Feb172017
Consumer debt is a deadly parasite
Warning! Don’t read today’s post if you have a weak stomach or a strong affinity for consumer debt.
This is your only warning.
Hang on, Alice, as we bolt through the rabbit hole on an adventure to financial Wonderland. Come with me on a fantastic journey to the Great Lakes to save fish falling prey to evil bloodsuckers, and along the way, we will save borrowers from the evil of debt peddler, Louie the Lender Lamprey.
The Sea Lamprey and the Great Lakes
Prior to canals of the nineteenth century, the Great Lakes were a thriving fishery. With over fishing and the introduction of the sea lamprey through the canals, the fisheries of the Great Lakes were devastated. According to Wikipedia:
The Sea lamprey (Petromyzon marinus) is a parasitic lamprey (a kind of jawless fish) found on the Atlantic coasts of Europe and North America, in the western Mediterranean Sea, and in the Great Lakes. It is brown or gray on its back and white or gray on the underside and can grow to be up to 90 cm (35.5 in) long. Sea lampreys prey on a wide variety of fish. [Pictured right: Louie the Lender Lamprey] The lamprey uses its suction-cup like mouth to attach itself to the skin of a fish and rasps away tissue with its sharp probing tongue and teeth. Secretions in the lamprey’s mouth prevent the victim’s blood from clotting. Victims typically die from excessive blood loss or infection. [emphasis is mine]
The sea lamprey and the fish the lamprey scrapes and chugs is an allegory for the modern lender and the borrower the lender infests.
Lenders and the Sea Lamprey
The similarities between sea lampreys and lenders are as follows:
- The sea lamprey’s sole purpose is to attach itself to a productive organism and siphon a steady stream nutrients from the host’s bloodstream. A lender’s sole purpose is to attach itself to a borrower and obtain a steady stream of cashflow from the borrower’s productive financial life. [Pictured right: Louie’s courtship dance]
- The sea lamprey provides no value to the fish, and once attached it remains attached. The value of lending to borrowers is debatable (mortgage debt is tolerable, but consumer debt is not); however, with the “sophisticated” borrowers of today who believe debt is something serviced and not retired, once a lender becomes attached to a borrower, they stay attached for life.
- Sea lampreys were not a problem in the past, and fish populations had to adapt or die when the sea lamprey was introduced. Modern credit cards were introduced in 1958, and with the explosion of debt availability over the last 50 years, our population has come to accept borrowing — and its associated lending sea lampreys.
- If the sea lamprey were eliminated, nutrients diverted to its existence would instead remain with the fish resulting in stronger fish populations. If lenders were eliminated, particularly those focused on providing consumer debt, billions of dollars flowing into lending would be spent by a stronger, debt-free population on more productive economic uses. Consumer credit only benefits lenders.
- Sea lampreys tend to seek out juvenile fish because the young have fewer defenses, the young are stronger and more resilient and thereby less likely to die, and the young fish can nourish the lamprey indefinitely. Lenders indiscriminately target 18 to 21 year-olds through credit card offers and mountains of student loan debt in order to acclimate teens to debt and assist them in sustaining debt through their funeral pyre.
- If a sea lamprey causes the death of its host, it detaches itself and moves on to another. If a lender bankrupts a borrower — causes a financial death — the lender detaches itself and moves on to another borrower. No emotion when pulling out.
Mortgage Debt
Most home buyers allow lenders to suckle financial excretions through a home mortgage. If the cost of the mortgage is offset by saving on housing expenses, the debt is actually beneficial, and the relationship is symbiotic, like a clownfish (Nemo) and its protective sea anemone, or perhaps the Trill from Star Trek. However, if mortgage interest exceeds comparable rents, the excess lender slurp is parasitic and the borrower loses life force to the lender lamprey.
A typical borrower during the Great Housing Bubble looked like a fish with the two implanted sea lampreys [Pictured right: Big and Little Louie after borrower attachment]. The first mortgage is like the lamprey attached at the throat, and the second mortgage is like the one attached at the nether regions.
