Author Archive: Irvine Renter

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]

The populist revolt brewing is stronger than most realize, and Donald Trump taps into this populist anger better than any other candidate. This isn't a political blog, and I don't want it to become one. That being said, after watching The Big Short yesterday, I had an epiphany: Donald Trump is going to be the next President of the United States. What about The Big Short made me realize that? To answer that we need to look back at the history of populist candidates and at the widespread Wall Street fraud that spawned the housing bubble and the financial collapse of 2008 that resulted in the Great Recession -- something The Big Short does exceedingly well. Populism in the late…[READ MORE]

When the FHA cut their insurance fees in half in early 2015, using FHA loans to obtain the benefits of loan assumption became a better option. This post contains specific advice that in the future will either help you sell your house faster and easier or for more money. Utilize fixed-rate assumable financing: Government entities like FHA, VA, GNMA or some other official government program (not Freddie or Fannie) provide assumable, fixed-rate loans desired by your future buyer. Maximize your down payment (within reason) I am not advocating FHA loans because they allow you to put down as little as 3.5%. I believe you should minimize your time to payoff by optimizing (generally enlarging) your down payment and utilizing accelerated amortization. Nor am I advocating emptying savings accounts and…[READ MORE]

Historically, properties in this market sell at a 25.7% discount. Today's discount is 33.0%. This market is 7.3% undervalued. Median home price is $280,000 with a rental parity value of $412,000. This market's discount is $132,000. Monthly payment affordability has been improving over the last 2 month(s). Momentum suggests improving affordability. Resale prices on a $/SF basis increased from $184/SF to $184/SF. Resale prices have been rising for 9 month(s). Over the last 12 months, resale prices rose 6.8% indicating a longer term upward price trend. Median rental rates declined $14 last month from $1,856 to $1,842. The current capitalization rate (rent/price) is 6.3%. Rents have been rising for 12 month(s). Price momentum signals rising rents over the next three…[READ MORE]

Historically, properties in this market sell at a 18.5% discount. Today's discount is 23.9%. This market is 5.4% undervalued. Median home price is $305,000 with a rental parity value of $398,300. This market's discount is $93,300. Monthly payment affordability has been improving over the last 2 month(s). Momentum suggests improving affordability. Resale prices on a $/SF basis declined from $172/SF to $172/SF. Resale prices have been falling for 2 month(s). Over the last 12 months, resale prices rose 4.6% indicating a longer term upward price trend. Median rental rates declined $4 last month from $1,785 to $1,781. The current capitalization rate (rent/price) is 5.6%. Rents have been rising for 12 month(s). Price momentum signals rising rents over the next three…[READ MORE]

Why Trustee Sales? Most buy at Trustee Sales to make or save money. When compared to resale properties, Trustee Sales are generally discounted between 10% and 20% and sometimes the discounts are even greater. The first post in this series featured a property being flipped for a 25% gain, a significant profit for taking risks and trapping cash for a few months. However, flipping for profit is not the only reason to consider this market. My disdain for flippers is apparent, but my ire is not spread evenly. Flippers who buy at auction provide necessary liquidity in a market isolated from lender financing, and flippers who renovate properties (even with pergraniteel) add tangible value; however, the flippers who annoy me…[READ MORE]

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In Memoriam: Tony Bliss 1966-2012
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