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Author Archive: Irvine Renter

As mortgage rates rise, home sales will decline, and if it goes on long enough, prices will fall. In rocketry, escape velocity is the speed required to propel an object into a stable orbit. In a housing market, escape velocity is a rate of price and sales volume increase necessary to sustain an increase in demand required to push prices higher for the long term. Escape velocity is the elusive dream of real estate pundits, a group who doesn’t understand what it was or why it disappeared (probably forever). In previous real estate cycles (pre Dodd-Frank), as prices went up and buyers were priced out of the market, lenders responded by offering affordability products toxic mortgage financing terms. As affordability…[READ MORE]

Home mortgage interest deduction encourages high wage earners to borrow more; capital gains tax exemption encourages wealthy to invest more in personal homes. The combined effect inflates house prices. Politicians promote home ownership through a variety of subsidies and tax loopholes, ostensibly to promote a sense of community and quell civil unrest, the modern bread and circuses. A 2014 Republican tax reform proposal curtails homeownership subsidies, and the proposal was vigorously opposed by realtors, homebuilders, and lenders who benefit from the subsidies. Supporters of the subsidies generally control the perception of their largess through planted stories in the financial media appealing to homeowners who rely on the subsidy to reduce their tax bills; however, those who want to reduce these subsidies occasionally gain…[READ MORE]

By providing more housing units, apartment developers will lower housing costs over time and relieve the pressure on Californian's personal budgets. Combating the chronic shortage of available housing in California requires building more places to live. It matters little if these new housing units are small apartments or large mansions. As developers build more, all segments of the housing market will be more affordable to everyone in California. How to lower housing costs Imagine what would happen if California legislators found the political will to actually solve the housing crisis in California rather than giving in to the Nimbys. If Governor Brown formed a committee and charged them with crafting a policy to bring housing costs down as quickly as possible without…[READ MORE]

Houses feel expensive because an unusually large percentage of the payment is going toward principal amortization. For the last few years, my monthly housing market reports rated most communities across Southern California highly, suggesting it's a very good time to buy a house. Yet despite this dispassionate review of the math, most people who actually shop for a house feel like prices are way too high. Why is that? Well, house prices are high. The federal reserve in conjunction with government officials reflated the housing bubble to restore collateral backing to lender’s bad loans. The housing bubble that peaked in 2005/2006 witnessed house prices 20 years ahead of their time. Reflating the housing bubble in 2016 still puts us 10…[READ MORE]

As Millennials buy new homes, builders will provide smaller houses Millennials can afford. For years, academics in planning circles touted the rise of the small, high-density housing alternatives near mass-transit hubs. While this product might be the future of housing, it won’t be due to any preference by Americans for smaller digs. People will substitute down to smaller properties conveniently located near mass transit, but they will do this because the more desirable McMansions in the suburbs will become too expensive. Builders aren’t concerned with what academics think they should build; builders will provide whatever product buyers in the market want. Very few entry-level buyers are active in the market because Generation X is trapped in their starter homes, and the Millennials are not yet…[READ MORE]

Both the data and the anecdotes demonstrate a noticeable and significant slowdown in home sales. Is it merely seasonal? I am moving out of my current rental and back to Orange County (more on that later). I agreed to allow my landlord to market the property for sale over the last month while I still lived there. I was worried about aggressive buyers peeking in my windows, but that isn't what happened. So far, very few people came to tour the property. I spoke with the agent (my landlord's sister) about what was going on, and she provided a remarkably candid assessment. She said it was like buyer interest fell off a cliff in August. She said there are three…[READ MORE]

When Nimbys lose their emotional fights to block new development, new families move into the neighborhood and enjoy new houses that otherwise would not have been built. Real estate development provides homes, offices, shops, features of the built environment that define the quality of everyday life. Without the changes to the land required by our built environment, we would still be living in caves trying to subsist off the land like our stone-age ancestors. However, too much of a good thing can be as bad as too little of it. When real estate development is done poorly, or when every last trace of the natural environment is eliminated in favor of the built environment, quality of life suffers. There is…[READ MORE]

A rising US dollar makes Irvine homes much more expensive for Chinese buyers, and capital controls makes it much more difficult to move money out of China for those inclined to do so. Many Chinese investors consider Irvine, California, a safe haven where they can store their wealth far from the controlling hands of Chinese government officials. As a result of this perception, Chinese investors buy a significant number of homes in Irvine -- anecdotally, Chinese Nationals buy 80% of properties in some new home communities. In fact, Irvine homebuilders depend on Chinese buyers to purchase their overpriced houses, which becomes a problem when this flow of money dries up. Chinese capital is an unstable source of investment, and it…[READ MORE]

Self-driving cars will impact home design and community design of the future, but it won't be the big disruption to real estate values some imagine. Transportation systems provide access to property and facilitate commerce. Automobile road systems in particular take up tremendous amounts of real estate, and roads define the patterns in real estate development. Further, the need for cars adds 400 square feet or more to our houses that's largely useless as living space. But what happens if our relationship with the car changes? How does this impact housing or land development? Over the last few years as engineers make progress toward self-driving cars, many armchair futurists imagined what a world of driverless cars would look like. Most visions…[READ MORE]

High house prices are demanded by foolish Ponzis, enjoyed by real homeowners, and favored by politicians pandering to both groups. Why are high house prices the keep rising considered a universal good? Does everyone benefit if house prices are high and keep moving higher? When house prices move up faster than wages, who benefits, and who pays the price? Most people accept the idea that ever-rising house prices are good, and that a decline in house prices is bad. This idea seems to only apply to housing because ordinarily people cheer when the price of an essential product goes down, and complain when it goes up. Why is housing so different? Gasoline prices over the last few years yo-yoed between…[READ MORE]

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