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Author Archive: Irvine Renter

Borrowing money to pay debt is the most common form of personal Ponzi scheme. Lenders cloak debt consolidation and HELOC spending as sophisticated when it's really a fool's errand. The Millennial Generation was too young to participate in the housing bubble of the early 00s. Instead, Baby Boomers and Generation Xers were the sophisticated financial geniuses who over-borrowed and overpaid for housing on a grand scale. What's the main reason they did this? They wanted free money. Rather than learn from the mistakes of the previous generation, Millennials embrace the same foolishness. Apparently, sacrifice and planning for tomorrow are overrated concepts. Carpe diem — “Seize the Day” — The first Ponzi Why do people make foolishly irresponsible financial decisions? Sometimes…[READ MORE]

Higher priced houses are affordable to many families with high incomes, but many families lack the hefty down payments necessary to close the deal. Last year I reported that Housing inventory is abundant at prices buyers can’t afford. The constant refrain in the financial media is that home sales are weak because sellers refuse to list and sell their homes. This is only partially true. Sellers' reluctance to list at reasonable prices constrained sales, but not for the reasons commonly stated in the financial media. Sellers list their properties in sufficient numbers, but not at prices affordable to buyers. Since sellers must net enough at closing to pay off their supersized bubble-era loans, they ask too much money, and they resist lowering…[READ MORE]

Suburban sprawl doesn't create affordability. Instead, it's a sign of community policies that encourage production of all kinds of housing. Affordability is a function of the quantity of housing, not housing type. Most urban planners and landscape architects dislike suburban sprawl. Admittedly, much of suburbia is a bland, placeless morass of cookie-cutter houses, underserved by poorly designed transportation systems. Well-designed suburbs like Irvine are more the exception than the rule. The uninspired past of suburbia warrants criticism, but communities like Irvine prove that nothing about suburbia is intrinsically negative. Urban areas can be just as poorly executed as suburban ones, and favoring high-density development near transit hubs does nothing to guarantee the quality of life will be any better for residents…[READ MORE]

The next housing bust will preserve prices at the expense of home sales volume. Real estate only goes up, right? The idea that real estate only goes up was the erroneous belief shared by every participant in the housing mania. Everyone who believed in this fallacy threw caution to the wind and paid any price to buy a home. Why not? If house prices really couldn't go down, then value really doesn't matter. The housing bust rather dramatically proved that real estate can, in fact, go down. From 2007 to 2012 to varying degrees house prices declined quickly and painfully everywhere in the United States. Why did house prices go down? House prices were elevated 60% to 100% above fundamental value…[READ MORE]

Would you like to rent a home for a year or more to decide if you really wanted it? You can. Many companies will allow potential customers to try their products for some period of time before the customer buys it. If the customer doesn't like the product, the customer may return the product and pay nothing. If the customer does like the product, then they buy it. Surprisingly enough, people can do this with residential homes as well. After the housing bust, institutional money flowed into residential real estate for the first time. These companies bought REOs and rented them out, often to those who lost their homes in foreclosure but wanted to stay in the neighborhood. These renters were…[READ MORE]

Rental parity analysis provides a benchmark of value that enables buyers and sellers to anticipate changes in the market. People who invest in stocks often use the price-to-earnings ratio among others to estimate value. People who trade stocks use a variety of technical indicators to both screen stocks to trade and to improve their timing. Both techniques of fundamental and technical analysis are widely accepted and used by securities investors. Real estate is a different story. Real estate investors utilize capitalization rates, cash-on-cash returns, and internal rates of return to evaluate individual properties, but these measures are far less applicable to assessments of entire markets. To evaluate an entire market of properties, economists employ various ratios including price-to-rent, price-to-income, payment-to-income,…[READ MORE]

Since its inception, the CFPB has been under attack by the financial industry. The huge Wells Fargo fraud ensures it's survival. The financial elites in the United States hate the Consumer Financial Protection Bureau (CFPB) because the CFPB opposes those who want to rape and pillage the American people. The would-be criminals operating our too-big-too-fail institutions spend millions lobbying Congress and buying politicians like Jeb Hensarling to spout nonsense about the problems caused by the CFPB. After the financial elites destroyed the economy and nearly brought down our entire financial system with reckless risk taking and foolish lending, legislators were forced to act for the greater good; thus we have Dodd-Frank and the CFPB. Why the Consumer Financial Protection Bureau is…[READ MORE]

Hedge funds act as the garbage scows of the housing bust, cleaning up bad loans and distressed properties using a variety of tactics. Prior to the housing bust, mom and pop investors and professional property rehabbers acquired most distressed residential properties. However, since the housing bust was so large, the volume of these properties far exceeded the capacity of small investors to absorb the inventory. This lack of capacity diminished demand and caused home prices in many markets to fall to such low levels that institutional money came to the rescue. Institutional investors created the REO-to-rental business model and funded it with billions of dollars. The large institutional investors accomplished what the moms and pops ordinarily do: they bought properties,…[READ MORE]

The wave of HELOC recasts is upon us, and lenders must cut deals with borrowers or face another wave of delinquencies and foreclosures. Since last night was the kickoff of the NFL regular season, it's only fitting that lenders prepare for another long season of can-kicking bad loans. This time, instead of first mortgages going bad, the second mortgages sitting on top are due to recast. A loan recast is different than a rate reset. When a loan resets, the payment could go up or down depending on the prevailing rate at the time. However, when a loan recasts from an interest-only payment to a fully-amortized payment, the payment will almost certainly go up -- probably quite substantially. Home equity…[READ MORE]

Some people like extra living space, others like to show off. Buying a McMansion appeals to both types of buyers. For years urban planners worked to change public attitudes toward smaller houses near public transit stops. The tiny home movement ties into the revulsion many people feel for the ostentation and excess of large houses, particularly those with little or no architectural merit. Despite the efforts of urban planners and tine-home advocates, most Americans still believe bigger is better. I recently noted that new homes over the next decade will be smaller, not because people want smaller homes, but because younger and less affluent buyers will dominate new home sales. The trend toward smaller homes isn't a reflection of changing taste,…[READ MORE]


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In Memoriam: Tony Bliss 1966-2012