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Author Archive: Irvine Renter

The economy pulled out of the Great Recession because lenders wrote down billions in bad loans, not because borrowers paid these debts off. The financial mainstream media often tells people what they want to hear. They’ve learned they make more money by providing emotional support to people seeking reassurance rather than providing facts and accurate analysis. This is a shame because people often make important and complex financial decisions based on erroneous or biased information they obtain from the financial press. When these investment decisions go bad, people are often wondering what went wrong. The problem is that they trusted the veracity of what they read in the mainstream media. We’ve seen a great deal of spin and nonsense over…[READ MORE]

The National Association of realtors is a sales organization that pretends to be professionally objective. They want to be accepted as experts, but they shun the responsibilities that go with being a professional. The National Association of realtors is dedicated to advancing the interests of listing agents who dominate the organization. Their primary focus is to generate real estate sales and commissions that provide income for its members. It spends enormous sums promoting real estate sales with the mantra, “it’s a great time to buy or sell a home.” The problem with this singular focus and approach is that it is not always a good time to buy or sell a house. realtors want to pass themselves off as experts…[READ MORE]

Falling mortgage interest rates increased the borrowing power of all buyers and inflated house prices beyond what ordinary income growth would have accomplished. It’s widely believed mortgage interest rates will rise in the future, perhaps for a very long time. The mainstream media is littered with articles about how this won’t hurt the housing recovery to provide homeowners and prospective buyers assurance that prices will keep rising. To better understand why rising interest rates are such a big issue to housing, it’s worth reviewing the impact falling interest rates have had on house prices for the last 30 years. House prices and rental parity The basis of all house prices valuations is rental parity, the price point where the cost…[READ MORE]

All characters appearing in this work are fictitious. Any resemblance to real persons, living or dead, is purely coincidental. As many of you know, I went out to Las Vegas to purchase rental homes. Back in August of 2010, I wrote the post Buy Las Vegas real estate where I made the case for buying undervalued homes and holding them for cashflow and appreciation. Not long after that, Wall Street also came to believe this was a good idea, and the REO-to-rental business model took off. The activity of investors like me and the Wall Street giants helped form a bottom in the Las Vegas housing market and other markets across the country. To buy a large number of homes,…[READ MORE]

I am perhaps the most widely known renter in Orange County. I’ve been writing under the moniker Irvine Renter for over ten years now. Are renters like me less happy that those who bought homes? First, I want to point out I was not always a renter. Like many others, I bought a house (actually I designed and built it). I know the emotional satisfaction that can come from having a house to call my own. In my opinion and experience, there is an emotional quality to owning a house that is not replicated in a rental. For example, when I owned my house, I spent hours tinkering in the yard with landscaping, and my house plants looked like a…[READ MORE]

The housing market experiences a friction point where prices can't move any higher, the affordability ceiling. Over the last 50 years, California inflated three different housing bubbles. Starting in the 1970s with regulations like CEQA, California began to restrict growth, preventing builders and developers from meeting demand. As a result, demand pressures increased prices. People reacted to rising prices with enthusiasm instead of revulsion. The sudden upward price movements catalyzed more buying as homeowners became speculators hoping to cash in on rapid appreciation. As with all financial manias where asset values become detached from fundamentals, the first three housing bubbles resulted in housing busts with each one being more severe than the last. As a result of the most recent…[READ MORE]

American spends billions of dollars each year in housing subsidies, but it has lower homeownership rates than many countries without subsidies of any kind. Every homeowner wants to see the resale value of their home go up as rapidly as possible. Since more than half the country owns a house, political pressure mounts to prop up home prices and cause them to appreciate. The result is a plethora of subsidies designed ostensibly to make homeownership for accessible to lower and middle classes. In reality, these subsidies merely make houses more expensive. The result of these subsidies and our ever-present desire for rapid home price appreciation is a great deal of house price volatility. Unfortunately, house prices can’t appreciate faster than…[READ MORE]

The American Dream used to symbolize the rewards from hard work and sacrifice. During the housing mania, it became associated with conspicuous consumption, sloth, immediate gratification, and entitlement. The American Dream? Many people want to immigrate to the United States so they too can have a chance at obtaining the American Dream. Can you imagine the stories that recent immigrants must have relayed to those in the “old country” when the housing boom was going on? How do you explain to someone who comes from a stable (or practically non-existent) housing finance system that doesn’t “innovate” what went on in America in 2004, 2005, and 2006? Immigrant: “In America, they will give you a house with no job and no savings.”…[READ MORE]

Since lenders will can-kick during future times of economic weakness, houses may not be affordable, bringing sales volumes down, but prices probably won't decline much. In 2004-2006, the pundits 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. But Gary Watts wasn't alone in his delusions. Most people who bought property in 2004-2006 assumed house prices were going to rise 10%+ per year forever. Recency bias pervades financial markets and taints investors' decisions. Prices…[READ MORE]

When the federal reserve prints money to buy mortgage-backed securities, it lowers mortgage rates and allows potential buyers to borrow more money and push house prices higher. The federal reserve sets policy in meetings of the Federal Open Market Committee (FOMC), a group of bankers. The FOMC sets target interest rates and directs its traders to either buy or sell securities to meet interest rate targets. When the federal reserve buys Treasuries, the price goes up, and interest rates go down. When the federal reserve sells Treasuries, the price goes down, and interest rates go up. Prior to the financial meltdown in 2008, the federal reserve only bought short-term Treasuries, but in an effort to rescue housing, they began an…[READ MORE]


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In Memoriam: Tony Bliss 1966-2012