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Author Archive: Irvine Renter

People shopping for houses today are unwilling to purchase substandard housing in hopes of trading up at some later date. Houses are expensive. Many renters would like to buy a house, but they lack the down payment necessary, and many renters are early in their careers when their income isn't high enough to purchase a home they would really like. As a result, first-time homebuyers purchase the least expensive properties available for sale in the housing market, using the highest-cost financing (generally FHA) due to their small down payment. Assuming they sustain ownership, assuming they utilized an amortizing mortgage, and assuming house prices rise, after some period of waiting, the first-time homeowners could sell their starter house---usually to another first-time…[READ MORE]

If an institution is too big to fail, then it must not be allowed to take innovative risks because the potential consequences for the economy are dire. Innovation entails risk. Any profitable business venture that is widely known to be successful is rife with competitors, so profit margins compress until nobody sees an opportunity worth exploiting. New profit centers are created by innovation, but innovation carries a heavy cost as most innovative start-ups fail. When an institution becomes large, it becomes very difficult for them to innovate. Bureaucratic inertia, entrenched ideas, and groupthink all tend to stifle innovation. Usually it's safer for large companies to innovate by purchasing a small, successful start-up and scaling their idea. When an institution becomes…[READ MORE]

Generation X was hurt more than the Baby Boomers or the Millennials by the housing bust because many Generation Xers lost their starter homes, and many others are still trapped in them. The Baby Boomers lost their retirement savings. The Millennials can't afford to enter the housing market. While both the Boomers and the Millennials were damaged by the housing bust, the generation most impacted was Generation X---my generation. If circumstances were different, I might have participated in the housing mania. Most of my cohorts did because the housing mania corresponded to the period in the lifecycle of Generation X where they were most likely to become homeowners. They overpaid for the Baby Boomer's houses, and since many Generation Xers…[READ MORE]

California has a major cultural “religion” that cuts across traditional denominational lines: the religion of real estate and faith in rapid home price appreciation. Religious conviction provides meaning, hope, and joy to billions of people. Faith is belief by choice, generally in the absence of evidence, but sometimes even contrary to evidence. Most of the people on earth embrace a belief in a pleasant afterlife in some form. California is a melting pot of different cultures and a variety of beliefs. It's not uncommon to hear several languages spoken in public places and to interact with a wide variety people following different religions. One thing that unites Californian's is an acceptance of the myriad cultural backgrounds and belief systems. Another…[READ MORE]

Dodd-Frank created the Consumer Financial Protection Bureau that prevents the finance industry from ripping off its customers. More importantly, Dodd-Frank saves homeowners and taxpayers from another painful housing bust. In the past, whenever home affordability became a problem, lenders would come up with some innovative toxic loan product, allowing people to buy homes they really couldn’t afford, renewing the cycle of Ponzi lending and borrowing. During the bubble from the late 80s, adjustable-rate interest-only loans became common, and prices rose to the limit of affordability these products created. During the housing bubble of the 00s, prices reached a ceiling in late 2003, but lenders “innovated” again and originated and securitized option ARMs, pushing prices up to unsustainable levels. To prevent…[READ MORE]

The Panama Papers uncovered the money laundering schemes funneling millions into high-end real state. What happens to this market if the flow of illegal funds suddenly stops? New York city is flooded with Russian cash. Irvine, California, is flooded with Chinese cash. Miami, Florida, is flooded with crime cash. What happens to these housing markets---the recipients of much of this money---when the flow of money abruptly stops? When wealthy oligarchs and the nearly-wealthy who support them in exchange for government largess find themselves faced with tough times, rather than exporting their wealth to foreign safe havens, these wealthy players often find domestic concerns force them to repatriate their money to preserve their status at home. Perhaps this money is needed…[READ MORE]

By eliminating other alternatives for investing saving and encouraging real estate speculation, the Chinese government compels its citizens to sustain a Ponzi scheme, allocating resources where they are not needed. People fuel financial manias with greed and foolish optimism. Generally, prices go up because prices were going up, and seeing that prices were going up, excited investors buy more, so prices keep going up. Once started, financial manias are self-fueling until the pool of great fools is exhausted and the entire edifice implodes under its own weight--at least that's how it usually works. The Chinese real estate market is an obvious bubble. Valuations are not justifiable by any standard metric, yet through a variety of government policies, the Ponzi scheme…[READ MORE]

2015 was touted as the year of the boomerang buyer. Lenders and realtors prepared, and the financial media wrote the invitations, but the boomerang buyers failed to arrive. The financial media periodically runs stories about the return of boomerang buyers, those who lost their homes in foreclosure but bought again. From the beginning I flatly stated this group would not participate in the housing recovery, and they would not be a significant source of demand. In the most complete study conducted on the behavior of boomerang buyers, the authors concluded that “Only about 10% of borrowers with a prior serious delinquency regain access to the mortgage market within 10 years of their default.” So why did so many analysts think…[READ MORE]

realtors frequently lie to their clients to close deals and generate commissions, placing their needs and desires above their clients. Every word she writes is a lie, including "and" and "the." Mary McCarthy When a realtor talks, do you believe a word of it? At some level you know that most of what they say is bullshit, statements made without regard to the truth, usually to manipulate customer behavior for self-serving reasons. realtors want only one thing: to generate the largest commission possible with the least amount of time and effort. Bullshit helps reach their goal because bullshit smooths over all objections by telling people what they want to hear. The Credibility Continuum The credibility of anyone’s opinions relies on…[READ MORE]

Homeowners convert consumer debt into tax-deductible debt through home equity lines of credit. Since this debt is secured by real estate, homeowners also pay much less for it. HELOCs are making a comeback! This is great news for Ponzis who want free money from stupid lenders, but it's a dangerous warning for all of us who supplied taxpayer bailout money to the stupid bankers who gave out free money last time. With rates hovering near record lows, and with banks desperate to loan money, banks are offering those with good credit very favorable terms on helocs -- and borrowers take the free money. Ten years ago heloc lending was an open invitation to theft for millions of borrowers running personal…[READ MORE]

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In Memoriam: Tony Bliss 1966-2012
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