Nov252015
I am thankful I am not homeless
he fear of homelessness is the essential motivation to get people to work to produce goods and services in our society.
Modern American culture can trace its roots on the North American continent to pioneering English settlers. Life on the frontier is harsh, and each family unit is self-reliant. In a frontier society, if people didn’t work, and if they didn’t produce their own food and shelter, then they died. Fear of death from starvation or exposure was very real, and anyone who wasn’t motivated to produce something of value to themselves or others faced the near certainty of painful death. In a frontier society, there are no bailouts.
We have made much progress over the last four centuries, and the fear of death from lack of food has been largely eliminated. Private and public shelters have lessened the fear of death from exposure, but America still has a problem with homelessness largely because as a society, we have been unwilling to provide individually-controlled private shelter as an entitlement. The reason we do this is simple. The fear of homelessness is the essential motivation to get people to work to produce goods and services in our society. Take away this fear, and you create an underclass of dependency: the welfare state.
As a society we can and should debate whether or not the fear of homelessness is a desirable motivator. Perhaps we may decide to devote the resources to provide more shelters or private living accommodations for those unable or unwilling to work and produce goods and services. Until then, homelessness is a very real possibility for anyone unwilling or unable to find work. During times of full employment, the system works well and seems just. During times of persistent unemployment when motivated people are unable to find a job, the system works poorly and seems unjust.
The last several years have been very stressful for many people, certainly anyone in the real estate industry. As a renter and a sole breadwinner, I faced the very real possibility of losing my source of income and being forced to move back to my parents house or move in with friends. I am fortunate to have family and friends who would give my family shelter. If I didn’t have that support — and many people do not have those resources — if I had not been one of the fortunate ones, I could easily have ended up homeless. Any renter faced that fear during the recession, and many still do.
This is one area of public policy related to the housing bubble that angers me the most. Loan owners didn’t face the fear of homelessness. If a loan owner lost their job, they were allowed to squat indefinitely. If a renter lost their job, they were out in the street in 30 days. The endless sob stories on the internet about loan owners losing their homes because they fell on hard times never resonated with me. Each of them generally accompanied some call for a loan owner bailout — actually a banking bailout — but never was such compassion extended to renters. Do any of you remember reading a sob story about a renter becoming homeless during the recession? Apparently, renters are a subclass that really don’t matter.
Perhaps if I had been a loan owner struggling through the recession, my perspective may have been different. I might have empathized more with the other loan owners struggling with onerous payments, and like all loan owners, perhaps I too would have ignored my own bad decisions that put me in that state. However, that wasn’t my experience. I was a renter because I recognized the fallacies of the housing bubble for what they were. And for my wisdom, I faced the very real threat of homelessness. I never had the option to quit paying my housing costs and squat.
In retrospect, perhaps this stress was good for me. Faced with declining income, a shifting job situation, and the near certainty of a calamitous loss of support, I found the motivation to raise money for an entrepreneurial endeavor, and I found the strength to see it through the tough times and reach a level of success where I worry far less about paying my bills month to month. Had I not faced such dire consequences for inaction or failure, I don’t know if I would ever have attempted what I accomplished. But then again, I didn’t enjoy working as if a gun were to my head and the lives of my family depended upon what I did.
Something must be done to level the playing field for renters and loan owners. As it stands, one of the strongest reasons to buy a home, any home at any price, it to have an emergency flophouse to squat in if times get tough. This new unemployment entitlement granted only to loan owners is a huge benefit of loan ownership. To be quite honest, when I bought my first property in Las Vegas, I had a small sense of relief knowing if everything fell apart, I had a place to crash indefinitely. With a long queue of loan owners in front of me, it would be easy to get lost in the sea of delinquent loan owners in Las Vegas. However, even though I know I am taken care of, the system still isn’t right. Renters should not face such a huge disparity in treatment simply because they were unable or unwilling to sign loan documents and become a bank’s debt slave.
I believe we have two options: (1) eliminate the squatter’s benefit for loan owners, or (2) provide rental assistance for renters who are unable to find work. Conservatives in Congress are loathe to extend unemployment benefits because paying people to do nothing encourages people to do nothing. Paying them to do nothing and paying for their housing, puts moral hazard on steroids. But that’s exactly what we are currently doing for loan owners. Lenders and landlords certainly wouldn’t mind the government subsidy, but I question whether or not taxpayers are prepared to pay the bills.
Public policy debates are going the wrong way. California passed a loan owner’s bill of rights to increase loan owner entitlements. Of course, renters are not being provided for in any way. We need to eliminate the squatter’s benefits for loan owners by clearing the way for foreclosure. We need to force lenders to go back to mark-to-market accounting so they can’t hid their insolvency by pretending bad loans are good ones. If lenders had to recognize their losses, the wouldn’t fool around with squatters. Instead, lenders would foreclose quickly to recover their capital. The current system is broken, and nothing in the political discourse of today is going to change it for the better.
