Author Archive: Irvine Renter

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]

Investors will supplement down payments in exchange for a share of future profits. Would you make a deal like that? Are there any circumstances under which homebuyers would be willing to share in the upside of home price appreciation? Would you sell an option worth 35% of the upside in exchange for half (10%) of your down payment? You wouldn't have any payments like a second mortgage, and if you sell for a loss, the investor shares in the losses with you. When you reflect on it, the main reason you wouldn't participate is because you believed you will make a fortune on appreciation, and you don't want to share it. Strong arguments can be made for a ten to…[READ MORE]

One man’s mortgage debt is an entire neighborhood’s equity. Higher mortgage rates put pressure on the size of mortgage balances, potentially eroding homeowner equity. When a buyer purchases a house, their purchase sets a standard by which the value of other houses is inferred. When a house sells for a high price, the new sale boosts the value every property in the neighborhood. Of course, as many lamented during the bust, when a house sells for a new low price, the sale drags down neighborhood values as well. When prices rise, neighbors cheer each new high comparable sale because it adds to their net worth, illusory though it might be. Many people enjoy checking their Zillow Zestimate, particularly during a…[READ MORE]

During the housing bust, every effort was made to keep homeowners in their houses. Renters were mercilessly thrown in the street with little or no fanfare. Our real property system functioned well for centuries with very little change. Prior to the housing bubble, it was widely accepted that people borrowed money to buy houses and if they failed to repay according to the terms of the promissory note, the mortgage agreement allowed the lender to call an auction to regain their loan capital. People obtained homeownership as an earned reward, not an entitlement. The basic dilemma is simple, most people don’t have the cash to buy a house, and it would take them most of their adult lives to save…[READ MORE]

Any legislation or policy that promotes housing production is better than producing no housing at all. In the post, Will building more roads and houses merely increase demand?, I lamented that nimbys managed to turn the solution into part of the problem. They embrace the idea of "induced demand," a belief that providing more roads or housing fails to alleviate supply shortages because it stimulates demand. It's the ultimate weapon against new development because we're damned if we don't build, but we're doubly damned if we do build. The real solution to the housing affordability problem is to provide sufficient supply to meet the needs of the growing economy and population. As long as California creates many jobs but builds few…[READ MORE]

Dodd-Frank should prevent house prices from rising so high that only fools and millionaires can afford them. When house prices rise rapidly and mortgage rates go up, the cost of ownership rises even more rapidly, and realtors stoke fears with “buy now or be priced out forever.” Under these circumstances, it’s easy to get stressed out and worry about what’s outside of your control. I didn’t buy an OC house at the bottom of the downturn. I knew it was a good time to buy, but for a variety of reasons, I was not in a position to buy when the market was ripe. Now that the cost of ownership is 50% higher, I am less motivated to buy a…[READ MORE]

Social scientists contend providing more roads and houses leads to "induced demand" and fails to alleviate shortages. The recent presidential election illuminated the problem of confirmation bias, particularly when emotional, political issues are involved. We all want to believe we are rational beings who make decisions based on solid facts and sound reasoning. The truth is that our decisions are often irrational based on faulty reasoning with a self-selected group of facts. One party's fake news is another party's gospel Truth. Take for example the decision to buy a home. Many analytical people convince themselves they want a particular home because the deal makes sense. Perhaps the house is selling below comps, or below rental parity, or it's in an…[READ MORE]

With no rigid cap on front-end DTIs, those with no consumer debt could borrow more to finance a home purchase. It’s no secret that I don’t think consumer debt is a good idea (See: Think you want consumer debt? Think again…) With the ongoing war on savers waged by the federal reserve, it’s been a difficult time to maintain a discipline of saving instead of consuming. However, buried in the new qualified mortgage rules is a loophole that may give those with little or no consumer debt a major competitive advantage when bidding on houses. The new qualified mortgage rules cap overall debt at 43% of gross income. Legislators enacted this provision in response to the enormous debt burdens exposed…[READ MORE]

The industrial midwest did not participate in the growth of the last 40 years. Once in a while, I wonder what life would have been like if I stayed in my small hometown in Wisconsin. Members of my extended family and friends from school still live there, and I generally visit every year, so I know the progress -- or lack thereof. I find it comforting when I go back that very little changed over the last 40 years. Some of the storefronts are different, but for the most part, the built environment is as it was when I grew up. In many respects, it's the realization of the nimby dream of "preserving neighborhood character." It's like the entire town was…[READ MORE]

House prices exceeded the 2006 housing bubble peak in 2016, but when adjusted for inflation, house prices may never reach that benchmark. The NASDAQ recently surpassed the tech bubble high from 2000. Anyone who bought the index in March of 2000 could finally sell their holdings without losing money. While some investors cheer this victory, those investors who didn't take a loss received dollars back from the trade that retained significantly less buying power than they held in 2000. In fact, after adjusting for the erosion of buying power, these investors still lost a third or half of their money. Investors in real estate make the same mistake. I recently demonstrated that an investor can sell a house for $100,000 profit…[READ MORE]

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