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Author Archive: Irvine Renter

In a recent speech, Bernie Sanders unapologetically bashed the too-big-too-fail banks. He's a rare breed: an honest politician. I recently wrote that Donald Trump will be the next President of the United States due to his populist appeal. However, for people like me who really want to see the too-big-to-fail banks crushed to rubble, Bernie Sanders is a more appealing alternative to Donald Trump. When Donald Trump blusters, everyone knows it's just red meat supplied to augment the bread and circuses campaign to win the Republican nomination. Nobody really knows what Donald Trump believes or what he would do if elected President. On the other hand, Bernie Sanders means what he says, and he says he wants to break up…[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 if this flow of money dries up. Both homebuilders and real estate agents delude themselves with notions about the desirability of Coastal California to convince themselves the influx of Chinese money is based on sustainable fundamental factors. In reality, this is hot money escaping an unstable…[READ MORE]

Millennials are not climbing on the property ladder, upsetting everyone who depends on real estate transactions to make a living. A common refrain among housing industry advocates is that Millennials are simply ignorant to the benefits of home ownership, and if they could only be "educated" properly, they would shun renting in favor of owner-occupied housing. Apparently, Millennials are ignorant to both the benefits of home ownership and the lending options available to them. This is nonsense and wishful thinking. To the chagrin of housing industry advocates, Millennials are well aware of the perils of home ownership, and the education propaganda spouted by the housing industry falls on deaf ears. Millennials learned from the housing bust -- they learned house…[READ MORE]

What do you get when you combine a strengthening economy with a chronic shortages of housing? Sky-high rents. California began restricting growth in the 1970s with regulations like CEQA. Local opposition groups sprang up ostensibly to protect their quality of life. What started as a reaction to poorly designed and executed suburban sprawl devolved into an attempt by Nimbys to cast their neighborhoods in amber to prevent any future changes or development, even reasonable development. As a result of various growth restrictions, we simply don't have enough housing stock to meet the needs of our growing population, either rental or owner-occupied. When any commodity is in short supply, prices tend to rise, and rentals are no exception. There are not…[READ MORE]

After nine consecutive years of extremely weak sales, low sales rates are starting to look like the new normal. A lie, if repeated often enough, becomes accepted as truth. The mainstream media is reporting that home sales are strong and demand is robust. Compared to the depths of the housing bubble crash, sales are up somewhat, mostly due to investor demand, but sales are still very low by historic standards, and we’re nowhere near a healthy real estate market. If not for the dearth of inventory, the anemic demand wouldn’t be pushing prices up at all. Just how anemic have sales been? The percentage of houses sold each year, the turnover ratio, plummeted during the bust, and over the last…[READ MORE]

A proposed real estate tax will be passed through to businesses across California, failing to tax the people it's aimed at. "Take from the rich and give to the poor." The legend of Robin Hood resonates with those who believe the unequal distribution of wealth is a social problem best solved by forcibly taking from those who have and giving to those who have not. It appeals to our notions of social justice, particularly when we perceive the rich obtained their wealth through nefarious or equally forceful means. During Medieval times when wealth was afforded only to those who took it from working peasants by force, the selfless Robin Hood was a hero who balanced the equation. In our modern…[READ MORE]

Higher interest rates create superior investment alternatives that will drain money out of high-end real estate investments. The rich always get richer, and they use their wealth to buy real estate at ever-increasing prices -- At least that's what most people believe (particularly homebuilders). But is that really true? Over the last decade the federal reserve lowered interest rates to zero to support inflated asset prices, especially home values. The rich did get richer, and they did buy real estate, which supported unjustifiably high house prices, leading to increasing wealth disparity and populist unrest. As interest rates rise, these trends could easily reverse. The value of any asset is the future cashflow risk-adjusted by a discount rate. When the federal…[READ MORE]

The median sales prices does not give any indication of what was obtained for the money spent. Median prices may be flat while people are either getting more for their money or settling for less. Also, the median sales price when charted over time occasionally gives false signals when prices appear to be moving on one direction when the prices of individual properties in the market are moving another. To deal with these problems with the median, alternate measures of pricing are used. Cost Per-Square-Foot Many data reporting services measure, record, and report the average sales cost on a per-square-foot basis to address the problem of evaluating what buyers are getting for their money. For instance, in a declining market…[READ MORE]

There is no perfect measure for any broad financial market activity. Markets for stocks, bonds and other securities are the most widely reported and measured financial markets. It is relatively easy to measure activity in these markets because all sales are recorded at a few central exchanges and the “products” are uniform (one share of stock is equal to another). In contrast, real estate markets are much more difficult to evaluate. Real estate transactions are recorded into the public record in thousands of locations across the country. Keeping an organized database of these records is such a daunting task that the title insurance industry has taken this responsibility as part of its business model, and many people are devoted to the…[READ MORE]

Psychological Stages of a Bubble Once a bubble starts to form, it will go through several identifiable stages: enthusiasm, greed, denial, fear, capitulation, and despair. Each of these stages is characterized by different speculator emotional states and different resulting behaviors. There are outside forces that also act on the market in predictable ways in each one of these stages. Most often, these outside factors serve to reinforce the market’s herd behavior and exacerbate changes in price. Precipitating Factor There is often a precipitating factor causing the initial price rally that pushes prices above their supported fundamental values. A bubble rally is usually kicked off by some exogenous event, but it may occur simply because prices have been rising and investors…[READ MORE]

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In Memoriam: Tony Bliss 1966-2012
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