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Thanksgiving is tomorrow. What are you thankful for?
Thankful today, that despite my complaints and frustrations about the OC/CA housing market, when I can take a step back- I realize I still have things pretty good. I get to live in beautiful Orange County, CA in a (rented) Irvine home that probably 98% of the rest of the world would desire. There is food in the refrigerator and money in accounts. I would be truly ungrateful if I didn’t appreciate the good things I believe I have been provided to me and my family by a good God.
Also thankful for your efforts on this blog, Larry. Such insightful stuff, and for the past 7 years your knowledge and the astute observations of many have helped equip and inform me to make smarter financial decisions. Your work is appreciated.
Thank you for your comment and the kind words.
I’m thankful I have a wonderful wife, an amazing son, excellent health, a good job, and a bit of money in the bank.
I’m also thankful that Larry keeps writing this blog. I’ve been reading it since he started over at Irvine Housing Blog and I don’t even live in OC anymore, although I’ll always have a soft spot in my heart for Irvine. It was a wonderful place to live.
I am thankful for those things as well.
And I am thankful for readers like you that come to this site to read my work.
I’m thankful for el O’s friendship.
I am thankful both of you continue to provide your astute observations. You are both a bedrock I can count on nearly every day.
When Is Housing’s Black Friday?
But does the housing market really come to a screeching halt during the holidays?
In balmy Hawaii, the amount of people house hunting on turkey day is only 10% less than the average for that quarter. However, in New Hampshire, the number is down by almost 60%.
And overall, the Thanksgiving slowdown only lasts as long as it takes to digest that huge mass of poultry—and hit a few Black Friday sales. By Saturday, it’s pretty much business as usual.
http://rdcnewscdn.realtor.com/wp-content/uploads/2015/11/holiday-021-1024×727.png
So what is the true Black Friday of the housing business? Here’s a holiday shocker: Dec. 28 was actually one of the busiest days for real estate searches in the entire year, despite the fact that Dec. 24 was the single slowest.
The reason: When we’re over the holiday hump but still on break, it’s a great time to look for our dream home. The same reason explains the surge of activity on New Year’s Day. And, perhaps buying a house is a popular New Year’s resolution?
Another surprising, best-performing day on a holiday weekend: the other side of the year, July 6. Instead of traveling, many buyers apparently use the long weekend in the height of the buying season to search for homes and go to open houses.
OC Inventory Continues to climb
Steve Thomas’s Number Are Completely Wrong
http://ochousingnews.g.corvida.com/wp-content/uploads/2015/11/oc-inventory-sales-2015.png
Orange County house hunters may find slim pickings with the supply of homes listed for sale at a six-month low.
Inventory in the broker listings network was 5,885 on Thursday, down by 624 homes – or 10 percent – in a month and down 9 percent in a year, according to ReportsOnHousing.com. Supply hasn’t been this low since mid-May.
The thin inventory contrasts with a recent boost in buying that may have been spurred by fears of higher mortgage rates in 2016. Shoppers’ demand, as measured by new escrows opened in the past 30 days, was 2,447 as of Thursday. That’s up 114, or 5 percent, in a month and up 10 percent in a year.
Shrinking inventory and rising demand means quicker sales. Steve Thomas of ReportsOnHousing calculates “market times” that show how long it would theoretically take to sell all the inventory and the current sales pace. As of Thursday, Orange County’s market time was 72 days vs. 87 a year ago.
“The holiday market has officially begun with Thanksgiving just a few days away,” Thomas writes. “This is the slowest season for Orange County real estate. It’s when both supply, the active inventory, and demand, new escrows, drop to their lowest point of the year. The active inventory will continue to fall like a rock and will reach its lowest point of the year on Dec. 31st. The season continues through Super Bowl Sunday, when Orange County begins its transition into the spring market.”
Hey Larry,
Where do you get these charts from?
Redfin.
If you search on Redfin, below the results you’ll see a “stats and trends” section. It generates all these graphs.
Why do housing starts in 2015 continue to struggle?
Because prices are too high
2015 has been filled with stories about how housing starts have missed the mark. Fingers have pointed to shortage of lots, shortage of labor and even high construction cost. According to John Burns Real Estate Consulting, the answer might be simpler than we think. A research note published last week illustrated that many markets in California now have median new home prices above GSE conforming loan limits, making obtaining financing harder for new home buyers. As a result, over half of new home buyers need jumbo mortgages which are significantly more difficult to qualify for and require higher downpayments, all of which stifle demand, leading to lower starts. Orange County is a perfect example as new home sales have slowed for 10 straight months while sales of existing homes have surged. On average, new homes cost $250,000 more than existing homes in OC.
