Jul292015
Investing in San Bernardino: opportunity or disaster?
Properties in distressed communities surrounded by strong demand for real estate often provide opportunities for investors betting on an economic recovery.
Distressed property investing is both a science and an art. Finding a distressed property market is not difficult, and anyone who understands business math enough to compute a rate of return can measure which markets are a good deal in today’s dollars — the science.
The art of distressed property investing is recognizing which of these markets the conditions are temporary and in which markets the distress is a long-term problem. I am bullish on Las Vegas because I believed the local economy would recover there because the distress was temporary. When looking in to investing there are many risks to consider, check this article about investment scams to avoid, for a start.
There are many distressed property markets where I am not bullish. Detroit, Michigan, may never recover. They may end up bulldozing a significant portion of their empty housing stock. Here in California, I wouldn’t touch Bakersfield, Fresno, or Santa Maria. They are too far from major population centers to see spill-over economic growth, they are seeing varying degrees of demographic shifts and out-migration, the school systems are awful, and their local economies are not very diverse.
The fringe markets within 90 miles of major population centers will recover eventually, but the timing of this recovery is difficult to evaluate. As a general rule, the recovery starts at the coast and moves inland. The coastal counties have recovered, and west Riverside County is showing strength, so eastern Riverside County and San Bernardino County are next in line — assuming deep structural problems don’t keep these areas down.
San Bernardino: Broken City
San Bernardino, once a sturdy, middle class “All-America City,” is now bankrupt, the poorest city of its size in California, and a symbol of the nation’s worst urban woes.
With a rake and a mask, the motel manager steps carefully into Room 107.
This afternoon, Sam Maharaj will evict a couple and their 4-month-old baby for not paying their bill. The mother sits on the side of the bed, still twitching from slamming methamphetamine the night before.
Maharaj sinks the rake’s tines into an ankle-deep thicket of dirty diapers, hypodermic needles, crusted food, hot sauce packets, broken Tupperware and cockroaches, living and dead. A South African immigrant of Indian descent, he never expected that his piece of America would look like this. …
What do you make of the circumstances depicted above? On one hand, we have a woman struggling to raise a child under difficult conditions. On the other hand, the squalor is caused by the woman herself, not by circumstances beyond her control.
Perhaps that baby in this photo will grow strong and healthy in a loving environment, but based on the photo, this baby’s has some challenges ahead.
Over the last three decades, the economy imploded. The rail shops and the nearby steel plant closed. So did Norton Air Force Base, costing the city 12,500 jobs. Downtown businesses vacated. Law offices decamped to Riverside when the federal bankruptcy and state appellate courts moved.
But there are still middle-class neighborhoods and amenities: a symphony, a country club, the Starbucks and El Torito along Hospitality Lane. …
Based on the disappearance of these basic industries, one may conclude the city is dead, but the proximity to the sprawl from LA makes it likely that some other industries will move in to replace those that leave.
On my recent vacation to Wisconsin, I drove through a few towns on the Wisconsin River devastated by the loss of paper mills. These towns are not proximate to any major population centers, and the economies there will not recover in the next two or three decades. San Bernardino is fundamentally different.
On the city’s northwest edge, Morris drives past the latest developments of large Spanish-style homes on curving, smooth-black streets with banners reading “New Frontier” and “The Colony.” It’s suburbia at a fraction of what it would cost closer to Los Angeles.
Median income in this area is above $65,000, nearly five times what it is in the bleaker parts of town. Stay very close to home and you might imagine you’re in Irvine or Santa Clarita.
To confuse San Bernardino with Irvine would take some serious imagination.
Yet even this relative upper crust lives with the problems of a city gone broke: subpar schools and potholed streets just outside their immediate neighborhoods; high crime, slow police and fire response times; and trash and tumbleweeds that pile up against rusty chain-link fences. …
These problems result from the economic decline from the housing bust and the loss of other major employers. When the economy improves (assuming it does), people will move back in, money will flow to the coffers of local government, and many of these problems will disappear.
When the recession hit, San Bernardino’s foreclosure rate was 3.5 times the national average. It was inevitable: Only 46% of San Bernardino’s working-age residents have jobs — the lowest figure in the state for cities anywhere near its size. And so the statistical landslide built momentum as property and sales taxes fell by more than a third in recent years.
