Author Archive: Irvine Renter

If Millennials chose a lifetime of renting over owning, they may pay that rent to fund the retirement of a Baby Boomer. My parents are Baby Boomers. Five years ago, I convinced them to retire part-time in Las Vegas and purchase as many rental homes as they could. Their retirement plan depends on renters for income, and many of those renters are Millennials. My parents aren't unique among Boomers. They both worked for the school system and made a modest but comfortable living up through their early retirement at 62. They fit the profile of a typical mom-and-pop rental property investor: they were older, established, and had enough savings and income to complete the deal. Most people that fit that…[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. Chinese investors buy a significant number of homes in Irvine. Anecdotally, 80% of sales in some new home communities are sold to Chinese Nationals. In fact, Irvine homebuilders depend on Chinese buyers to purchase their overpriced houses, which becomes a problem when this flow of money dries up. The only realistic scenario where aggressive sellers enter the market and push house prices lower is if Chinese Nationals reverse the flow of money by liquidating their US holdings to cover financial obligations back home. To really precipitate a…[READ MORE]

Homeownership is considered a universal good by politicians. However, the benefits of ownership are not worth the costs of the subsidies politicians put in place. For over 100 years, every presidential administration embraced homeownership as a panacea, quelling civil unrest, creating citizens with a strong sense of community. The goal of bureaucrats and lawmakers is to create a mythical society with 100% homeownership. The powers-that-be consistently promote homeownership, sometimes with costly subsidies with little or no real benefit. Every homeowner wants to see the resale value of their home go up as rapidly as possible, and since most local governments obtain revenue from real estate taxes, government officials like high home prices too. Since more than half the country owns…[READ MORE]

Very few recent mortgage originations were from borrowers with a previous foreclosure. Less than 25% ever return to homeownership. It's human nature to find hope when times are bleak. When housing crashed, bankers and underwater loanowners clung to any hope of recovery that would bail them out from their catastrophic lapses of judgement during the housing mania. People look for hope wherever they can find it, and over the last eight years, people who work in real estate, homebuilding, sales, and so on, needed hope for a better tomorrow because their current situation was consistently bad. One story of hope was the inevitable return of legions of boomerang buyers, those who lost their homes in foreclosure but bought again. Over…[READ MORE]

House prices are high in Coastal California causing sales to wane and many to question whether or not we pushed prices up too high. In previous real estate cycles, when house prices began to rise, people became excited about participating in the real estate market, and the buying activity would sometimes become frenzied. This desire for real estate was enabled by lenders providing alternative financing products, products that later proved disastrous. In this cycle both potential buyers and lenders behave differently. At this point in previous cycles, affordability products proliferated, and house prices rose rapidly. With affordability products effectively banned this cycle, the only thing pushing house prices higher is record low mortgage rates. As prices rise, the buyer pool…[READ MORE]

Despite legislators and bureaucrats best efforts, the homeownership rate continues to slide. Since the Great Depression, presidential administrations with a cooperative Congress implemented policies intended to maximize the homeownership rate. At the end of World War II, the returning servicemen armed with FHA loans bought millions of new production homes and raised the homeownership rate significantly from the bottom of the depression. Apparently, the new policies were a success. However, the early success was not matched by future increases in home ownership. Once the stimulus provided by FHA loans reached a new equilibrium, the home ownership rate stabilized at about 64% and remained there for about 40 years -- despite ongoing tinkering with financing and other policies. During the mid…[READ MORE]

The cuts to the FHA insurance premium had little impact on sales overall, but more borrowers used FHA insurance. Was the policy a success? Lowering the FHA insurance fees was the right idea at the right time. Due to the losses sustained and expected at the FHA insurance fund, the fees were raised to very high levels, making FHA the new subprime. When first-time homebuyer participation rates hit a three-decade low, I predicted that Pressure would mount to lower FHA insurance fees to revive home sales. Shortly thereafter FHA loan fees were cut in half, and I stated that Lowering FHA insurance fees will spur the housing market. Why was lowering the FHA insurance fee so important? My market studies…[READ MORE]

Since most people no longer fear being priced out, prospective home buyers see high prices as a deterrent rather than an incentive to recklessly jump into the market. Generally, when the price of any good or service goes up, buyer demand at the higher price diminishes because fewer people can afford higher prices. This isn't a particularly difficult economic concept to understand except that housing markets violated this idea repeatedly over the last 40 years. In the past, rising house prices often led to an increase in the quantity demanded, not because more people could afford it, but because buyers became more motivated in order to capture home price appreciation. When prices rise faster than their wages, people can obtain…[READ MORE]

Most feedback I receive from readers is positive, but occasionally someone with an opposing point of view has an emotional reaction and writes me to correct my many misconceptions. I recently ran the post, Responsible homeowners did not lose their homes in foreclosure. In that post I made the case that most foreclosures were caused by overborrowing rather than unemployment or other unforeseeable events. Not everyone agrees with my view of the world, and one reader in particular was incensed enough to write me about it. As with most victim rants, this one points to everyone and everything else to blame for their outcome in life. This woman blames the banks, insurance companies, even the weather for her misfortune. Nowhere…[READ MORE]

School ratings reflect where concerned parents move with their children, not the quality of education a school provides. Parents want to provide their children with every advantage in life. Those students with the best education generally enjoy higher wages and greater life achievement than students from school districts with low achievement scores. Parents react to inequities of our education system by shunning poor performing districts in favor of higher rated ones. Thus real estate values are higher close to better schools. Many parents shopping for a house obsess over the school ratings. They aren't chasing the ratings because of abstract correlations to a better life. Parents seek out these schools because they believe the quality of education is higher and…[READ MORE]

Monthly Housing Report

In Memoriam: Tony Bliss 1966-2012