Author Archive: Irvine Renter

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]

Buying distressed residential properties, fixing them up, and holding them through the recovery is a great way to earn huge profits. I am a big fan of buy-and-hold residential real estate, but that isn't the only way to make money from this asset class. Home flipping is one extreme, and permanent buy-and-hold is another. But is there anything in between? Yes, buying distressed properties and selling them when the economic cycle is most favorable is a viable investment strategy. However, the analysis is more complex, and timing is critical to the strategy's success. The two extremes of flipping or buy-and-hold are much easier to analyze and execute. When flipping, an investor needs to know the after-repair-value and the cost of…[READ MORE]

Financial bubbles are real. A recent academic study proves people change their behavior when they witness their neighbors making money with little effort. Everyone wants free money. A new academic paper provides strong evidence that the desire to obtain free money drives the insane behavior in financial manias. It's rather shocking that some academics believe there are no financial manias, instead concluding that rapid and unsustainable price increases are the rational action of an efficient market. The reality is that most investors are clueless herd followers that merely assume that everyone else around them must know more than they do, so when the herd piles in to one asset class or another, it must be for a good reason. It's…[READ MORE]

By saddling Millennials with copious amounts of student loan debt and by trapping Generation X in overpriced starter homes, Millennials endure too much debt and too little available supply to become homeowners. The largest generation in American history is not buying homes, and it's possible, the Millennial generation will shun homeownership entirely and remake the American Dream to their own liking. It didn't need to be this way. The Millennials could have followed in the footsteps of the Baby Boomers or Generation X, but the foolish lending of the 00s and the bailout policies that followed created the circumstances where many Millennials can't attain homeownership. How did the foolish lending of the 00s create this problem? First, imprudent student debt…[READ MORE]

With the fear of being priced out gone, would-be home buyers see high prices as a deterrent, not as an incentive to recklessly jump into the market. Prior to the housing bust, house prices on a national level had not fallen in over 80 years. Even in California where house prices had fallen on two previous occasions, the bottom of each trough was not as affordable as previous eras. When prices never go down or only decline a small amount for a brief period, people feel a sense of urgency to buy before prices rise even higher. This is a particular problem in California where house prices have risen faster than incomes for the better part of forty years. Buy…[READ MORE]

Monthly Housing Report

In Memoriam: Tony Bliss 1966-2012