Author Archive: Irvine Renter

Homeowners cash-out their home equity to supplement their incomes reminiscent of the bad behavior that spiraled out of control during the housing mania. Lenders offer homeowners nearly free money, so unsurprisingly, borrowers take the money. During the housing mania, bankers offered this money without regard to the borrower's ability to repay, an open invitation to steal that many took advantage of. Mortgage equity withdrawal dried up during the bust, partly because borrowers lacked equity, but partly because lenders refused to support the personal Ponzi schemes of so many people. As conditions improve, lenders underwrite these loans again, but so far, they employ conservative underwriting standards and limit the cash-out to a reasonable loan-to-value ratio. Over time, lenders naturally become more aggressive…[READ MORE]

realtors consistently and falsely blame low inventory for weak sales. The truth is that prices are getting too high for many buyers to afford. realtors follow an unwritten rule: never say prices are too high. Occasionally, they may say something about affordability, but realtors generally reserve that euphemism for their complaints about financing. In a realtor's world, prices are never too high because high prices can always be overcome with "innovative" financing. Since realtors never admit prices are too high, when prices really are too high, they must find some other plausible reason why sales slow down or prices fall. Right now, with an expanding economy finally pulling out of the Great Recession of 2008, we have low unemployment, more high-paying…[READ MORE]

The four unique features are (1) low mortgage interest rates, (2) low MLS inventory, (3) low owner-occupant demand, and (4) high but affordable house prices. Prior to the housing bubble, the normal state of affairs for the housing market was slowly but steadily rising prices that matched the growth in rents and incomes. From the early 1980s through the early 2000s, house prices rose a bit faster than incomes due to steadily falling interest rates, but generally the rate of appreciation was gentle and predictable. A normal housing market exhibited a balance between supply and demand. Millions of individual homeowners possessed the equity to sell when they pleased, and banks owned very few properties. Prior to the bust, lenders exerted very…[READ MORE]

Homebuilders produce the proper number of homes to match measurable demand. Homebuilders only build houses if they can sell them. If homebuilders produce too many, they accumulate standing inventory, which they have to discount or incentivize in order to sell. If the problem persists, they lose money on the sales, and unless they want to go out of business, they stop building more homes. Homebuilders always produce the proper amount of houses to meet demand at any point in time. However, demand derives from dollars. People's desires or needs for housing doesn't always equate to demand. Unless the people who want a home can produce the money necessary to obtain it, their desire creates no measurable demand. During the housing…[READ MORE]

Forecasters begin their yearly extrapolation of existing trends and pass it off as a genuine forecast. A few weeks ago I announced that I began a new position as Market InSite's Chief Economist. When people hear about what I do, one of the first questions they ask is "what's going to happen in the real estate market?" I never answer this question directly. I usually tell them it depends on what happens with job growth, income growth, and mortgage interest rates. So far, I haven't been asked to issue a forecast, and I hope they don't. I could issue a forecast. I'm fully capable of projecting future performance by examining past trends, but is that really forecasting? In my opinion,…[READ MORE]

Permitting mother-in-law suites will increase supply, but it also brings more potential problems to neighborhoods that allow it. There goes the neighborhood. Most homeowners fear what might happen if their neighbors rent out rooms or convert their garages to makeshift apartments. These new tenants in the neighborhood might park cars in front of their house, block their driveway, party all hours of the night, and generally behave like the degenerates and loser renters they were trying to escape when they bought a suburban house. Neighborhood character matters. If developers were permitted to purchase properties in existing neighborhoods of single-family homes, demolish them, and then put up a factory, it would turn the neighborhood into something other than what the remaining homeowners bought into.…[READ MORE]

It costs so much to live in California that many people flee the state in search of lower cost housing and a better quality of life. California is an expensive place to live. Due to the chronic shortage of housing supply that inflates California house prices and rents, many people can't afford to live in the state. The problem is particularly acute for low-income Californians who often spend 50% or more of their income on rent, sometimes doubling or tripling up with other families to afford the cost of housing. When housing is in short supply, the substitution effect forces buyers at every price level to buy a lower quality house than they otherwise would. At the very bottom of the housing…[READ MORE]

Many new companies form in Silicon Valley because they gain access to capital and a large well-trained workforce. But high housing costs forces wages up to attract talent, raising the start-up costs, and reducing the number of start-ups funded. Many entrepreneurs with great ideas for new businesses flock to Silicon Valley, the largest incubator of start-ups in the country. Many wealthy investors and funds with the specialized expertise to identify and nurture start-ups live and work in Silicon Valley, so entrepreneurs looking to start new ventures go where the money is. Once these start-ups secure funding, they must execute their business plans. Just as the entrepreneurs flock to Silicon Valley, the influx of venture capital draws workers with the unique skills…[READ MORE]

Hawaii tops the list of the states with the highest percentage of borrowers who refuse to pay their mortgages for three years or more. A free house in Hawaii handsomely rewards bad behavior, doesn't it? Millions of Americans borrowed money under unstable loan terms during the housing mania of the 00s. When these loans reset or recast to higher payments, millions of borrowers stopped paying, which precipitated the 2008 recession, causing millions more to stop paying their mortgages. The downward spiral lead to over six million foreclosures nationally. Once these borrowers failed to make payments, banks foreclosed on them -- at least at first. By late 2008, it became apparent that foreclosing on all these delinquent loans at once and…[READ MORE]

Dodd-Franks limitations on affordability products ensure housing cycles won't see raucous rallies and devastating declines. To everything (turn, turn, turn) There is a season (turn, turn, turn) And a time to every purpose, under heaven A time to build up, a time to break down A time to dance, a time to mourn A time to cast away stones, a time to gather stones together The Byrds (and Ecclesiastes 3) Prior to the 1970s, there was no housing cycle. There were periods where housing did well and periods when housing did poorly, but this was generally in response to larger economic cycles. Starting in the 1970s many jurisdictions began restricting housing type and location, leading to shortages and the first major…[READ MORE]

Monthly Housing Report

In Memoriam: Tony Bliss 1966-2012