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Author Archive: Irvine Renter

In the absence of rising wages, when mortgage interest rates go up, one of two things will happen: either sales will fall, or prices will fall. I recently wrote that higher mortgage interest rates would either slow sales or cause house prices to drop. Since most real estate analysts still consider declining home prices impossible, when forced to pick between the two potential outcomes, they pick slower home sales. Assuming a consistent payment, higher mortgage rates decrease the size of the loan and reduce the amount borrowers can bid on real estate. While it is possible the federal reserve may print enough money to spark wage inflation, given the high levels of residual unemployment and a low labor participation rate,…[READ MORE]

Housing market optimists expected owner-occupants to pick up the slack from declining investor purchases. It isn't happening. In 2011, lenders aggressively pursued loan modifications to avoid foreclosures. They offered any deadbeat who would play along a sweetheart deal just to get some money back on otherwise non-performing loans. It beat the alternative of foreclosing on another property and selling it for a huge loss. As this policy began working, the number of properties entering foreclosure began to drop considerably -- the distress is still there, as the owner is unable or unwilling to make the contracted payment -- but the negative results of this distress, delinquencies and foreclosures, were removed from the market. Some pundits have suggested this improvement comes…[READ MORE]

Ed DeMarco was a conscientious bureaucrat who was forced out of his position for doing a good job protecting the US taxpayer from looting politicians. The list of evil0doers and nefarious characters of the housing bubble includes famous names like Anthony Mozilo, David J. Stern, and not-so-famous names like David Sparks, Michael T. Pines, Brent Arthur Wilson, Blair Christopher Hanloh, Robin and Chris Duncan, and many others. We had incompetence at many levels including famous names like Alan Greenspan and Robert Rubin, and millions of ordinary fools who bought the can't-lose investment opportunity of the 00s, the housing bubble, and got burned. While the deeds of the criminals and fools is titillating and instructive, it's worth looking at the few…[READ MORE]

 Punishing shareholders with corporate fines does little to deter bad behavior among corporate executives. Some of them need to go to jail. If I had to narrow my list down to the people most responsible for the housing bubble, Anthony Mozilo would be near the top of the list. The Option ARM loan was the primary loan product that inflated the housing bubble. Using negative amortization and teaser interest rates, people were able to borrow more than twice the amount than they could afford with a conventional 30-year fixed-rate amortizing mortgage. Once the Option ARM imploded and lending retreated to conventional mortgages, prices needed to fall significantly to rebalance affordability. The Option ARM was the Ponzi virus that caused the…[READ MORE]

When lenders began denying short sales, underwater owners were forced to wait for higher prices to sell, and with flattening prices, they are stuck. Lenders caused the housing market to bottom and to rally in 2012 and 2013 by favoring loan modification over foreclosure and by denying short sales to greatly reduce distressed inventories and overall supply. It worked fabulously for them, and prices rocketed upward for nearly 18 months. The abrupt rise in interest rates in mid-2013 lowered the ceiling of affordability, and the house price rally was stopped dead in its tracks. When lenders began denying short sales, both they and the borrowers believed they would all be above water in a few years, and the loanowners would…[READ MORE]

British legislators want to curb housing bubbles to avoid the economic pain, whereas American legislators want to reflate our housing bubble. During the 00s lenders attempted foolish financial innovations that proved dismal failures; these loan products, deterioration of standards, and securitization of mortgages inflated massive housing bubbles in several countries around the world. Each country dealt with the problem in its own way. China, Canada, Norway, and Australia still deny their market bubbles, and so far, none popped (although China's may be bursting now). Housing bubbles deflated in Spain, Great Britain, Ireland, and many other countries. Iceland decided not to bail out its bankers when the Ponzi scheme imploded, and they endured a deep recession, but Iceland is doing fine…[READ MORE]

Today's high home valuations are only justified by record low interest rates. Will today's buyers become bagholders when interest rates rise? Will rising mortgage rates cause house prices to crash again? It's a valid question, and a valid concern for today's homebuyers. Nobody wants to be an underwater bagholder trapped in a debtor's prison awaiting lender approval of a sale to move on with their life. At a minimum, the prospect of rising rates curbing appreciation should temper buyer's enthusiasm toward making a fortune on home-price appreciation. How likely is it that rising mortgage rates will cause house prices to tumble? Let's look at the possible scenarios. We've already seen that higher house prices caused a decline in sales volumes…[READ MORE]

Americans are moving less than ever before causing a weaker economy and slower home sales. America has long benefited from a mobile population capable of moving to take new jobs and delivering their skills and expertise where it's needed most. Over the last 25 years, Americans have been moving less, and the mobility rate continues to hit new lows. Some of this may be a sign of changing lifestyle choices, but with 9.7 million Americans trapped in their homes because they owe more on their mortgage than the house is worth, many Americans are immobilized by the banks, and that is a drain on our economic efficiency. Americans Aren't Moving Mamta Badkar, Jul. 10, 2014, 5:41 AM The household mobility…[READ MORE]

Housing sector weakness may be a sign of a change in attitudes away from home ownership as defining the American Dream. When house prices crashed in 2008, we had an opportunity to usher in a new era of affordable housing with a lower percentage of income devoted to housing in the United States. With less income going toward housing, more income is freed up to spend on other goods and services, stimulating the economy in a sustainable way. However, that isn't what politicians decided to do. No, they decided to bail out the banks with a plethora of bailouts aimed at supporting the banks and the loanowners who owed them money. If we had purged the excessive debts created during…[READ MORE]

Federal Reserve's zero interest rate policy made debt cheep and widely available to investors who inflated asset values setting the stage for another crash. 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…[READ MORE]




In Memoriam: Tony Bliss 1966-2012