Do you know that sensitive spot on the soft tissues of your throat about an inch above your collarbone? Taking on mortgage debt is akin to allowing Louie the Lender Lamprey to drive his dagger teeth deeply into your epiglottis with a cartilage-cracking crunch; let him rasp a gaping gash, ply you with salivary siphon grease, and deflect your financial food toward his gullet.
The pain is necessary evil perhaps, but one to be minimized to the degree possible and removed at the earliest convenience. Unfortunately, most borrowers want to secure the largest toothy leech available and nourish the sponger’s growth until the borrower’s death. ~Gulp~
The second mortgage — the lamprey biting the borrower’s butt — is usually a non-lethal pain in the a$$. In fact, this biting flesh wound is similar to any consumer borrowing like home equity lines of credit, car loans, credit cards, and other payment liabilities like forgotten subscriptions to magazines, websites, or software. Taking on debt may have delivered a fleeting pleasure, but like gonorrhea, debt plagues borrowers until the debt-disease is treated and ultimately banished forever for optimum financial health.
As our foreclosure crisis illustrates, many borrowers who take on excessive debt and hope to manage their parasites underestimate the tissue damage and succumb to the vampiric excess. Like Louie’s former customers [pictured to right], many people bought McMansions, they took out multiple mortgages, and they used financing terms requiring accelerating home price appreciation in order to function. The collapse of hundreds of thousands of personal Ponzi Schemes litters America with of rotting financial carcasses — a pungent and painful reminder. Renting-former-owners spend their hours in fear or denial of the collection call yet to come from a long-forgotten mortgage debt holder.
Like most others, I will select a lender lamprey and hope my self-discipline prevents him from growing out of control. Images like the ones from this post should ensure I remain focused on his removal.
[seven seconds you will enjoy]
The lamprey earrings are a nice adornment, aren’t they?
Housing Affordability Remains Favorable Even as it Hits an Eight-Year Low
Shortages of buildable lots and skilled labor, along with excessive regulations, rising mortgage interest rates and ongoing home price appreciation pushed housing affordability in the fourth quarter of 2016 to its lowest point since the third quarter of 2008, according to the National Association of Home Builders (NAHB)/Wells Fargo Housing Opportunity Index (HOI) released today.
“Though builders remain confident that housing markets across the nation will continue to show gradual improvement in the year ahead, they remain concerned that regulatory constraints and lot and labor supply issues are preventing a more robust recovery,” said NAHB Chairman Granger MacDonald, a home builder and developer from Kerrville, Texas. “The rising costs of construction as it relates to land and labor are putting upward pressure on home prices.”
“Affordability remains positive nationwide even as demand is outstripping supply in many markets,” said NAHB Chief Economist Robert Dietz. “Though mortgage rates are rising, incomes should rise faster as well, helping to keep home prices affordable. Meanwhile, policymakers at all levels of government must address regulatory burdens that are raising housing costs while officials at the state and local level need to take steps to put more lots in the pipeline to help offset future price growth.”
Mortgage Rates Continue Holding Pattern
MCLEAN, VA–(Marketwired – Feb 16, 2017) – Freddie Mac (OTCQB: FMCC) today released the results of its Primary Mortgage Market Survey® (PMMS®), showing average mortgage rates slightly falling for the second consecutive week.
News Facts
30-year fixed-rate mortgage (FRM) averaged 4.15 percent with an average 0.5 point for the week ending Feb. 16, 2017, down from last week when it averaged 4.17 percent. A year ago at this time, the 30-year FRM averaged 3.65 percent.
With zero points paid, the 30 year has been hovering between 4.325% and 4.5% for the past few weeks.
More Hurdles Ahead for Foreign Investors
Foreign investors have both the capital and the desire to continue buying U.S. real estate. The question is whether those forces will be strong enough to offset looming challenges ahead in the form of higher interest rates and a maturing real estate cycle, as well as a shifting geopolitical and regulatory environment.
