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Author Archive: Irvine Renter

The recovery in house prices has produced unusual weakness in home ownership rates, home sales, first-time homebuyer demand, and new home construction. Wouldn't a durable housing recovery based on improving fundamentals be hard to deny? A real recovery would be characterized by resurging new home construction and steady gains in sales and prices commensurate with strong job growth and rising incomes. To say the recent recovery is unusual doesn't fully capture the extreme oddities marking efforts to reflate the old housing bubble. The most unusual and bearish features of the housing recovery include the following: 20-year lows in home ownership 6-year lows in home sales 30-year lows in first-time homebuyer participation 20-year lows in purchase mortgage originations New home construction less than 50%…[READ MORE]

If Republicans take initiative and find common ground among themselves concerning mortgage finance reform, it's unlikely Obama would sign the legislation. The Republicans won control of the US Senate to go along with their control of the House of Representatives. If they wish to take the initiative, and if they can agree among themselves about what reform is best, they could pass legislation without a single vote from Democrats, effectively freezing Democrats out of the process (other than the threat of filibuster). Despite this opportunity to push forward their agenda and undo years of left-wing Democratic initiatives in housing finance, most observers don't believe Republicans will act prior to the 2016 election. Why Republicans won't enact housing finance reform Ruth…[READ MORE]

Alan Greenspan thinks it's impossible for the federal reserve to remove stimulus without disrupting asset prices in real estate and other markets. Nobody is perfect. We hope we put people in positions of power who know what they are doing; however, sometimes these people fail, and when they do millions suffer for their arrogance and their ignorance. The financial meltdown of 2008 and the collapse of the housing bubble were avoidable disasters. If a few key people in power had made different decisions, we could have averted a housing bubble and the near meltdown of our financial system. Alan Greenspan is one of those people. It is shocking — and a little frightening — to see how clueless and inept the people in…[READ MORE]

Both resales and new home purchases by first-time homebuyers are well below historic norms. What does that mean for the future of housing? First-time homebuyers are the bedrock of the housing market, the foundation upon which all housing activity rests. The amounts first-time homebuyers can borrow determines the floor of housing market prices because first-time homebuyers generally have limited savings to push prices up beyond what lenders will loan them. Most first-time homebuyers don’t have 20% down for a house, particularly at today’s high prices, so many opt for a 3.5% down FHA mortgage or a 5% or 10% down conventional mortgage with private mortgage insurance. The federal reserve has done all it can to enable first-time homebuyers to borrow prodigious…[READ MORE]

Banks allow delinquent borrowers to squat long-term and offer special deals to gain some payments. Are landlords evil for evicting their deadbeats? The political left wants everyone to have free housing. If people don't pay their mortgage, the political left wants to see their payments or mortgage balances removed. If people rent, the political left wants rent control to secure their housing costs, and if renters quit paying, the political left wants them to remain sheltered while making no payments at all. If the political left got their way in these matters, the entire real estate system would cease to function. Why would lenders lend money if they didn't know how much they were going to get back? Why would…[READ MORE]

Historically, properties in this market sell at a 25.7% discount. Today's discount is 33.8%. This market is 8.1% undervalued. Median home price is $256,200 with a rental parity value of $386,000. This market's discount is $129,800. Monthly payment affordability has been improving over the last 5 month(s). Momentum suggests improving affordability. Resale prices on a $/SF basis increased from $169/SF to $171/SF. Resale prices have been rising for 2 month(s). Over the last 12 months, resale prices rose 24.2% indicating a longer term upward price trend. Median rental rates increased $20 last month from $1,752 to $1,772. The current capitalization rate (rent/price) is 6.6%. Rents have been rising for 12 month(s). Price momentum signals rising rents over the next three…[READ MORE]

Foreign and non-resident owners who view houses as an investment bid up prices in local real estate markets and price out local residents. Taxing a commodity or a behavior makes it more expensive, which thereby lowers demand, so if legislators want to see less of some behavior or resource, they should tax it. Legislators should want to see less foreign investment in single-family residential real estate because this activity prices out owner-occupants who must compete for the resource. Although lenders and loanowners may want to see higher home prices to bail them out of their foolish bubble-era loans, people who want to buy homes don't relish high prices. Current homebuyers don't like being priced out by aggressive investors, so if these investors…[READ MORE]

 When the interest rate stimulus ended in mid 2013, sales slumped. Does the market need a dose of low rates, or should we wait for jobs to improve sales? Government officials, lenders, and the federal reserve will do whatever's necessary to prop up housing prices. Over the last five years, they suspended proper accounting rules, extended tax breaks to buyers and loanowners, reduced mortgage interest rates to record lows, withheld inventory from the MLS, awarded bad behavior with bailouts, printed money, and bombarded the financial media with feel-good stories designed to stimulate buying activity even if it harmed those buyers. To people willing to bend, break, or rewrite rules of proper financial conduct, the cure for housing's woes are whatever…[READ MORE]

Soaring rents is preventing people from saving for a down payment, but saving is a critical first step to become a home owner. The biggest barrier to sales today is the lack of a down payment. In the post How restricted for-sale housing inventory saps demand, I demonstrated how stagnant wages and high rents hinders people from saving enough to obtain a down payment on a house. It's one of a number of reasons Millennials aren't buying homes at a stage in their lifecycle when previous generations did. During the housing bubble, people had access to 100% financing, so few were saving for a down payment. After the housing bubble, the Great Recession caused many people to dip into savings just to…[READ MORE]

Homeowners generally feel more confident in their ability to make ends meet, largely because they fixed their ownership costs long ago. The need for shelter is basic, often closely followed by the desire for community. In the United States, this often translates into a desire to take on a very large mortgage to buy real estate. These basic human emotions drive much of the activity in real estate markets. Most people buy because it is the right time for them. Their career, age, family circumstances all come together to push people toward ownership at different times. The most damaging aspect of our current system is the price volatility because it randomly rewards some and destroys others. Some lucky people buy…[READ MORE]

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