As the economy unspooled, the police and fire unions kept shoveling money into council members’ campaigns. In 2008, over Morris’ objections, the council gave them a generous gift. Employees of the Police and Fire Departments could retire at 50 years old and their pensions would give them 3% of their final pay for every year they had worked.
A fire battalion chief making $148,000, could retire at that age and collect $133,000 a year for life — with increases for cost of living.
By 2012 the city was spending 72% of its general fund on the Police and Fire Departments, mostly on salaries and pensions — compared to Los Angeles, which spends 59% of its general fund on those services. More than half the sworn fire personnel earn more than $150,000 a year according to city records.
Unlike the explosive push driving people from hollowed-out Rust Belt cities, San Bernardino’s economic implosion is sucking people in: immigrants, parolees, Los Angeles gang members and those like the Lopezes, who can’t afford to live anywhere else in California. …
As I noted in yesterday’s post Why are condo prices so volatile?, undesirable communities, neighborhoods, or housing types only gain buying interest when better alternatives are not available. As prices rise everywhere else, San Bernardino becomes the affordable alternative, so buyers become more active there, and house prices rebound.
It takes the contributions of generations for a city to succeed, Morris says. “I think to be rooted is one of the most important and least recognized needs of our human soul.”
“We leave a Detroit. We leave a Stockton. We leave a San Bernardino. That’s a great sadness to me,” Morris says.
The cities in the greater LA metropolitan area will always have opportunity for redemption. These cities are too close to too much money to remain down for too long. With high demand all around and a lack of supply, real estate in these markets will recover, but in the undesirable areas, the prices will always be volatile. This provides opportunities for cashflow investors to pick up good properties during the down times. San Bernardino is still a good investment today.
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Actually, buying high and holding/valuing RE in ‘risk-free’ fiat based USD is opportunity for disaster, so it’s NO longer a question of either/or 😉
Is there a non-fiat based currency?
‘risk-free’ is the problem.
I think the perception overseas is that the US Dollar is risk-free. Compared to many foreign currencies, it does carry less risk. Parking that money in US real estate also carries the perception of being risk-free, but faith in US real estate may prove misplaced.
Real estate is one of the many hedges against fiat currency inflation.
It’s not risk free, clearly, but less risky than fiat currency for sure.
At the risk of being politically incorrect…
http://transparentcalifornia.com/salaries/search/?q=fire
http://transparentcalifornia.com/salaries/search/?q=police&y=
http://transparentcalifornia.com/salaries/search/?q=Correctional%20Officer
Yes, yes. I know they are “heroes” and they “save” lives… but really???
LOL and they will be retired longer than they actually work
Oh I didnt even mention the DROP program they get. This is the most ridiculous thing I have ever seen…
http://www.laweekly.com/news/1-billion-drop-salary-scandal-la-cops-firefighters-allowed-to-double-dip-into-city-funds-collect-pensions-5-years-early-video-2398336
But they are “heroes” and they “save lives”….
When you have so much nepotism, you know its gotta be good…
http://www.latimes.com/local/lanow/la-me-ln-los-angeles-county-supervisors-fire-cheating-20150223-story.html
The excesses of these unions remind me of the national scene in the late 1970s. Many pro-union people decry Reagan for busting the air traffic control union and undermining much union power, but when you see excesses like these, it makes me long for a politician with the political savvy to actually reform them. Arnold Schwarzenegger tried to take them on and failed. He doomed us to another couple of decades of unions abusing the system until someone actually stops them.
Just to explain some of those salaries. Most of those people are the leaders of organizations which employ hundreds to thousands of people. A private company of that size would have compensation packages in the millions.
Also as far as Officer Baltazar are your police list is concerned he was arrest around 2009-2010 for gun running and was then acquitted. The reason his other pay is almost half a million is because when he got reinstated he got years of back pay.
http://articles.latimes.com/2010/sep/05/local/la-me-guns-20100906
The risk is in holding the currency, not converting it to real estate.
Most people believe it’s better to hold bonds than currency too, but that strategy may not fare too well either.
Bonds are probably only slightly better than currency.
Home debtors love the idea of 1970s style inflation which will inevitably happen again, wiping out debt.
