ MORE]

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