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 was a 30% decline in mortgage interest rates which greatly increased the ability of borrowers to bid up prices. Even though owner-occupant demand as measured by volume is still very weak, the demand that does exist can bid much higher to acquire properties, and since supply is down as much as 70% in some markets, buyers are being forced to bid higher to get properties. The result is a reflation of the housing bubble.
This Is Housing Bubble 2.0: David Stockman
By Lauren Lyster | Daily Ticker – 2/4/2013
Many have named a U.S. housing recovery as a bright spot in a so-called broader domestic economic recovery.
And data seems to support this analysis, despite a slowdown in sales momentum at the end of the year. Existing home sales in December were up 12.8% from the same time in 2011, with the total number of sales in 2012 rising to the highest level in five years, according to the National Association of Realtors. Meanwhile, the annual price for existing homes also jumped to the highest level since 2005, with the median price of a home up 11.5% in December from the same period in 2011.
But David Stockman, former director of the Office of Management and Budget in the Reagan Administration sees little to get excited about.
He tells The Daily Ticker, “I would say we have a housing bubble…again.”
Stockman argues a combination of artificially low interest rates and speculation are to blame, not unlike the last boom and bust cycle in real estate.
“We don’t have a real organic sustainable recovery because in a world of medicated money by the central bank, things aren’t what they appear to be,” Stockman argues.
It’s so refreshing to read the comments of someone in the mainstream media who knows what they are talking about. It’s all too rare.
The artificially low interest rates create the circumstances where borrowers can bid up prices, and that will be largely responsible for reflating the bubble.
I’ve seen many comment on the evils of housing speculation, but that isn’t what’s reflating housing prices. Speculation during the bubble was widespread across every market. Dipshit realtors were flipping homes in Ladera Ranch until the music stopped. The speculation was fueled by no-money down loans and Option ARMs utilized in every market and at every market price point. The investment today is very different.
The hedge funds and others buying large amounts of property today are active in very specific markets and only at the lowest price points. They are buying all cash, and their demand is flowing to where the need is greatest — undervalued markets where supply still exceeds demand. This activity is how markets are supposed to bottom, the only difference is the activity of hedge funds whose capital was needed to stabilize prices in the most beaten down markets. Mom and pop investors couldn’t absorb all the inventory when prices fell, so more capital was needed, so hedge funds stepped in to fill the void. Their activities will cease as soon as prices rise to a point where cash returns no longer make sense.
And according to Stockman, it’s this medicated, cheap money being put to work by investors that’s driving the apparent healing in some of the hardest hit real estate markets in the country.
“It’s happening in the most speculative sub-prime markets, where massive amounts of ‘fast money’ is rolling in to buy, to rent, on a speculative basis for a quick trade,” he contends. “And as soon as they conclude prices have moved enough, they’ll be gone as fast as they came.”
We need to be clear on what “gone” means. These hedge funds will certainly stop buying when prices move higher, so if “gone” means they no longer contribute to demand, that is a true statement. However, what’s implied from this statement is that these hedge funds will actively sell their properties exiting their positions so they can be “gone” from the market. That is not going to happen. As long as the hedge funds are making the cash returns they expected from holding the properties, they will hold them. Rents are going up, so it isn’t likely they will exit their positions and dump their properties on the market. When prices have reached a point of exit, hedge funds will behave much like the banks are today metering out their sales in a way that flattens the market but doesn’t cause a crash.
By ‘fast money’, Stockman is referring to professional investors like hedge funds and private equity firms. To his point, global investment firm Blackstone (BX) has spent more that $2.5 billion on 16,000 homes to manage as rentals, according to Bloomberg. It’s now the country’s largest investor in single-family homes to manage as rentals, with properties in nine markets. And Blackstone is joined by others like Colony Capital LLC and Two Harbors Investment Corp. (SBY) in trying to turn this market into a new institutional asset class, Bloomberg reports.
That’s a lot of future liquidations….