Peter Schiff was really, really wrong
On July 16, 2012, Schiff, CEO and Chief Global Strategist at Euro Pacific Capital, said he expected gold to reach at least $5,000 an ounce. Gold had closed the prior day at $1,590 an ounce. Schiff asserted that, with central banks keeping monetary policy loose, gold was likely to spike thousands of dollars higher.
And while Schiff didn’t give an exact date when he saw gold hitting that $5,000-an-ounce mark, his forecast did look pretty good for a short period. Gold rose to close at about $1,792 on October 4 of that year. However, it has been in steep decline since. As I mentioned previously, on July 20, 2015, a little more than three years following Schiff’s forecast, gold closed below $1,100 (a drop of over 30 percent) for the first time since March 2010, more than five years ago.
Despite the fact that the Federal Reserve still has not tightened domestic monetary policy, and European and Asian banks have actually loosened their monetary policies, we have experienced neither the inflation Schiff predicted nor the rise in gold prices he was forecasting.
It’s important to observe here that 2012 wasn’t the first time Schiff had made such a forecast regarding gold. In 2008, he predicted that gold would hit $2,000 by 2009 and $5,000 by 2013.
In June 2013, Schiff appeared on CNBC, which called him one of their “favorite guests,” and offered this: “Gold can certainly make a move up to $1,700 or $1,800, but I think ultimately it’s going a lot higher than that.” He added: “When the world figures out the position that we’re in, gold is going to the moon.” He further stated that while gold was off its high, “it’s not going a lot lower.” At the time, gold was $1,374.
Fortunately, we have more evidence on Schiff’s ability to accurately forecast the direction of the financial markets. The website Wall Street Economists is published by the Economic Predictions Research Project (EPRP), an academic nonprofit research group.
The project was created to track economic forecasts about the financial crisis of 2008-2009. Among those tracked were Nouriel Roubini and Peter Schiff. The project was completed in 2012. Researchers found that of the 17 predictions made by Schiff that they reviewed, five turned out to be correct, 10 turned out to be wrong and two received an incomplete grade:
One was a video titled “We Probably Won’t Make It To 2012.” In it, Schiff predicted that if the economy didn’t collapse in 2011, certainly would by 2012, and so would the dollar.
The other was a December 2010 interview with CNBC in which Schiff said that the U.S. markets would crash like dominos because so many things were bound to happen in 2011.
Neither of those two forecasts came true, giving Schiff five correct predictions out of 17. While .294 is a pretty good average for a baseball player, I doubt you’d want to be investing based on that type of track record.
It’s worth noting that Schiff did accurately predict in 2006 and again in 2007 that the U.S. economy would not be strong, that the housing market would crash and that we would have high unemployment.” However, an article from U.S. News & World Report analyzing Schiff’s forecasts about the crisis also found 12 ways Schiff was wrong in 2008:
* Wrong about hyperinflation
* Wrong about the dollar
* Wrong about commodities except for gold
* Wrong about foreign currencies except for the Yen
* Wrong about foreign equities
* Wrong in timing
* Wrong in risk management
* Wrong in buy-and-hold thesis
* Wrong on decoupling
* Wrong on China
* Wrong on U.S. treasuries
* Wrong on interest rates, both foreign and domestic
Unfortunately, you don’t hear much from the financial media about the historical evidence on forecasting accuracy because, as I have noted before, accountability would ruin the game and investors just might stop tuning in.
After all, the conclusion reached by the research project on Schiff’s forecasting record was: “If you followed Peter Schiff’s advice about the housing bubble and gold you could have made a [of] lot money or at least saved yourself a lot of losses. On the other hand if you followed his other predictions you would have lost a lot of money. According to some of Schiff’s own clients, portfolios invested with Schiff were down anywhere from 40-70%.”
Peter Schiff is a tool.
Gold won’t bottom until Peter Schiff capitulates.
Pending home sales unexpectedly drop in June
biggest drop since December 2013
After five consecutive months of increases, pending home sales in June dropped 1.8% — expectations were for a 0.9% gain — the biggest drop since December 2013, according to the National Association of Realtors.
Modest gains in the Northeast and West were offset by larger declines in the Midwest and South.
The Pending Home Sales Index, a forward-looking indicator based on contract signings, fell 1.8% to 110.3 in June but is still 8.2% above June 2014 (101.9).
Lawrence Yun, NAR chief economist, spun the bad data by noting that although pending sales decreased in June, the overall trend in recent months supports a solid pace of home sales this summer.
