Feb152014

It became necessary to destroy the town to save it

Jacobim Mugatu, 2/15/2015

To me, this “real estate recovery” has been nothing but a false front, a Potemkin village – the kind that the residents of Rock Ridge built to thwart Hedley Lamarr and his villains from taking over in “Blazing Saddles”.

From artificially restricted inventory to unsustainable low interest rates, home prices have bubbled up well past an affordable level for all but those with stratospheric income. The rise of all cash sales – nothing more than money laundering sourced from every corner of the globe – has destroyed real price discovery and the velocity of true market demand.

When you listen to those in the real estate industrial complex, none of the aforementioned issues are the cause of market disruption. In 2009 it was “bad appraisals” – blamed by most on the passing of the The Home Valuation Code of Conduct (HVVC)

Then, in a Kubler-Ross moment for the industry, step 5 came: Acceptance. Once widespread recognition that a solid risk mitigation practice wasn’t the boogie man everyone thought it would be, appraisal issues began to decline…. That, and rapid rise of distorted pricing of homes. Old habits are beginning to resurface as some appraisers are not required to look inside the property to find value:

Home appraisals no longer derailing sales

Consider this one more sign that the housing market is heating up: Appraisers are putting higher values on homes again, allowing for more deals to go through.

During the housing bust, sales were often derailed by low-ball appraisals that fell far shy of a home’s selling price.

But now, as home prices climb and housing inventories shrink, appraisers are valuing homes at or above their selling prices, according to Lawrence Yun, chief economist for the National Association of Realtors.

That was 2009. 2011-2013’s market excuse – tight lending – became the reason why buyers can’t get the homes they want.

2011 articles:

Big Banks Loosen Grip on Mortgage Credit

Lenders Easing Some Home Loan Standards to Counter Drop in Business

2012 article:

It’s time to loosen mortgage lending standards

2013 article:

Encouraging signs that mortgage credit is easing

One would think by 2014 the industry would be looser than a penny slot on Carson Street. One would be wrong, in the view of some.

Low delinquency rates prove mortgage lending’s too tight

Today’s lending options include low equity financing (FHA), high debt to income ratio loans (FHA), interest only mortgages (Banks), Asset Dissipation loans – using bank statement cash flow for qualifying a form of stated income underwriting (Non-QM lenders), and a host of private lending sources. Short of being caught in bed with a live goat or a dead hooker, pretty much anyone can get a mortgage today. The market is awash with financing programs, catering to both the upright and the down trodden.

So are Real Estate market problems today impacted by low appraisals or lack of available financing? Data is beginning to say otherwise.

When rising homes prices are not enough

What is the message when people are willing to let their homes go, and options exist to prevent this from happening? What is this telling us?

Stagnating income, upward mobility reversing, and limited employment has creating a treadmill like existence for the average American.  The very thing that was supposed to re-ignite a sustainable home ownership based economic recovery is the same instrument that is leading us back into the conditions that started the previous downturn: excessive liquidity, fantasy based home prices, and a wide spectrum of cheerleading interest groups urging you to “buy now, before you’re priced out forever”.

“Buy Now Or Be Priced Out Forever!” The Real Estate Bubble Pitch Resurfaces With A Twist

During the Vietnam War, a small village called Ben Tre was nearly wiped out by Allied bombing. During an interview with some of the American soldiers nearby the phrase “it became necessary to destroy the town to save it” was overheard.

Helicopter Ben and his merry band of TBTF banks have repeated in some measure this sad chapter in history. They’ve destroyed market forces, created a world with zero risk for the rich, and no place for the Plebs. Doesn’t anyone notice this? I feel like I’m taking crazy pills.

Jacobim Mugatu.