Future housing busts will be busts in sales volume, not in price. When lenders make loans, they far prefer borrowers to repay those loans; in fact, their entire business plan relies on it. As long as borrowers are current with their payments, lenders are happy and making money. When borrowers don’t make their payments, the end result is a distressed sale. If there are enough of these, market prices go down dramatically, causing significant lender losses. Lenders know this too, so when distressed loans become an overwhelming problem, they devise can-kicking methods including loan modifications, mark-to-fantasy accounting, and when all else fails, they simply allow the delinquent borrowers to squat without paying a dime. Below is the lender decision tree for delinquent…[READ MORE]

People buy homes for many good reasons, and many bad reasons too. The need for shelter is basic, often closely followed by the desire for community. In the United States, people borrow prodigious sums to buy real estate to satisfy this need, whether it's good for them financially or not. Basic human emotions drive the activity in real estate markets. Most people buy because their family circumstances push people toward ownership at different times. Some are fortunate, buy at the bottom of the real estate cycle, and earn an enormous windfall. Some are not so fortunate, buy at the peak, and leave after a foreclosure, destitute and angry. The most damaging aspect of our system is the price volatility because…[READ MORE]

The new and improved USA Housing News reports launches soon! Now with complete national coverage! The housing market reports are back! It's a long story, but the bottom line is that I now have control over my housing market reports again. I am working on a website to sell subscriptions to these reports as the USA Housing News. I will talk more about this as I get closer to launch. I found a new data source the allows me to provide national coverage. In fact, I now cover all 50 states, 443 metros, 1045 counties, 9,525 cities, 5,619 neighborhoods, and 11,325 zip codes. That's a lot of data. I can create custom reports with varying degrees of detail with up…[READ MORE]

Americans borrow more money for consumption rather than the acquisition of assets. Not all debt is created equal. I borrowed large sums to buy cashflow properties in Las Vegas, debt backed by a cashflow-producing asset. The income stream repays the debt with interest, and if for some reason I am unwilling to pay back the loan, the lender can auction the property and either receive their money back or obtain cashflow equal to or greater than the payment on the debt. That is asset-backed debt. Lenders provide asset-backed debt for the purchase of property, plant, and equipment. When lenders evaluate these loans, they consider the useful life, the recovery and resale value, and the cashflow the asset may generate (if any).…[READ MORE]

As house prices rise and more homeowners possess equity again, some are withdrawing this money at low rates and spending it, stimulating the economy. During the housing mania, people bought homes because house prices rose rapidly, and lenders gave equity to homeowners at 100%+ of the value set by recent comps. Under such circumstances, houses were very desirable, and unlimited access to home equity fueled the housing mania and funded millions of personal Ponzi schemes. Homeowners like mortgage equity withdrawal because it provides them instant access to the free money bestowed upon them by the magic appreciation fairy. Even better, they didn't have to sell the golden goose: they got to keep their home and wait for it to grant them…[READ MORE]

The foreclosure crisis stopped when lenders quit foreclosing and forced homeowners to wait until they had equity to sell the property. Many homeowners are still waiting, so MLS inventory is quite low. I’ve stated many times my contention that the housing recovery is built on a foundation of market manipulation; distressed inventory dried up because lenders opted to modify loans rather than foreclose and purge the bad debt from the economy. Unfortunately for lenders, today’s loan modifications are tomorrow’s distressed property sales, and in my opinion, the mortgage mess is not resolved, the outcome has merely been delayed by loan modifications. Lenders designed loan modifications to maximize lender profits while giving borrowers feeble hope of clinging to their family homes.…[READ MORE]

A cap on loans and increased builder costs forces builders to increase density to meet the burgeoning demand of Millennial buyers. Millennials find very little available for sale on the MLS in their price range because the previous generation, Generation X, is still trapped in their starter homes, lacking the equity to make a move-up trade. Nearly 6 million people remain trapped in their entry-level homes they purchased a decade ago. Perhaps they enjoy their gilded cage, but since they may not leave without severe financial consequences, their homes resemble a debtor’s prison. People also remain in their homes longer because even with the newfound equity from reflating the old housing bubble, without increases in pay, they face limitations on…[READ MORE]

California's wall is a barrier of high home prices caused by a lack of supply created by nimby resistance in areas dominated by California Progressives. President Donald Trump's policies, like Donald Trump himself, enjoys very little support among California voters. When Trump campaigned in California during the primaries, it caused riots. During the general election, Trump lost California by nearly 4 million votes. California Progressives resist and detest everything Donald Trump proposes and stands for, particularly his immigration policies, which include proposals to deport undocumented workers illegal immigrants and build a wall to keep out future undocumented workers illegal immigrants. Surprisingly, California Progressives and Donald Trump both embrace exclusionary policies that prevent people from taking up residence in California. Whereas Trump's…[READ MORE]

Since the mid 1990s, mortgage interest rates and home sales moved in opposite directions. Dodd-Frank made this inverse correlation even stronger. Back in February of 2013 when mortgage rates were near record lows, I wrote that future housing markets would be very interest-rate sensitive, despite assurances to the contrary from most macroeconomists. Last year I noted that fewer home sales or lower prices was sure to follow higher mortgage interest rates. Generally, volume precedes price, and as one would expect, the recent spike in mortgage rates is already hurting sales. The prevailing economic view is that the housing market would respond positively regardless of what happens with mortgage rates because house prices in the past have correlated poorly with mortgage…[READ MORE]

My first post I am IrvineRenter (Inventory Cholesterol) debuted ten years ago on February 27, 2007. Over the last 10 years, I posted every weekday without fail. It's been a source of joy and discipline that's shaped my life, my career, and my character. During my ten-year run, I observed many trends come and go, and I learned a great deal about the art of blogging. Today, I want to share some of these observations with you. Blogging needs a purpose I started writing ten years ago because I wanted to save people from financial ruin. I firmly believed housing was a financial bubble, and I was right. I didn't do it for money or fame as I wrote completely anonymously…[READ MORE]