After hitting a record high $98.9 billion in 2015, cross-border transaction volume dropped by one third last year, according to Real Capital Analytics (RCA), a New York City-based research firm. Yet that decline is more of a natural reset rather than a cause for alarm. “I do believe 2015 was an outlier year,” says Randy Giraldo, head of U.S. portfolio management for TH Real Estate, an operating division of TIAA Global Asset Management.
Total global capital flows into the U.S. surged in 2015 due to some very large transactions that took place. Taking 2015 out of the equation, the $65.5 billion in sales that did occur in 2016 was still a nice increase compared to the $41.7 billion and $43.1 billion that occurred in 2013 and 2014 respectively. Cross-border investment also accounted for a bigger percentage of the total volume in 2016 at 13.4 percent as compared to 11.5 percent and 10.0 percent in 2013 and 2014, according to RCA.
“I believe it’s a healthy moderation and a slight step down from what was an extraordinary year,” says Keith DeCoster, director of U.S. real estate analytics at Savills Studley. In 2015 there were more entity-level and massive portfolio transactions that boosted the overall dollar volume. “You could also say that 2015 was the year that the industrial sector became the darling of investors with an exceptional level of investment in the industrial sector,” he adds.
Are Inland residents locked out of the housing market?
Things are bad on the homefront for California and the Inland area.
New single-family home construction is far below demand, and while new-home prices in Riverside and San Bernardino counties are lower than other Southern California areas, costs are still difficult for many Inland residents to meet.
A recent draft report from California’s Department of Housing and Community Development outlined the statewide woes reflected in the Inland area.
New-home production statewide is far below projected needs – 80,000 homes annually for the last decade, with a projected need of 180,000 homes per year. The lack of supply and associated rising costs are shutting a broad variety of Californians out of the market.
The nation’s most populous state has the third-lowest home ownership rate among the 50 states and the lowest in California since the 1940s.
An effort to streamline homebuilding permits failed last year in the state Legislature. California Gov. Jerry Brown promised in his January budget message to attack the housing issue again with a bill package he said would cut red tape, fees and other hurdles affecting the industry.
At the ground level
The average cost of all kinds of homes – new, used and condos – in Riverside County was $345,750 in December, while the median price in San Bernardino County was $299,000.
Averages for new homes are higher, but are difficult to lock down for the two sprawling counties that include urban and suburban neighborhoods as well as mountain and desert areas.
In Riverside County’s Indio, a new two-bedroom, two-bath home was offered at $246,000 on Zillow during a recent spot check, while a four-bedroom, five-bath home in San Bernardino County’s Rancho Cucamonga was listed at more than $1 million.
The annual mean wage for the Riverside-San Bernardino-Ontario area was spotted in 2015 at $45,210 by the U.S. Bureau of Labor Statistics.
Is your house payment gobbling up 43% of your income? Compare Orange County with other U.S. cities
Mortgage payments are gobbling up the biggest slice of homeowners’ income since 2010, a report by online real estate tracker Zillow says.
In the Los Angeles/Orange County metropolitan region, homebuyers in Q4 2016 could expect to spend 43 percent of their monthly income on mortgage payments, according to the report.
By comparison, Zillow said, between 1985 to 2000 – or the “pre-bubble years,” mortgage payments represented 35.2 percent of income in the area.
The report said the median monthly mortgage payment increased by $204 over the past year in the L.A./O.C. region. It said $138 of that amount could be explained by higher home values, with the rest because of rising mortgage rates.
Renters in the region, meanwhile, could expect to pay 48.5 percent of their monthly income on rent in the last quarter of 2016. In the pre-bubble years, the rent amounted to 36.2 percent of their income.
Among the largest U.S. metropolitan areas, researchers found, the Los Angeles/Orange County area requires the highest share of income from both buyers and renters making monthly payments.
The Federal Reserve is expected to raise rates two more times this year, the report noted, and many housing experts and economists believe rising mortgage rates will determine how the 2017 housing market plays out.