“Competition for existing houses on the market remained stiff last month, as low inventories in many markets reduced choices and pushed prices above some buyers’ comfort level,” he said. “The demand is there for more sales, but the determining factor will be whether or not some of these buyers decide to hold off even longer until supply improves and price growth slows.”
“Strong price appreciation and an improving economy is finally giving some homeowners the incentive and financial capability to sell and trade up or down,” Yun said. “Unfortunately, because nearly all of these sellers are likely buying another home, there isn’t a net increase in inventory. A combination of homebuilders ramping up construction and even more homeowners listing their properties on the market is needed to tame price growth and give all buyers more options.”
SIGTARP report reveals massive failure of HAMP
Servicers have denied an alarmingly high amount of applications for the Home Affordable Mortgage Program, with only 30% of homeowners who applied for HAMP getting in, the latest quarterly report to congress by the Office of the Special Inspector General for the Troubled Asset Relief Program revealed.
This means that servicers turned down 70% of applications, proving that the program has struggled to draw in the number of homeowners envisioned by Treasury.
http://www.housingwire.com/ext/resources/images/editorial/BS_ticker/PDF/July-2015/Chart2.png
“According to Treasury’s data, 70% of homeowners who applied to lower their mortgage payment through HAMP have been denied assistance by their servicer—more than 80 percent denied by some of the largest servicers; that’s roughly four million homeowners, or, in fact, the number of families that Treasury initially estimated would be helped under HAMP,” Special Inspector General Christy Romero said.
“There is a massive lost opportunity for an emergency program designed to help homeowners through the crisis if only 20% to 30% of families seeking help from HAMP actually get into HAMP,” Romero added.
The top reasons behind the denials included:
1. The homeowner’s application was “incomplete”
2. The homeowner withdrew the HAMP application or “failed to accept” an offered HAMP trial
3. The homeowner’s income fell outside of HAMP eligibility.
[So loanowners failed to obtain modifications because they didn’t provide enough information about their finances, they didn’t like the deal offered, or they made too much money. How could HAMP administrators improve that?
HAMP was always intended as a can-kicking program, and by that measure it was successful.]
Weiss Residential: Here’s where the next housing crash will start
Despite market reports of strong median home price appreciation this spring, gains are very uneven and nearly half of homes in 10 of the nation’s largest markets actually lost value in May, according to a report by Weiss Residential Research’s Indexes.
On a house-by-house basis, about one-third fewer homes in the largest markets gained value during the heart of the spring buying season this year compared to last.
Only 54% of homes in the markets appreciated during May compared to 81% in May 2014, a sign that the downward trend may continue in the coming months. In Denver, the hottest market in the nation, 84% of houses appreciated in May compared to 95% last year. In the Washington, D.C., market, weakest of the top 10, only 34% of houses gained value in May compared to 57% in May 2014.
“Don’t be fooled by averages,” said Allan Weiss, founder and CEO of Weiss Residential Research. “All of the largest metro indexes are rising more slowly than they were a year ago, though market reports give the impression that values are rising across the board. However people don’t own the entire market, they own one house.”
“The same pattern occurred before the great housing meltdown 10 years ago. The percent of houses rising in D.C. declined from 100% to 60% while the metro index showed a slowdown but did not go negative. Once the population of houses that had been rising fell below 50%, the index began its descent,” Weiss said.
“Today, conditions at the local level may not be as positive as national reports indicate. Every house is unique, has a unique value and responds differently to market changes. In today’s market, sellers should price their homes very carefully and research local conditions to avoid overpricing that could lead to an extended time on market in case prices do decline,” Weiss said.
“In this climate, buyers and investors should be careful to avoid buying a home that is on the verge of losing value,” said Weiss.
“In this climate, buyers and investors should be careful to avoid buying a home that is on the verge of losing value,” said Weiss.
Worthless advice. How exactly do you propose I ensure avoiding buying a home that is on the verge of losing value? Will I be financially ruined if my house declines 10% in value after I purchase it?
The worst part is that his data won’t accurately forecast future home price declines. His analysis is more detailed than most because he is looking at individual houses with an algorithm similar to the Zillow Zestimate, but it isn’t based on valuation. Momentum is a poor indicator of future performance, as the people who bought in 2005 found out painfully.
