Since the mid 1990s, mortgage interest rates and home sales moved in opposite directions. Dodd-Frank made this inverse correlation even stronger. Back in February of 2013 when mortgage rates were near record lows, I wrote that future housing markets would be very interest-rate sensitive, despite assurances to the contrary from most macroeconomists. Last year I noted that fewer home sales or lower prices was sure to follow higher mortgage interest rates. Generally, volume precedes price, and as one would expect, the recent spike in mortgage rates is already hurting sales. The prevailing economic view 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…[READ MORE]

My first post I am IrvineRenter (Inventory Cholesterol) debuted ten years ago on February 27, 2007. Over the last 10 years, I posted every weekday without fail. It's been a source of joy and discipline that's shaped my life, my career, and my character. During my ten-year run, I observed many trends come and go, and I learned a great deal about the art of blogging. Today, I want to share some of these observations with you. Blogging needs a purpose I started writing ten years ago because I wanted to save people from financial ruin. I firmly believed housing was a financial bubble, and I was right. I didn't do it for money or fame as I wrote completely anonymously…[READ MORE]

Very few strategic mortgage defaults were ruthless. Most strategic defaults were inevitable, and the borrower merely chose the timing. People form strong attachments to their homes. Walking away is never a decision they take lightly. We can discuss the pros and cons and come up with our own beliefs and attitudes about it, but the turnover of our housing stock caused by the housing crash will be very painful for those who go through it. Ruthless default or accelerated default? I write often about hidden premises buried within the arguments writers make. These distinctions are important, and unless we uncover our fallacious beliefs, we make erroneous judgments and carry false beliefs. I wrote many times about strategic default, and in my…[READ MORE]

Inventories of below-median homes are well below historic norms due to the large numbers of underwater borrowers, leaving first-time homebuyers frustrated. Back in late 2012, I predicted that Below-median home inventories may not recover for years, which it has. My reasoning was simple. For home inventories to recover, sellers must come back to the market. Since so many homeowners are underwater or lack the equity for a move up, particularly at lower price points, very few organic sales occur on below-median properties. Since lender can-kicking kept the foreclosures off the market, what was once a source of supply actually became a restriction of supply. Given these circumstances, it will be several years before inventories of below-median properties recover and provide opportunities…[READ MORE]

The conventional wisdom holds that renters favor new construction and homeowners oppose it because renters want more abundant and less expensive housing and homeowners want more valuable housing and less traffic. But is it really that simple? A new study says no. Nimbys oppose all development because they believe their neighborhood was perfect when they moved in, but new development removes beautiful natural features, clogs the roads with more traffic, and changes the character of the community they moved into. True Nimbys don’t evaluate the pluses and minuses of new development and form an opinion based on facts. True Nimbys oppose everything, and in doing so, they fail to see the hypocrisy in their attitude and actions. After all, they…[READ MORE]

Housing fundamentals are strong, but if they get too strong, rising mortgage rates will spoil the fun. Signs of a strong economy are all around us. U.S. retail sales rise, and inflation posts largest gain in four years. Unemployment is near historic lows, and Trump plans to dump fuel on the fire with a massive infrastructure spending program. The US Housing market is poised for a strong start in 2017. The underlying economy was strong enough for the federal reserve to raise interest rates again in December. Unemployment is low and wage growth is picking up, so more qualified borrowers are likely to become buyers in the days ahead. Further, with mortgage interest rates still very low by historic standards, the…[READ MORE]

Escaping an onerous mortgage can be the best thing for a family's financial and mental health. I feel bad for loanowners (AKA underwater borrowers). When I started blogging in February of 2007, I felt a sense of urgency to convince as many people as I could they shouldn’t buy a house. I knew the impending price collapse was going to have serious long-term consequences on people’s lives. Many would succumb to the weight of their debts and lose their homes in foreclosure. Many more would endure years of owing more on their mortgage than their home was worth. Mortgage debt is always a heavy burden, but when it greatly exceeds the value of the house it’s attached to, the crushing…[READ MORE]

Warning! Don’t read today’s post if you have a weak stomach or a strong affinity for consumer debt. This is your only warning. Hang on, Alice, as we bolt through the rabbit hole on an adventure to financial Wonderland. Come with me on a fantastic journey to the Great Lakes to save fish falling prey to evil bloodsuckers, and along the way, we will save borrowers from the evil of debt peddler, Louie the Lender Lamprey. The Sea Lamprey and the Great Lakes Prior to canals of the nineteenth century, the Great Lakes were a thriving fishery. With over fishing and the introduction of the sea lamprey through the canals, the fisheries of the Great Lakes were devastated. According to Wikipedia: The Sea lamprey (Petromyzon…[READ MORE]

Low house prices make for lower debt service payments that benefit the economy as money is liberated to circulate and buy goods and services. Low house prices benefit everyone because low house prices make for low loan balances and less debt-service. When borrowers carry excessive home debt, the excess comes directly out of disposable income. Since consumer spending is such an important component of the economy, the excess interest payments drain the economy (and enrich lenders). It’s really that simple. Legislators, existing homeowners, and bankers all want rapidly rising home prices. Legislators want to see home equity rise because it provides free money to homeowners reducing government dependency. Bankers like rapidly rising home prices because it reduces their exposure if…[READ MORE]

Lower house prices due to higher mortgage rates still result in a higher cost of home ownership. Everyone shopping for a home wants to see lower prices. For most products, paying less for it means the buyer keeps more money to purchase other goods and services, but with houses, this isn’t necessarily the case. Most people borrow a great deal of money to buy a house, often 80% to 96.5% of the purchase price. In fact, the cost of borrowing money is largely what determines how much someone can borrow and bid to buy a house. (See: Your neighbor’s debt creates your home equity) When mortgage rates go up, the cost of borrowing increases, and unless wages rise considerably, the…[READ MORE]