House prices are rising rapidly, and the conditions creating this rally will persist for the foreseeable future. Prices will continue to rise until affordability becomes a limitation, or cloud inventory makes its way to the market, and even then prices will continue to rise, just less rapidly than they are today. As long as prices are financeable and supply is limited, buyers will bid up prices on the available housing inventory and prices will keep going up. This sounds like the ideal set of circumstances for continued price appreciation, so why are the housing bears still roaring? Because its a [Read More...]

The mainstream media housing market cheerleaders have been touting the declining delinquency rates as a sign of market health. As I recently pointed out, contrary to media spin, mortgage delinquencies are trending higher. We know that lenders don’t want to foreclose and recognize losses, particularly since banks are still exposed to $1 trillion in unsecured mortgage debt. If they were forced to write down the losses on their bad loans or approve too many short sales, the losses would drive them out of business — either that, or we would have another massive government bailout to deal with. The only [Read More...]

Few deny that we are reflating the housing bubble. Most use the comforting euphemism “recovery,” but this is not semantically correct. The housing bubble was characterized by an unprecedented detachment from fundamental values. The deflation of the housing bubble was the recovery. What we have now is a concerted attempt by lenders, the central bank, and government officials to reflate the bubble because the banks can’t afford the loss of capital associated with sales at “recovered” prices. Since banks stopped foreclosing on properties when the settlement agreement was reached, the MLS inventory dried up. Corresponding to this reduction in supply [Read More...]

Credit standards are not tight by historic standards. Compared to the complete lack of enforced standards of the housing bubble, credit is very tight, but compared to what preceded the housing bubble, credit standards have merely reverted to what was normal. Prior to the housing bubble, lenders verified a borrower’s income and made sure the payment burden was manageable to ensure the loan was repaid. Today, lenders are doing the same. The notion of “tight” lending standards stems from the perceived entitlement to free money by people who have dubious repayment prospects. There is little reason to believe lenders will [Read More...]