His momentum-based forecasts will give buy signals when valuations are too high, and it will give sell signals when valuations are still reasonable, which is what his system is doing now. I put a lot more faith in my system that looks at valuations rather than momentum.
The article should also point out that our upstanding young couple gets ebt,wic and cash as well.When our govt became the nanny state,they took away natural selection.I love to see my tax dollars and work and how they benefit mankind.
I hope the massively disproportionate amount of tax dollars wasted on the military industrial complex annoys you ten-fold of tax dollars benefiting poor folk.
It does and thank you for your concern.
It’s not just the military-industrial complex to be feared, but any combination of groups seeking political power to further their vested material and moral interests. The military-industrial complex of Eisenhower’s time has been supplanted by the green movement today.
In Fascism and Big Business, Daniel Guerin said: It can be defined as, “an informal and changing coalition of groups with vested psychological, moral, and material interests in the continuous development and maintenance of ______.”
The key elements are: 1) a coalition of groups, 2) with vested moral, psychological, and material interests, 3) in support of their goals.
How much money has been wasted on “green” energy? Want to talk about Solyndra? How about Tesla Motors? What about energy subsidies in general? All of these subsidies are spent to support/develop less efficient energy production, based on the pretext of combatting global warming just as the military-industrial complex was justified based on the pretext of combatting unchecked aggression.
In the first part of Eisenhower’s speech he acknowledged that: “A vital element in keeping the peace is our military establishment. Our arms must be mighty, ready for instant action, so that no potential aggressor may be tempted to risk his own destruction…”
Anytime big business and elected officials engage in a symbiotic relationship there is reason to be concerned.
“Anytime big business and elected officials engage in a symbiotic relationship there is reason to be concerned.”
I agree. And this is why the 16th amendment (income tax) was and is such a bad idea. Before income tax, Congress could only get money from businesses. But after income tax, Congress has found it easier to extort money from the citizenry via income tax.
“but any combination of groups seeking political power to further their vested material and moral interests”
Yep, like say TBTF banks…
When I read this, I was expecting “financial elites today” rather than the green movement.
The green movement isn’t fueling it’s own rise to power like the major banks are today. The green movement has power because many politicans believe in the cause. Nobody believes in the cause of banks, but they wield great power due to how much money they bring in and distribute to campaigns of lawmakers.
Many politicians also believe[d] in the cause of national defense. Financial gain isn’t everything behind either, but certainly a component of each.
“He suspects that environmentalists’ opposition to fracking is rooted in their fear that abundant, cheap natural gas could deal a fatal blow to so-called “renewable” energy initiatives.
“They have invested a lot into renewables, and to them it is like a religion,” Shepstone observed. “The natural gas boom means that fossil fuels are not going away, and the green groups are not happy.””
http://capitalresearch.org/2012/12/the-environmental-movement-vs-the-marcellus-shale-green-disinformation-campaign-pits-fake-david-vs-fake-goliath/
I have an upcoming article on Section 8. I’m not sure how I feel about it. On one hand, your are correct that the nanny state removed the consequences for irresponsibility and enables the kind of life depicted in the article. On the other hand, what do we do with these people? Allowing them to become homeless may motivate them to change, but rather than pulling themselves up by their own bootstraps, many will turn to drugs and crime because it’s easier and more pleasurable.
When does compassion become enabling?
It is an extremely difficult question, unless you’re a die-hard lefty or righty for whom all answers are black-and-white easy as pie.
That’s probably the attraction of many of these extreme positions. It’s just easier to accept a standard answer of a group you identify with rather than think for yourself and make up your own mind, particularly if the issue is complex, ambiguous, or places deeply held values in conflict.
Welfare should be a safety net not a lifestyle.
Few, if any, will argue otherwise.
How do you provide the safety net without it becoming a lifestyle?
The policymaker who successfully solves that problem will do some real good in the world.
They seemed to have figure this out already in places like the Netherlands.
The thought of a society like that horrifies many American Conservatives.
The government pays for everything in The Netherlands because it has all the money. The top marginal rate there is 52%, which starts at 57,000 euros (~$63k). On top of that there is a 21% VAT and 6% tax on food.
There is also 1.2% wealth tax on savings, property, and investments. If your investments aren’t growing, compounding will steal 18% of the value over ten years. Who needs negative interest rates when the government takes 1.2% of your net worth every year? The formula assumes that property is growing at 4% a year and taxes that at 30%. If property prices fall 5%, do you still have to pay? Or does the government give a check to make up for your loss?