Stockman argues the problem in housing is the two forces needed for a recovery, first-time buyers and trade-up buyers, are missing.
Yes they are. We know from the oft-repeated chart on mortgage originations that owner-occupant buying across the spectrum is down, and the move-up market will suffer for another decade.
With the combination of 7.9% unemployment and staggering student loan debt, he doesn’t see a young generation of new home buyers coming into the market. And with baby boomers heading for retirement with less than adequate savings, he thinks they’ll be trading down with their homes, not up.
He is right on all counts.
Stockman sees a rise in interest rates as the trigger for any kind of bust. He says you can’t have zero rates forever, referring to the Fed’s ZIRP and quantitative easing policies of the last several years.
“As soon as the Fed has to normalize interest rates, housing prices will stop appreciating and they’ll probably head down,” he explains.
That is the math.
“The fast money will sell as quickly as they can and the bubble will pop almost as rapidly as it’s appeared. I don’t know how many times we’re going to do this, and the only people who benefit are the top one percent – the hedge funds, the LBO funds, the fast money people who come in for a trade, make a quick buck, and move along to the next bubble.”
Mortgage rates, for their part, rose from an average 3.42 percent to 3.53 percent on Thursday, the sharpest increase in 10 months, according to the weekly survey of 30-year mortgages by Freddie Mac, the government-backed mortgage company. Even still, mortgage rates are hovering around their lowest levels in more than 30 years.
As for the “American Dream” of home ownership, Stockman argues the past model where the government was trying to get to 69% home ownership was a huge policy mistake that led to no-downpayment loans, liars loans, and a degradation of lending standards. He says the government should have no dog in the hunt when it comes to ownership versus renting.
“Let the market decide,” Stockman says.
Halleluiah!
[Hat tip to Tom R. for sending me this article]
What we will see going forward
There is little question that house prices will continue to move upward through most of 2013. We will see isolated deals in the jumbo market as lenders foreclose, but they will be careful to keep the inventory limited to prevent their activities from hurting neighborhood comps. Eventually, the headwinds facing the market will start to exert pressure on further price gains.
First, we may see more regulatory headwinds as G-fees increase, the rules for residential mortgages define a down payment requirement, and Congress debates putting a cap on tax deductions which will increase the cost of ownership for high wage earners. None of these upcoming policies will provide a boost to housing, and they may put a serious damper on borrowing which in turn will hurt housing.
Second, we will likely see higher interest rates which will increase borrowing costs, drive down mortgage balances, and put more pressure on housing.
Third, we will see more underwater borrowers reach the surface where they will likely sell to get out from under their onerous mortgages. Those who are squatting will finally get pushed out by the bank. The result of these changes will be less control of the supply by the lending cartel. If the lending cartel losses control of supply, their efforts to restrict supply will not force prices to move higher.
Fourth, hedge funds who are buying properties today will liquidate as prices approach limits of affordability. Their liquidations will cause prices to flatten but not fall as they dispose of the properties they purchased at the bottom.
I don’t think any of these headwinds will lead to a 30% to 50% crash like we saw in the housing bubble. Since most recent loans are fixed-rate mortgages, and since lenders still can restrict supply at lower price points, I believe we will enter a broad flattening phase were sellers resist selling at a loss. The “stickiness” of house prices to downward pressure that was much talked about prior to the crash (a phenomenon we saw in the 90s), will become a persistent backstop preventing a widespread crash. That being said, as we approach the peak, I could see prices flattening out for a better part of a decade as we transition back to a “normal” market characterized by gently rising prices based on wage inflation underpinned by private lending.
Livin’ la Vida Loca
The housing bubble did not discriminate by race, creed, color, or national origin. Everyone was given free money. In the aftermath of the bust, the poor have gotten a raw deal as they were quickly foreclosed on while their “prime” and jumbo loan brethren have been allowed to squat. It’s hard to feel too sorry for the poor though. The former owners of today’s featured property were typical Santa Ana homeowners. They put just over $4,000 down, and over the next three years, they were allowed to extract over $125,000 in HELOC money. This was a windfall akin to hitting the lottery. A once-in-a-lifetime financial gain that will never come their way again. Hope they enjoyed it.
