Archive for 2017

Home price affordability will be the biggest issue in housing in 2017, particularly if mortgage interest rates rise. Over the last 40 years, California inflated three different housing bubbles. Starting in the 1970s with regulations like CEQA, California began to restrict growth. This inhibited builders and developers from bringing new product to market to meet demand in many areas. As a result, demand pressures caused prices to rise. Rather than react to rising prices as a deterrent to buying, the sudden upward price movements served as a catalyst for even 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…[READ MORE]

Californians embraces housing policies that benefit high wage earners and homeowners over the working poor. House prices in California surpass most of the rest of the United States both in real terms and relative to local income. Residents offer many bogus reasons for high house prices -- everyone wants to live here, incomes are higher, the sunshine tax, foreign safe haven and so on -- but none of these reasons accurately explain why house prices are so high. California housing costs rank among the highest in the nation because we don't build enough housing units, resale or rental, to accommodate population growth and job creation. To make matters worse, the solutions offered to remedy the situation fail to address the…[READ MORE]

A huge new tax on foreign investors coupled with a crackdown on capital outflows is a double whammy discouraging Chinese Nationals from investing in Vancouver. If governments really want to stop a certain behavior, what must they do to really stop it? Is passing a law good enough? Well, drugs are illegal, and it never did much to discourage drug use. What about changing the financial incentives? Vancouver real estate is extraordinarily expensive relative to the incomes of local residents largely because Chinese investors buy up Vancouver real estate. The provincial government in British Columbia wanted to discourage foreign investors, so they recently passed a 15% tax on them, specifically to discourage them from investing there and driving up prices for local…[READ MORE]

Hedge funds profited from banks that failed to execute the same business plan to recover more of their original loan capital. If banks had taken the same approach to the bust as hedge funds, they could have recovered much more on their bad bubble-era loans. By 2012 they bankers finally realized they could stop foreclosing and selling the REO for rock-bottom prices and instead wait until prices recovered to execute an equity sale. However, there was another business model they could have used to recover more money quicker. Special Home Investment Trust By far the fastest and most efficient way to recover lender capital was to foreclose on their non-performing loans, rent the properties (perhaps even to the former owners),…[READ MORE]

Trump wants to cut government regulations, but Dodd-Frank is too well defended, and gutting it will look like a green light for Wall Street thieves to pillage Main Street USA. Why should we keep Dodd-Frank? Does it really inhibit economic growth, or does it merely inhibit Wall Street's ability to steal from Main Street? The fact is that Dodd-Frank works well, so financial elites hate it. Despite rumors to the contrary, Dodd-Frank vastly improves the mortgage lending market. Dodd-Frank does nothing to prevent sound lending, but it does crack down on the kind of stupid lending that was very profitable for Wall Street during the housing mania. The success of Dodd-Frank is also the source of the political pushback from lenders…[READ MORE]

Higher mortgage interest rates will reduce future loan balances; thus today’s homeowners will not experience the home price appreciation enjoyed by previous generations. Many would-be homeowners rush to the market to lock in low mortgage rates out of fear of being priced out forever. Nervous buyers fear that if they wait, they will fail to get a place of their own. Due to our chronic shortage of homes, there is some basis for this fear, but potential buyers considered the ramifications of that occurrence, the fear would evaporate. If today’s homebuyer were to be priced out tomorrow, they probably wouldn’t be alone in that predicament. In fact, if a great many people are priced out by rising mortgage rates, by…[READ MORE]

State Administration of Foreign Exchange requires all buyers of foreign exchange to sign a pledge that they won’t use their $50,000 quotas for offshore property investment. It's really happening. The outflow of capital from China prompted the decree to stop Chinese Nationals from investing money in offshore real estate. In several posts I describe the twin threats to the US housing market: rising rates, and reversal of flow of foreign capital. Rising mortgage interest rates will affect the entire housing market, but a reversal of flow of foreign capital will most strongly impact coastal housing markets. In particular, if the influx of Chinese capital were to stop coming in and actually reverse, Coastal California, and especially Irvine, would be most…[READ MORE]

More than eight years after the government took over mortgage finance, the US taxpayer still insures the bulk of the loans in the housing market. Prior to the collapse of the housing bubble, when lenders foolishly loaned money to people operating personal Ponzi schemes, it was theirs to give — and to lose. But when the losses overwhelmed our banking system, the government took conservatorship of the GSEs, and they backstopped the largest banks with our too-big-to-fail guarantees. With those two steps, the government now assumes nearly all risk of loss in the US mortgage market. With taxpayers absorbing future losses through explicit and implicit guarantees, lenders have no reason to fear inflating another housing bubble. Another bubble would generate…[READ MORE]

For the missing MLS inventory to return to the market, borrowers need debt forgiveness, and house prices need to move even higher. I advise buyers to be sure they plan to live in the same place for at least two or three years for prices to rise high enough for them to sell and cover the sales costs. In a normally appreciating market like we have today, it still takes seven to ten years for prices to rise high enough to pay the costs and leave a first-time homebuyer with the 20% equity needed for the down payment on a move up. The breakeven barrier of two or three years keeps most properties off the market unless the buyer is…[READ MORE]

Competition for limited housing stock will prompt low-income workers to allocate any pay raises to securing better housing, enriching landlords. Advocates for raising the minimum wage aspire to help. Many working-class Americans barely subsist earning minimum wage — and some only survive living in appalling conditions. Advocates of raising the minimum wage believe forcing employers to pay more will put more spending money in the pockets of low-wage workers and improve their quality of life. Many advocates for eliminating the minimum wage are industry shills paid to peddle lies so employers can exploit workers without paying them a livable wage. However, many advocates for freezing the minimum wage or eliminating it completely also believe they help lower-income Americans. They argue that…[READ MORE]

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