Yet people are outrageously happy and have an amazing quality of life
Go figure
+1 PR
I work with some Dutch folks. It’s not all peaches and cream there (or they wouldn’t be working out of their country).
Also, the lack of cultural diversity in a lot of these places is a “plus” when it comes to citizen cohesion. The USA doesn’t have that “luxury”. Most of Europe is an odd amalgamation of cultural and economic artifacts. The USA is a mostly self-sufficient country, which is much messier to govern and generalize about, but is an advantage at the highest macro-level when it comes to economic strength.
Dodd-Frank dragging down economic recovery, House Committee says
Republican grandstanding nauseating
The House Financial Services Committee held a full committee hearing Tuesday to examine America’s economic prosperity in the five years since the Dodd-Frank Act became law.
It was the latest in a series focused on the impact Dodd-Frank has on the economy, lenders and capital markets.
When he signed Dodd-Frank into law five years ago this month, President Obama claimed Dodd-Frank would “lift the economy,” but the Republican majority says that it has done the opposite, making it harder for Americans to fulfill their aspirations and achieve their dreams for themselves and their families.
“Under the Obama economic strategy of which Dodd-Frank is a central pillar, our anemic recovery has created 12.1 million fewer jobs than the average recovery since World War II,” said Chairman Jeb Hensarling, R-Texas. “For more than a year now, the share of able-bodied Americans in the labor force has hovered at the lowest level in nearly 40 years. Small business startups are at the lowest level in a generation. Had this recovery simply been as strong as average previous ones, middle income families would have nearly $12,000 more in annual income, and 1.6 million more of our fellow Americans would have escaped poverty.
“The painful truth is that Dodd-Frank and the hyper-regulated Obama economy are failing low- and moderate income Americans who simply want their fair shot at economic opportunity and financial security,” Hensarling said.
Committee members sais that thanks to the Consumer Financial Protection Bureau’s Qualified Mortgage rule, it is now harder for low and moderate-income Americans and minorities to buy a home.
Further, they heard, thanks to the crushing regulatory burden unleashed by Dodd-Frank’s 400 new federal regulations, there are far fewer community banks serving the needs of small businesses and families in communities across America than before Dodd-Frank was enacted, resulting in fewer financial products and services being offered, and at a higher cost.
“Most criticism of Dodd-Frank focuses on the massive increase in regulatory burden it has imposed, but the most costly and dangerous effect of Dodd-Frank, ObamaCare and virtually every other legislative and regulatory action of this Administration is the uncertainty and arbitrary power it has created by the destruction of the rule of law,” said Phil Gramm, Senior Partner, U.S. Policy Metrics and former Republican U.S. Senator.
Hey, let’s celebrate some truth emanating from the mouths of the Right! Dodd-Frank is absolutely dragging down the economic recovery. Its purpose is to prevent creditors from doing dumb things that cost all of us. That purpose slows economic growth. Congrats Hensarling. You got something right in 2015!
It’s a feature, not a bug.
“The painful truth is that Dodd-Frank and the hyper-regulated Obama economy are failing low- and moderate income Americans who simply want their fair shot at economic opportunity and financial security,” Hensarling said.
Another splendid example of a public servant trying to hoist himself on his own petar. Whenever I want to know what the big banks think on an issue, I just read one of Hensarling’s quotes.
Unleashing what could be crushing levels of debt on unwary borrowers without verifying ATR, DTI, credit scores, income, and assets doesn’t create economic opportunity or financial security; it creates systemic instability, debt servitude, and economic malaise. Sure, enriching bankers is a worthy goal, but at what expense?
Exactly. We tried unleashing the banks to produce unlimited debt during the 00s with a repeal of Glass-Steagall, and the results was a fake boom and a crushing bust. Why do we want to do that again?
48 Years of homeownership gains wiped out
Homeownership Rate Hits Lowest Point Since 1967
The homeownership rate in the second quarter declined to 63.4 percent, a decrease of 1.3 percentage points than the second quarter 2014 rate of 64.7 percent and 0.4 percentage points lower than the 63.7 percent rate last quarter.
