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Archive for May, 2017

Falling mortgage interest rates increased the borrowing power of all buyers and inflated house prices beyond what ordinary income growth would have accomplished. It’s widely believed mortgage interest rates will rise in the future, perhaps for a very long time. The mainstream media is littered with articles about how this won’t hurt the housing recovery to provide homeowners and prospective buyers assurance that prices will keep rising. 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 30 years. House prices and rental parity The basis of all house prices valuations is rental parity, the price point where the cost…[READ MORE]

All characters appearing in this work are fictitious. Any resemblance to real persons, living or dead, is purely coincidental. As many of you know, I went out to Las Vegas to purchase rental homes. Back in August of 2010, I wrote the post Buy Las Vegas real estate where I made the case for buying undervalued homes and holding them for cashflow and appreciation. Not long after that, Wall Street also came to believe this was a good idea, and the REO-to-rental business model took off. The activity of investors like me and the Wall Street giants helped form a bottom in the Las Vegas housing market and other markets across the country. To buy a large number of homes,…[READ MORE]

I am perhaps the most widely known renter in Orange County. I’ve been writing under the moniker Irvine Renter for over ten years now. Are renters like me less happy that those who bought homes? First, I want to point out I was not always a renter. Like many others, I bought a house (actually I designed and built it). I know the emotional satisfaction that can come from having a house to call my own. In my opinion and experience, there is an emotional quality to owning a house that is not replicated in a rental. For example, when I owned my house, I spent hours tinkering in the yard with landscaping, and my house plants looked like a…[READ MORE]

The housing market experiences a friction point where prices can't move any higher, the affordability ceiling. Over the last 50 years, California inflated three different housing bubbles. Starting in the 1970s with regulations like CEQA, California began to restrict growth, preventing builders and developers from meeting demand. As a result, demand pressures increased prices. People reacted to rising prices with enthusiasm instead of revulsion. The sudden upward price movements catalyzed more buying as homeowners became speculators hoping to cash in on rapid appreciation. As with all financial manias where asset values become detached from fundamentals, the first three housing bubbles resulted in housing busts with each one being more severe than the last. As a result of the most recent…[READ MORE]

American spends billions of dollars each year in housing subsidies, but it has lower homeownership rates than many countries without subsidies of any kind. Every homeowner wants to see the resale value of their home go up as rapidly as possible. Since more than half the country owns a house, political pressure mounts to prop up home prices and cause them to appreciate. The result is a plethora of subsidies designed ostensibly to make homeownership for accessible to lower and middle classes. In reality, these subsidies merely make houses more expensive. The result of these subsidies and our ever-present desire for rapid home price appreciation is a great deal of house price volatility. Unfortunately, house prices can’t appreciate faster than…[READ MORE]

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In Memoriam: Tony Bliss 1966-2012
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