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518 Normandy Place, Santa Ana, CA 92701 (MLS # PW13012553)
(all data current as of 5/21/2013)
| Price | $279,900 |
|---|---|
| Beds | 2 |
| Baths | 1 full |
| Home size | 1,017 sq ft |
| Lot Size | 4,364 sq ft |
| Days on Market | 96; |
REO property with 2BR AND 1 BATH. PROPERTY IS LOCATED CENTRALLY NEAR SCHOOLS, SHOPPING, AND MAJOR FREEWAYS.
Property Type(s): Single Family, Residential
| Last Updated | 4/30/2013 | Tract | Unknown (Other (OTHR)) |
|---|---|---|---|
| Year Built | 1944 | Community | Santa Ana South Of First |
| Garage Spaces | 2.0 | County | Orange |
| Total Parking | 4 |
Price History
| Prior to Mar 21, '13 | $309,900 |
|---|---|
| Mar 21, '13 - Today | $279,900 |
Listing information deemed reliable but not guaranteed. Read full disclaimer.
(view all details for MLS #PW13012553)
Proprietary OC Housing News home purchase analysis
518 NORMANDY Pl Santa Ana, CA 92701
$309,900 …….. Asking Price
$260,000 ………. Purchase Price
10/7/2002 ………. Purchase Date
$49,900 ………. Gross Gain (Loss)
($24,792) ………… Commissions and Costs at 8%
============================================
$25,108 ………. Net Gain (Loss)
============================================
19.2% ………. Gross Percent Change
9.7% ………. Net Percent Change
1.7% ………… Annual Appreciation
Cost of Home Ownership
——————————————————————————
$309,900 …….. Asking Price
$10,847 ………… 3.5% Down FHA Financing
3.61% …………. Mortgage Interest Rate
30 ……………… Number of Years
$299,054 …….. Mortgage
$78,150 ………. Income Requirement
$1,361 ………… Monthly Mortgage Payment
$269 ………… Property Tax at 1.04%
$0 ………… Mello Roos & Special Taxes
$77 ………… Homeowners Insurance at 0.3%
$312 ………… Private Mortgage Insurance
$0 ………… Homeowners Association Fees
============================================
$2,019 ………. Monthly Cash Outlays
($259) ………. Tax Savings
($462) ………. Equity Hidden in Payment
$13 ………….. Lost Income to Down Payment
$97 ………….. Maintenance and Replacement Reserves
============================================
$1,408 ………. Monthly Cost of Ownership
Cash Acquisition Demands
——————————————————————————
$4,599 ………… Furnishing and Move In at 1% + $1,500
$4,599 ………… Closing Costs at 1% + $1,500
$2,991 ………… Interest Points
$10,847 ………… Down Payment
============================================
$23,035 ………. Total Cash Costs
$21,500 ………. Emergency Cash Reserves
============================================
$44,535 ………. Total Savings Needed
The property above is available for sale on the MLS.
Contact us for a comparative market analysis, a cost of ownership analysis, or information on how you can make an offer today!
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21 Responses to “Will the reflating housing bubble also burst?”
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Uh…. hedge funds will sell their properties exiting their positions so they can be “gone” from the market simply because big money is fickle.
They may be fickle, but they don’t have any better places to put their money. If the sell off these houses earning them 6% cash returns, what would they put their money into that will perform better?
Subprime was offering similar returns. Oh the irony.
Crowded trades always end badly
You don’t think it will a managed exit like what the banks are doing?
“I could see prices flattening out for a better part of a decade as we transition back to a “normal” market characterized by gently rising prices based on wage inflation underpinned by private lending.”