According to data released by the Department of Commerce’s Census Bureau, this quarter’s homeownership rate is the lowest since 1967. The rate has also been on a steady downward fall since 2009 when the rate was 67.4 percent for the second quarter.
The homeownership rates were highest in the Midwest at 68.4 percent and lowest in the West at 58.5 percent for the second quarter 2015, according to the Bureau’s report. Homeownership rates in the Northeast, Midwest, South, and West were all lower than the rates in the second quarter of last year.
Is a 40yr low in home ownership a buy signal, or not? Rates are also near all-time lows. Buy signal? Unemployment rate is at, what, 5.3%, and falling. Wages have shown signs of rising, and many believe the Fed will raise rates later this year. If not now, when?
L.A.-O.C. has nation’s lowest homeownership rate
The dream of owning a home is hardest to reach in Los Angeles and Orange counties.
The L.A.-O.C. region had 48.5 percent of its people living in their own home in the second quarter — down from 50.2 percent in the first quarter and 49.1 percent a year ago, according to Census data out Tuesday.
The local area had the lowest homeownership rate of 75 large metropolitan areas tracked by Census.
The New York metropolitan area had the second lowest homeownership rate at 49.1 percent. Las Vegas was third worst, at 50 percent. New York was worst in the first quarter; L.A.-O.C. was second worst.
Best place for homeownership? Florida’s North Port-Bradenton-Sarasota had the highest rate among the Top 75 metros at 75.6 percent.
The L.A.-O.C. housing market has been long challenging to house shoppers. Most recently, the Great Recession damaged many potential house hunters’ credit histories and confidence in real estate markets.
Even folks with good credit find lenders picky about who gets mortgages. And then there’s the affordability challenges with rebound prices outstripping local paycheck growth.
Local homeownership rates have steadily dropped in recent years. The L.A.-O.C. peak is found at the Census data set’s beginning — 55 percent in the first quarter of 2005, amid a housing boomed fueld by easy-to-get mortgages. In the aftermath of the housing crash, L.A.-O.C. homeownership bottomed at 47.6 percent in 2014’s fourth quarter.
Nationally, the homeownership rate fell to 63.4 percent in the second quarter from 63.7 percent in the first quarter. It marks the lowest homeownership rate since 1967. Last decade’s wild lending practices also temporarily boosted U.S. homeownership, too. It peaked at 69.2 percent in 2004’s fourth quarter.
“Even folks with good credit find lenders picky about who gets mortgages.”
Any one know the current stats on this? What is the prevailing DTI, LTV, credit score for conforming and jumbo loans in OC? What is the deciding criteria?
The median stats as of June 2015 are:
FICO – 727
LTV – 81
DTI – 24/38
http://www.elliemae.com/resources/origination-insight-reports
Thanks. I notice the % closed is at the highest point since 2011 (69% fund in 90 days). FHA credit scores for denied loans have fallen to 638 from 663 in 2014. While conventional closed loan credit scores rose to 757 from 755. FHA closed-loan credit scores are up to 689 from 684, with 95 LTV and 27/41 DTI.
It’s important to keep in mind that while the CITY of San Bernardino is not doing so well, the COUNTY of San Bernardino is more mixed. Yes, there are areas that are performing poorly, but there are thriving areas like Ontario and Rancho Cucamonga. Upland and Montclair are doing well. The mountain resort areas of Big Bear/Lake Arrowhead are holding their own. This is much like the situation with the City of Los Angeles and the County of Los Angeles. City of LA not doing so hot economically. It’s population over the last 20 years has grown much more than its employment base. COUNTY of LA is doing pretty well, actually. LA County has AA credit rating (investment grade).
Thanks for the clarifying detail.
Controlling our borders would be a good place to start to fix the nanny state.
Sorry to burst your bubble
New research suggests it is debt, not frothy asset prices, that should worry regulators most
Jul 18th 2015 | From the print edition
http://www.economist.com/node/21657817/print
WHEN Chinese shares plunged earlier this month, the government tried frantically to limit the damage. It pumped cash into the market, capped short¬selling and ordered share buybacks. Although China was unusually heavyhanded, it was hardly the first country to try to bolster stock prices for fear of the economic harm a crash could bring. Alan Greenspan, as chairman of the Federal Reserve, famously created the “Greenspan put” by giving investors the impression he would cut interest rates to stop stockmarket routs.