Rather than blame the problem on pricing, which is the real cause, the homebuilding industry would rather blame tight credit, which is a red herring.
U.S. home sales slump in Oct. as higher prices weigh on buyers
WASHINGTON – Fewer Americans bought homes in October, a sign that rising home values may be pushing more would-be buyers to the real estate market’s sidelines.
The National Association of Realtors said Monday that sales of existing homes fell 3.4 percent last month to a seasonally adjusted annual rate of 5.36 million.
The decline comes after strong growth in home-buying for much of 2015, bolstered by steady job gains and low mortgage rates. Home purchases have advanced 3.9 percent from a year ago, even as buyers have fewer choices because the number of listings on the market has dropped 4.5 percent.
But last month suggested the start of a reflexive backlash after the strong gains in home-buying. The additional sales have spawned sharp price increases that have outpaced wage growth and left some would-be buyers out of the market.
The October sales decrease indicates “the market is treading water,” said Ian Shepherdson, chief economist at Pantheon Macroeconomics.
Yet other economists anticipate sales growth to return because of the underlying health of the broader economy.
“Despite the setback, home sales should resume higher in the face of rising rents, good job growth, improved consumer confidence and still-low mortgage rates,” said Sal Guatieri, a senior economist at BMO Capital Markets.
Delusional optimism is everpresent.
Most homeowners who think they’re underwater actually aren’t
Several paragraphs into an informative Wall Street Journal story on why the housing market isn’t boosting the U.S. economy, there was an incredible factoid.
The percentage of homeowners who are underwater — that is, owing more on a mortgage than the home is worth — is 8.7%, down from 21% at the end of 2011, according to CoreLogic. However, the percentage of homeowners who believe they are underwater is 27%, according to separate data from Fannie Mae.
That perception may be one reason why so few homes actually are on the market. The National Association of Realtors on Monday reported that inventories fell another 2% in October, and remains well below historical levels when compared to the sales pace.
The Journal article also explains that, while housing wealth has doubled from the bottom in 2011, Americans by and large aren’t tapping into this wealth. Separate data from Moody’s Analytics show that every $1 rise in home equity adds about 2 cents to consumer spending — about a third of the impact before the housing bust.
[This report clearly illustrates the level of ignorance in real estate reporting. First, the number of underwater homes as reported doesn’t reflect the costs of sale or the desire to recapture a down payment. The number of effectively underwater borrowers is much greater. The total underwater is commonly reported because it sounds better and makes people feel good. This reporter obviously doesn’t know the difference — which is what the real estate industry wants, clueless shills who will peddle self-serving nonsense.]
The “delinquent home owners whose banks refuse to foreclose upon them, host homeless renters act”. I like it.
Motivation comes in more forms than homelessness. I do think it is an excellent point that if the government subsidized housing industry is effectively giving rent away for free it should be done in a fair manner. It always seemed absurd to me that the state has many socialist policies that are accepted but if there were changes made on some of these socialist programs (like the mortgage interest deduction) it would be socialism.
Personally I think any subsidy or tax break should go to paying for your basic primary residence and not interest on a loan (with a hard cap).
I like the idea of limiting year over year property tax increases but capping those rates below average inflation is idiotic. The irony that proposition 13 is one of the biggest steps in socialism in California, and that somehow that socialism is justified by the fact that it is inherently unfair because it benefits the wealthiest the most is so ludicrous. Socialism is then OK if it is biased for the wealthy?
Socialism is not biased for the wealthy,it is biased for the elected officials.They just dont understand history and its just a ponzi scam.
You might like this post:
Socialist solutions to housing affordability problems suck
My Father was 12 years old when the Great Depression started. He remembered the lack of hope many people felt. IT was an economic depression, yes, but also a psychological/spiritual depression for many Americans. This was supposed to be the land of opportunity and limitless future. He vividly remembered when Roosevelt came to power. Like him or hate him, he gave the common man/woman a sense that someone at the top knew what was going on and was determined to make it better.
My Dad was very frugal and always counseled me to live below my means, save, and budget. Maybe he was too frugal at times, but he taught me valuable lessons.
There were times during the last eight years that I could imagine what the Great Depression was like. My industry still hasn’t recovered, and although prospects are a little better now, it still feels hopeless compared to the early 00s. When finding a job isn’t a viable option, you don’t feel like you can succeed as a breadwinner, and that is really depressing.
I am sorry to hear this. I think its a reality for many people. In my field things are better, but also not back to where they were before the downturn, and probably never will be. Sometimes people put too many expectations on themselves, especially in difficult times. It can help to connect to others and not get caught up in the idea that you must be making $x dollars or have certain posessions to measure up.