This is how the slices compare in the nation’s largest markets:
http://files.onset.freedom.com/ocregister/Zillow_report.new.jpg
In the current monetary system, every dollar created is borrowed into existence. Hence, all debt is parasitic in-nature.
Modern currency is equivalent to a Turd Blossom, I guess.
Paging el O –
The link you provided yesterday has a handy guide to cap rates.
http://journal.firsttuesday.us/real-estate-knowledge-explained/capitalization-rates-explained/
Click through and you find: “The capitalization (cap) rate is the annual rate of return produced by the operations of an income property and stated as a percentage of invested capital.
Initially when a seller’s agent markets an income property for sale, the cap rate is presented as the annual yield from rental operations in relation to the seller’s asking price.”
So you see even your own flimsy source (a crowdfunding site looking for dumb money investors) contradicts your assertion that: “Residential RE cap rates continue to tank.”
Residential Income Property
If you or Larry can provide some residential listings in Huntington Harbor or Irvine that show an advertised cap rate, please do so.
Bonus lesson: Even if you were correct that cap rates were “tanking” in residential neighborhoods, it would be a self-defeating argument. Cap rate compression is every investor’s dream as it means the value of their investments is skyrocketing.
Self-pwned as Dumb Tex would say. 😉
The fourth paragraph from the bottom should say Residential ‘does not equal’ Income Property, but apparently WordPress doesn’t like the “not equals” sign.
When I launch the website upgrade, it will show the cap rate on every property on the MLS. Even if a property is owner-occupied today, it has the potential to be a rental and generate a cap rate.
Did you not have that feature already? I remember the cash return being on there, as that was what I used to find my hinterlands market. You really have an awesome set of features that would be used heavily by investors if the word was out. I could see a company like Redfin purchasing or licensing those features for their site.
Speaking of self-pwned 😆
you thought IR’s site already had the ‘show the cap rate on every MLS property feature, when yesterday …
Mellow Ruse said: “Bonus fact: RRE doesn’t have cap rates”.
Have a nice weekend!
See you in a couple of weeks… going down to pick some mangos and avos.
Have fun.. I’m headed to the high country (Big Bear) for some epic snow this weekend!
I’m going up there Wednesday. I imagine the snow will be pretty deep.
I did. I took down the site in November because I thought we were ready to launch the upgraded site. The new site will have the same calculations, but I will be able to run multiple MLSs, which will allow me to cover more areas.
I hope one of the bigger players does want to buy the technology. I would be delighted to sell out.
Do real world lampreys (not the lending kind) attach themselves to anything besides fish… say, small children?
I think the only feed on fish… thankfully.
A lamprey can attach to a human, but you would notice it and remove it or prevent it from attaching to begin with….
…but check out the human bot fly on youtube
I am working with a personal trainer in what seems like a futile effort to shed the spare tire around my mid section. We talk a lot. He’s a young guy trying to make it in a tough girl. He wants to marry his longtime girlfriend. They’re living with her parents and trying to get a place (rental). He’s thinking of spending $3,000 – $5,000 for an engagement ring, and he’ll have to borrow most of that dough. I encouraged him to buy something modest. I can’t see how he and his girlfriend/wife will ever save enough for a downpayment on a home.
Trying to make it in a tough world. That is what I meant to say above!!
There have been studies that show the cost of an engagement ring and the length of a marriage are inversely correlated. In other words, the more expensive a ring you buy, the fewer years the marriage will last (on average). Same with the price of the wedding. They think the reason is because having a cheaper engagement ring and a cheaper wedding are signs that the couple has financial prudence, removing that area of conflict from their lives.
P.S. My wedding band cost $18 on Amazon.
My wife and I eloped, so the marriage cost about $500, mostly for pictures and video and a small cake. The vacation in Barbados was the most expensive part. We began our marriage with zero debt 17 years ago.
Creative mortgages make comeback for credit-challenged borrowers