The underlying rationale for these interventions is an idea that until recently received surprisingly little scrutiny—namely, that stockmarket busts are very damaging for the economy. The link seems clear enough in the case of the crash of 1929, which led in short order to the Depression. But it is also easy to point to contrary examples. The bursting of America’s dotcom bubble in 2000 wiped out $5 trillion in market value, equivalent to half of GDP. Yet it was followed by a shallow recession.
Not all bubbles, it would appear, are equally bad. According to two new papers*, the crucial variable that separates relatively harmless frenzies from disastrous ones is debt. In many cases, though certainly not all, stockmarket manias fall into the less worrying category.
Writing for the National Bureau of Economic Research, Oscar Jorda, Moritz Schularick and Alan Taylor examine bubbles in housing and equity markets over the past 140 years. The most dangerous, they conclude, are housing bubbles fuelled by credit booms. The least troublesome are equity bubbles that do not rely on debt. Five years after the bursting of a debt¬laden bubble, the authors find, GDP per person is nearly 8% lower than after a “normal” recession (ie, one that is not accompanied by a financial crisis). In contrast, five years after a stockmarket crash, GDP per person is only 1% or so lower. If the stock bubble comes alongside a big rise in debt, the damage to GDP per person is 4%. The paper does not explain why housing bubbles are more costly, but a fair inference is that, whereas equity investments tend to be concentrated among the rich, plenty of people lower down the income ladder have wealth tied up in housing.
That makes sense. Stockmarket routs typically harm the economy via the “wealth effect”. When people see that their assets are worth substantially less than before, they spend less, leading to weaker demand and, ultimately, weaker investment. Debt can make this worse. Those who have borrowed to invest may be forced to sell assets to avoid defaulting, further depressing prices and wealth. Banks that have lent to investors or accepted shares as collateral will also suffer losses. That forces them to rein in their lending, harming the economy even more.
In a paper for the Centre for Economic Policy Research, Markus Brunnermeier and Isabel Schnabel take an even longer view , examining 400 years of asset¬price bubbles. Be it tulips, land, housing, derivatives or shares, they find that the consequences of a bursting bubble depend less on the type of asset than on how it is financed. High leverage is the telltale sign of trouble.
What does this mean for central banks? Before the financial crisis, the debate boiled down to “leaning versus cleaning”. Activist sorts argued that the monetary guardians should lean against the wind by raising interest rates when asset bubbles grew. The opposing camp, exemplified by Mr Greenspan, countered that it was too difficult to spot bubbles in advance and too costly to tighten monetary policy erroneously, so it was best to wait for them to burst before cutting rates to help clean up the mess.
Shifting the focus to debt changes the terms of the debate. As Frederic Mishkin of Columbia University has written, policymakers must distinguish between bubbles inflated purely by exuberance and those pumped up by debt. The latter are also easier to identify: credit issuance is abnormally fast and underwriting standards slip. In such circumstances, regardless of the level of asset prices, the case for intervention is strong.
That still leaves the question of what central banks should do after a stockmarket bubble has burst. Those that come to the rescue of collapsing markets are stoking moral hazard. Investors, believing that the central bank will always provide a backstop, are more likely to take unwarranted risks, as American ones did in response to the Greenspan put. Nevertheless, given that stockmarket bubbles accompanied by lots of debt, as in China, can cause severe economic damage, letting them burst without any succour is not a good option either.
Over to the finance minister One option is to boost the broader economy through a spurt in government spending. Direct intervention to prevent the stockmarket from falling is more problematic, since it gums up price signals, preventing overvalued shares from returning to more reasonable levels. Halting stocks from trading, as seen recently with nearly half of listed Chinese companies, does not eliminate the problem but simply masks it. It was as if America had enacted a moratorium on selling homes after the subprime crisis.
Intriguingly, China’s interventions did put one strand of academic theory into practice. Roger Farmer of UCLA has argued (http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2484874) that central banks should buy stocks to keep falling markets at reasonable price¬to¬earnings (PE) ratios. The Chinese central bank did this by providing cash to a stock¬buying fund. Crucially, Mr Farmer says that central banks should then sell their holdings when PE ratios climb too high. That sounds like wishful thinking. In China as in other countries, the central bank often seems more intent on laying a floor for stocks than erecting a ceiling.
Thanks for sharing the story.
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