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Author Archive: Irvine Renter

The current housing market price rally is largely being fueled by investors competing for restricted inventory. Both the banks that are restricting the inventory and the investors who are buying it are counting on selling these properties to owner-occupants who are willing to pay higher prices for a place to shelter their families. Conventional wisdom is that a resurgent economy and low mortgage rates will bring owner occupants back to the housing market with a willingness and ability to pay higher prices. But will it really work out that way? As proof that the current market rally is entirely fueled by investors, the chart below shows total home sales versus purchase applications. As you can see, purchase applications have been…[READ MORE]

Banks are in survival mode. They must reflate the housing bubble, or the losses on their non-performing single-family residential loans will wipe them out. In order to reflate the bubble, the banks must keep these properties off the MLS, a task they are currently succeeding at, and mortgage interest rates must remain low so buyers can bid up prices to peak levels so banks can liquidate without a loss. The chart above shows the $144.75 billion exposure they have just on their non-performing loans. Since these non-performing loans only represent 9% of the total number of underwater borrowers, the total potential exposure is more than 10 times larger. As I noted, banks are still exposed to $1 trillion in unsecured…[READ MORE]

While the US and many other countries around the world inflated housing bubbles, Ireland tried to surpass them all. From 1996 to 2006, house prices in Ireland increased more than 300%! As in the United States, Ireland inflated it's housing bubble with lender debt. When the toxic brew of mortgages poisoned borrowers, delinquencies mounted, and house prices crashed. An issue of solvency When the service on existing debt exceeds the borrowers capacity to make payments, the borrower is insolvent. The limit of insolvency is also known as the Ponzi limit. Once this threshold is crossed, only additional infusions of borrowed money used to make debt service payments keeps the borrower afloat. Every dollar loaned to a borrower beyond the threshold…[READ MORE]

Prices in many housing markets around the country are rising at unsustainable rates. The last time this happened was 2004-2006, and the pundits at the time said that appreciation would moderate and resume its "normal" 5%+ yearly rates in the future. Gary Watts even assured us that "Fifteen percent is pretty much in the bag for Orange County in 2006," he says. "It's impossible for prices to go down this year." It's difficult to imagine a statement that was more wrong. The bust from 2007-2009 was characterized by steeply falling prices. It was a relatively quick and severe crash by real estate standards. Residential real estate prices rarely fall, and when they do, they are generally "sticky" on the way…[READ MORE]

The US taxpayer (you) paid for the mess the bank's made. Back in late 2008, the Department of Treasury took the GSEs under conservatorship and injected about $150 billion into them to make them solvent. And although the FHA has not officially requested a bailout yet, it's no secret a bailout is coming. The only mystery so far is when the bailout will come and how large the ultimate price will be. Politicians have consistently lied to us about housing bailouts. The first batch of lies surrounded the GSEs: “There is no guarantee. There’s no explicit guarantee. There’s no implicit guarantee. There’s no wink-and-nod guarantee. Invest and you’re on your own.” — Barney Frank, senior Democratic congressman, notable Fannie supporter,…[READ MORE]

In any negotiation the options of the parties determines the strength of their bargaining position. Ordinarily, when a lender and a borrower execute a promissory note and a mortgage agreement, the lender has most of the power, which is why they determine the terms of the agreement. The only option a borrower has is to shop for slightly better terms from another lender. If the borrower fails to pay according to the terms of the promissory note, the lender has the option of calling a public auction on the property to regain the outstanding balance on the loan. Lenders wisely force the borrower to put money down on the transaction to provide a cushion to protect the lender from loss…[READ MORE]

Bubble thinking is rampant, and the primary reason for its persistence is that people want the free spending money houses provide. The huge financial reward each bubble participant received as they went to the housing ATM gave a spender’s high like no other. Absent another housing bubble, most bubble participants will never have access to that kind of free money again. The real estate lottery When you reflect on it, mortgage equity withdrawal is similar to state run lotteries that sell hope to the poor at a major cost. If you are a worker who doesn’t save money, you have no chance to acquire wealth. Lotteries give those who have no other opportunity for wealth a chance — slim though it…[READ MORE]

realtors have many standard tools they use to manipulate buyers. Most of what they say is half-truth or outright bullshit designed to create a false urgency in buyers to facilitate sales commissions. One of the more common lines of faulty reasoning is that buyers should worry about being priced out when mortgage interest rates rise and they should buy before the situation gets any worse. With the collapse of the housing bubble, most people realized that rising interest rates will not price them out. In fact, rising interest rates is far more likely to hurt sellers and force them to lower their prices to sell. Surprisingly enough, real estate prices do go down, and if everyone really is priced out,…[READ MORE]

When borrowers stop paying their mortgages, banks don't want to foreclose because with so many so far underwater, the bank's losses would be enormous; in fact, it would put most banks out of business. That simple truth drives every aspect of banking and government policy. Loanowners want to save their homes, but bankers and politicians really don't care about them. Bankers and politicians want to save the banks. No matter how crazy many of the policy initiatives coming from Washington and Wall Street may seem, if you remember the basic dilemma that banks face, even the silliest disguised bailout makes perfect sense. By late 2008, house prices were crashing hard, and millions of borrowers were defaulting on their home loans.…[READ MORE]

Banks are enjoying the market's recent strength as collateral value returns to back their bad loans. Homeowners who aren't distressed don't mind either, but it's the banks that benefit the most from the current situation of restricted MLS supply. To further restrict supply and really get prices to shoot upward, banks stopped foreclosure processing on May 6, 2013. Ostensibly, they did this for procedural reasons related to new regulations, but this is simply a ruse to cover their real intent of forcing prices to shoot up even more rapidly to help them avoid more losses when they finally do liquidate their bad loans. 3 big banks nearly halt foreclosure sales after U.S. tweaks orders By E. Scott Reckard -- May…[READ MORE]

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