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Author Archive: Irvine Renter

A majority of Americans hold a healthy disdain for consumer debt, but most carry debt anyway. When you see an American Express Card commercial, do you see a sophisticated financial manager or an irresponsible spendthrift? The credit card companies want you to see a savvy money manager who wisely uses their products. But is it wise to use a costly product you don't really need? In a world without consumer credit, people would save money, and they would only spend what they had available. People would store their unspent earnings in banks who could loan that money to businesses that produce goods and services that benefit the economy. These savers would also earn money on their savings as lenders competed…[READ MORE]

After enduring 10 years of excessive mortgage debt service, many people downsize when prices rise high enough for them to sell. Most people visualize the housing ladder as a steady upward progression from starter home to Mansion by the beach, but that's seldom the reality. Many people buy entry-level housing, and when prices rise high enough for them to sell and have 20% down for a larger property, the participate in the move-up market. If their income grew while they lived in their entry-level home, the step up can be quite luxurious. If their income didn't go up much, they are probably better off refinancing into a lower-cost mortgage and staying put. The housing bubble severely disrupted the housing market.…[READ MORE]

Lower house prices due to higher mortgage rates still result in a higher cost of home ownership. Everyone shopping for a home wants to see lower prices. For most products, paying less for it means the buyer has more money available to purchase other goods and services, but with houses this isn't necessarily the case. Most people borrow money to buy a house -- a great deal of money, often 80% to 96.5% of the purchase price. In fact, the cost of borrowing money is largely what determines how much someone can borrow and thereby bid to buy a house. (See: Your neighbor’s debt creates your home equity) When mortgage rates go up, the cost of borrowing will increase, and…[READ MORE]

Without rational pessimism, people are susceptible to foolish optimism that fuels financial manias. Optimists are happier than pessimists. If you spend your life seeing the good in people, situations, and outcomes, you live in an inner world of bliss, contentment, and exciting possibilities. If you spend your life looking for brown, you find brown, and you will think people, situations and outcomes are shitty. It's a simple truth that skeptics and pessimists ignore as they console themselves with seeing what they believe is a more accurate picture of reality. It's not. Pessimists are better investors than optimists. Optimists ignore warning signs in favor of Pollyanna outlooks. They scour financial media reports looking for confirmation of their pre-existing biases, and they…[READ MORE]

With housing markets only now reaching the peak of the housing bubble, many have been trapped in their homes for over 10 years. In 2005 most people who bought their first homes believed they won the lottery. In the five preceding years, house prices more than doubled, and since most people extrapolate short-term price movements to infinity, most homebuyers in 2005 believed they were on their way to being billionaires. It didn't work out that way. Most people who bought in 2005 are only now above water -- and that assumes they had an amortizing loan and dutifully made all their payments. Those with loan modifications had the fees and missed payments tacked on to their mortgage balance, and many…[READ MORE]

Foreign investment costs politicians nothing, and it provides them tangible and taxable assets. Have you ever gone to an Irvine new home model center and seen buses of foreign tourists on a shopping spree? I have, and I suspect many others have seen the same thing. Anecdotally, Irvine homebuilders report 80% or more of their sales are to foreign nationals, particularly the Chinese. These buyers are purchasing homes largely as investments, and in the process they crowd out or price out a local working family who wants to buy a home. Given this strongly negative consequence to rampant foreign buying, why do politicians support it? First, politicians care about large voter blocks, and the only people upset by this problem…[READ MORE]

A willingness to walk away from any negotiation is essential to avoid overpaying for a house, or anything else for that matter. Negotiating the sale of residential real estate should be no more difficult than negotiating the sale of any other product or service without a fixed price; however, since houses cost so much, and since people get emotionally involved in the transaction, negotiating to by a family home is much more difficult. The principles of negotiation may be the same, but since the cost of houses is so large, even small mistakes can be extremely costly. If someone overpays for a car, it may cost them a few hundred or a few thousand dollars -- painful, but manageable. If…[READ MORE]

New York bankers refused to foreclose on properties in New York city to preserve the housing values in their own neighborhoods. As Bernie Sanders recently pointed out, a cadre of major banks in the United States issue more than 35% of all home mortgages, and when you consider how many they service, the numbers go much higher, providing the too-big-to-fail banks significant influence over the housing market. When housing went bust back in 2007 and 2008, lenders foreclosed on the subprime mortgages that defaulted first, partly because this was their established loss mitigation procedure, and partly because no bankers were subprime borrowers, so they didn't give a shit about what happened to them. As a result, areas dominated by subprime…[READ MORE]

Since affordable housing is opposed to the interest of existing homeowners, policies which would truly improve affordability are shunned in favor of ineffective alternatives. Most people in California suffer from higher housing costs than the rest of the US, putting major pressure on middle-class wage earners who often put 50% of their income toward housing. Why do we have this problem? First and foremost, the problem is one of supply. California has a chronic shortage of housing, and the lack of supply is the primary reason prices are so high. When supply is limited, people substitute downward in quality just to obtain any housing at all. It’s why an income in Southern California that barely affords a condo would buy…[READ MORE]

Many wealthy and powerful people make Coastal California their home because of the weather, and they build companies and stimulate the economy. The local climate in Coastal California contributes to real estate value, but not because everyone wants to live here. By far the largest reason Coastal California house prices are so high is because there are many high-paying jobs and many wealthy businesspeople who operate businesses here. The climate is arguably as good in Tijuana, but Tijuana is not known for high real estate values. The most expensive real estate in the US is at the Hamptons in New York, but the climate there isn’t very good at all. Perhaps it can be argued that successful business owners who…[READ MORE]

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