Author Archive: Irvine Renter

Higher FHA mortgage fees hurt real estate markets most in areas that did not vote for Donald Trump. In one of his first acts as President of the United States, Donald Trump suspended the lowing of FHA mortgage insurance premiums scheduled by outgoing president Obama. If Trump had done nothing, on January 27th, FHA mortgage insurance premiums would have dropped from 85 basis points to 60 basis points, a significant reduction. In effect, Donald Trump raised FHA insurance premiums with his decree. Why did he do this? Lowering FHA insurance premiums would help first-time homebuyers and working-class families on the margin afford a home of their own. Is the real estate mogul anti-ownership? Does he want to price out working-class…[READ MORE]

Rising mortgage interest rates caused an alarming 10% decline in potential first-time homebuyers. Over the last several years, most pundits predicted mortgage interest rates would rise. With the exception of the taper tantrum, a 1% rise in mortgage rates during a six-week period in mid-2013, mortgage interest rates trended consistently downward, nearing record lows again just before the election. Paired with the flawed predictions of rising rates, market analysts were always quick to assure everyone that rising mortgage interest rates would have no impact on the housing market. The economy is strong, they said. Incomes are rising, they said. Nothing could hold back the housing recovery juggernaut. Well, guess what? It was all bullshit. Yes, for several years everyone covering real…[READ MORE]

The Federal Reserve's Dudley believes people will forget the lessons of the housing mania and return to profligate home equity spending. When people lose money (or foolishly waste it), they often behave differently after the incident. Wise people actually take action to prevent a recurrence of the tragedy. For example, if a thief breaks into someone’s house, the homeowner installs better locks or alarm systems to avoid a future loss of property or worse. However, when the crime is more complex than breaking-and-entering, or when the government is the facilitator of the crime, it can be much more difficult for the victims to protect themselves, but it’s just as necessary. Ben Bernanke reflated the housing bubble partly to expand consumer spending…[READ MORE]

Some progressives want people to occupy houses they don't own and don't pay for. It’s sad when someone is forcibly evicted from their family home. People develop strong emotional attachments to real property, so many people feel compassion and empathy for those enduring such a difficult loss. Since nobody wants to feel the pain of loss, many people suggest we should stop foreclosures -- or at least the evictions after the fact. (See: Should evictions be banned to stop hurting people’s feelings?) When people rally to stop foreclosure, they forget there is a next chapter to the story. What happens to the family and the house after the foreclosure? First, the house doesn’t sit empty. The distressed debtor who rented…[READ MORE]

Millennials are worse off than Baby Boomers were at this stage in their life cycle. Growing up in the Midwest, I remember the relative prosperity of ordinary families in the 1960s and 1970s. Working-class families supported themselves on union labor contracts granting them a high quality of life. A sole breadwinner without a college education could make enough money to buy a house, two cars, recreational vehicles, and family vacations. Today, working-class families with two breadwinners can't afford any of those items today, and even those with higher educations struggle to make ends meet. I remember the arguments against unions in the 1980s. Their power was excessive in the 1970s, they held back business expansion due to the high labor costs,…[READ MORE]

It takes more than a manic desire to inflate a bubble. The ability to deliver capital to the market is also an essential element. Many people who believe in the wisdom of the markets subscribe to the efficient markets theory. It postulates that market participants have equal access to good information and they make rational judgments based on the available data. The theory appeals to vanity as everyone likes to believe they demonstrate above-average financial acumen and make rational decisions. Unfortunately, that isn’t the world we live in. People often fall victim to groupthink, pick and chose what data to believe and what to ignore, and seek the perceived safety of the herd when making financial decisions. The housing bubble was…[READ MORE]

We running out of land! Buy now or be priced out forever! We're even running out of land on the moon! Most participants in financial manias share a common belief in the scarcity some precious resource. The notion that we’re "running out of land" sparked several financial manias. California has land booms and busts at various times in its history. Florida had a huge land boom and bust in the 1920s. Given the millions of acres of undeveloped land in California and Florida, particularly 100 years ago, the rationality of these booms and busts is rather suspect. But once people start to believe the shortage is real, the frenzy mentality takes over, and rationality is discarded in favor of greed and stupidity.…[READ MORE]

Rent a property using 23% or less of your gross income and save 8%. This prepares you for a 31% debt-to-income payment and provides a quality of rental you could later buy. I never embraced the innovations in real estate finance that inflated the housing bubble. I never considered any financing other than a fixed-rate amortizing mortgage, so I was already priced out by 2003. The world of mortgage innovation left me behind. By 2006 preparing for home ownership only required finding a house and signing a few loan documents. It’s a lot more difficult today. Now the old rules are back. Buyers today have to save for a down payment and make sure the payments are affordable. Since so…[READ MORE]

High house prices and rising mortgage rates will hurt affordability and offset any gains from wage growth and an improving economy. Have you looked for a home to buy lately? They're expensive, and although 4% mortgage rates enable buyers to finance those prices, mortgage rates only make houses affordable at levels below 4.5%. Over the last four years, all lenders revamped their loss mitigation procedures to can-kick loans if borrowers default until house prices exceed the balance of the loan. No matter what else happens in the market, unless the banks are forced to change their policies by the government regulators or the federal reserve (a very unlikely event), lenders will continue to kick the can with loan modifications and suspend homes…[READ MORE]

The housing market will flourish or flounder depending on mortgage interest rates. For each of the last three years, I made a series of bold predictions for the upcoming year. You can judge for yourself how I did: Bold California housing market predictions for 2014 Bold California housing market predictions for 2015 Bold California housing market predictions for 2016 2016 Review My thoughts about 2017 are the same as they were last year, so let's start be reviewing those observations. My updated observations are in [brackets]. It’s all about interest rates Whatever is going to happen in the housing market in 2016 [and 2017] depends entirely on the course of mortgage rates. Why? Because housing markets are very interest rate…[READ MORE]