Author Archive: Irvine Renter

Is it better to be widely known as a permabear or permabull? Or is it better to change with the times and gain credibility through being right? Pundits who issue forecasts want to be right, and they want to be acknowledged as being right. In the world of punditry, credibility is everything, and the best forecasters really are right more often than they are wrong -- or at least they convince people that's true. The ability to shamelessly revise history is the mark of a truly successful forecaster fraudster. Paul Krugman and Peter Schiff If you read either Paul Krugman or Peter Schiff, both write from the opposite ends of the political and economic spectrum. They often make predictions diametrically…[READ MORE]

House prices in California's Inland Empire are at or below their stable relationship between the cost of ownership and the cost of rent. After the devastating collapse of house prices in 2008-2012, buyers are rightfully wary of buying into another bubble. After watching their neighbors suffer with excessive payments and negative equity, prudent renters don't want to suffer the same fate. And with a nearly 80% increase in house prices in Riverside and San Bernardino Counties over the last three years, people have reason to worry. There are very few economists with any credibility to comment on whether or not housing is a bubble. Lawrence Yun of the NAr has no credibility to comment on anything related to real estate,…[READ MORE]

The US taxpayer insures most of the mortgages in the United States today, exposing you and me to trillions in potential losses in a future housing bust. Prior to the collapse of the housing bubble, when lenders gave free money to loan owners, it was theirs to give — and to lose. But when the losses overwhelmed our banking system, the government took conservatorship of the GSEs, and they backstopped the largest banks with our too-big-to-fail guarantees. With those two steps and the dramatically increased market share of the FHA, the government now assumes nearly all risk of loss in the US mortgage market. With taxpayers absorbing future losses through explicit and implicit guarantees, lenders have every reason to inflate…[READ MORE]

Historically, properties in this market sell at a 0.6% premium. Today's discount is 3.6%. This market is 4.2% undervalued. Median home price is $597,800 with a rental parity value of $629,100. This market's discount is $31,300. Monthly payment affordability has been worsening over the last 5 month(s). Momentum suggests worsening affordability. Resale prices on a $/SF basis increased from $386/SF to $388/SF. Resale prices have been rising for 8 month(s). Over the last 12 months, resale prices rose 3.6% indicating a longer term upward price trend. Median rental rates increased $33 last month from $2,749 to $2,782. The current capitalization rate (rent/price) is 4.5%. Rents have been rising for 12 month(s). Price momentum signals rising rents over the next three…[READ MORE]

Are properties for sale but withheld from the MLS, so-called pocket listings, a viable way to sell real estate or a seller ripoff? A for-sale property that is not listed on the MLS is a "pocket listing." Sellers, particularly famous sellers, who don't want legions of potential buyers traipsing through their house often ask agents not to put the listing on the MLS. Agents must follow the rules of their local MLS that mandates a listing within a certain number of days, but if the listing is informal, the agent may pre-market a property to select buyers. Most often pocket listings are used by agents who want to double-end the deal and make double the commission. In that scenario, the…[READ MORE]

To sabotage the housing market, remove homeowner equity and raise borrowing costs. The result is a collapse of the move-up market and very low sales. Sometimes to find the best solution to a problem, examining how the problem could be made worse reveals options and perils that might otherwise be unnoticed. Unfortunately, upon close examination of the housing market, the path to destruction may disguise itself as the path to recovery. How the property ladder works In the real world, most first-time homebuyers use an FHA loan and buy a low-cost property. The reason for this is simple: it takes too long to save 20% for a down payment on a conventional loan. First-time homebuyers use FHA loans because the…[READ MORE]

What separates homeowners from people who don’t own homes? The answer is not as simple as you might think. If you go back to antiquity, the person who “owned” a house was generally the strongest warrior who was capable to taking it and holding it against all rivals. Over the last 500 years the development of government and stable laws of land ownership made it possible for ordinary people to have claims to real property stronger than the edge of a sword or the barrel of a gun. One of the first attempts to establish property title was the English Doomsday Book of the 11th century. The King set out to establish who owned what so he could better establish…[READ MORE]

The recent house price rally was financed with stable, fixed-rate mortgages. Stable mortgages make for a stable housing market. Pundits like to call asset bubbles; it attracts attention and helps make a name for the analyst. Most often they are wrong, but every once in a while, someone calls a bubble just before one pops, and they look like a prescient genius — and sometimes they are: Robert Shiller called both the Internet bubble and the housing bubble right at the peak of each, and he won the Nobel Prize for his efforts. The pundit sounding the alarm today is Charles Hugh Smith. I like his writing, and he generally displays a great understanding of financial history and the workings…[READ MORE]

If the FHA insurance fund falls short, the US taxpayer will pay the difference. With the FHA insuring subprime loans, as a taxpayer, your money is at risk. Many mortgage industry observers quipped that FHA is the reincarnation of subprime lending; the facts support this assertion. The FHA has very low standards for qualification (a 580 FICO score), a very low down payment requirement (currently 3.5%). Consequently, FHA insured loans became a necessity for anyone without the credit score or down payment to obtain other financing. Clearly, FHA filled the void created by the collapse of subprime lending. For the subprime business model to work, lenders much charge higher interest rates and fees to offset the losses on the numerous…[READ MORE]

Prime borrowers using negative amortization loans were largely responsible for inflating the housing bubble, and their defaults lead to the crash. Most people believe the housing bubble and bust was caused by subprime lending. It was not. The housing debacle was caused by a rapid expansion of credit to prime borrowers, particularly through the proliferation of negative amortizations loans. The housing bubble inflated because too much money was loan to everyone, not just subprime borrowers. Since bubble-era home prices depended on unstable loan products, the collapse was inevitable. Although the subprime borrowers defaulted first, all borrowers defaulted in large numbers because the loans there were given were toxic; in fact, delinquency rates were many times normal for prime borrowers as…[READ MORE]