Yes, it’s going to be a long bottom, really I think it’s at least 10 years. But I think Fannie and Freddie are being setup to be the mortgage market via these Qualified Mortgage rules, my guess is that lenders want zero liability these days. There will also be permanent state mortgage modifications for all the underwater loanowners. Modify, modify, modify, modify, modify, then foreclose if outstanding loan balance is very close to the market value.
“Modify, modify, modify, modify, modify, then foreclose if outstanding loan balance is very close to the market value.”
That’s what I believe will happen. Squatters are useful when banks can’t afford the losses, and they’re even more useful when the bank makes money on appreciation.
I think they’d take the losses in a heartbeat, if they could pull the remaining capital out and get a real ROI elsewhere. I think ZIRP and QE are far more to blame than their fear of accounting losses, by forcing the real rate of return on any similarly “safe” investment elsewhere to minus 2%. As it is, if they don’t foreclose, they at least guarantee a return of their capital, if not a return on it, and it’s tucked away safely where inflation can’t really touch it. And if RE prices are done collapsing, there really is no downside to keeping the capital “banked” where it is.
Report: Low Supply Points to Price Increases of 5-10% in 2013
The low supply of housing stock recently reported is giving Capital Economics reason to believe home price forecasts under 5 percent are actually conservative estimates.
Realtors in December expected prices to rise by about 3.5 percent over the next year, while consumer estimates were more modest at 2.5 percent for the same time period, the analytics firm noted in its monthly housing report. The estimates show a growing optimism among those groups.
For example, in March 2012, Realtors expected prices to rise by about 2.5 percent and consumers projected a 1 percent increase, according to a chart in the report.
But, with the low supply of inventory, Capital Economics anticipates much bigger gains. Recently, the National Association of Realtors reported existing home sales in December fell to a 4.4 month supply, the lowest level since May 2005, while the new home sales report from the Census Bureau/HUD says there is a 4.9 month supply of homes for sale.
“At face value, the 4.9 the months’ supply of unsold stock currently on the market in December points to house prices rising by as much as 10% y/y. For now, our forecast is for a 5% rise during 2013,” wrote Paul Diggle in the report.
The tightening in supply is not expected to continue, however. Capital Economics says it expects to see a rebound in housing starts and for the number of willing sellers to rise, which means inventory will hit a bottom soon.
The firm also noted the three major house prices indices— Case-Shiller, FHFA, and CoreLogic —posted yearly price gains at around 5 percent and as high as 7.4 percent in November.
Winter Season Slows Home Price Gains
National home prices continued to post strong yearly gains in January as lower-priced homes drove activity in the housing market, according to a report from Clear Capital. At the same time, prices showed signs of weakening on a quarterly basis.
On a national level, January home prices increased 5.4 percent from a year ago, but inched up by just 0.9 percent on a quarterly basis, the data provider reported.
Out of the four regions, the West maintained its lead with yearly gains and quarterly gains of 12.9 percent and 2.1 percent, respectively. As prices rise and REO saturation decreases (the portion of REO sales relative to total sales), the data provider expects price trends to moderate. Over the years, REO saturation has fallen in the West from the peak of 52.5 percent in March 2009 to 17.2 percent.
The remaining regions all saw yearly gains, with the South experiencing a 4.5 percent improvement in prices, followed by 2.7 percent in the Midwest and 2.4 percent in the Northeast. However, prices were flat on a quarterly basis in the three regions: South (+0.7 percent), Northeast (+0.6 percent), and Midwest (+0.2 percent).
Dr. Alex Villacorta, director of research and analytics at Clear Capital, explained the softened quarterly gains suggest “the budding recovery is not immune to the slower winter season.”
“What remains to be seen is if home prices will continue to rise, or remain stable through the winter. Regardless of what trends play out in the near term, we expect home prices to continue on a positive trajectory long term,” he added.
Clear Capital pointed to the low tier priced segment as the “main driving force in markets across the U.S.,” more specifically, homes that sell for $102,000 and less. According to the report, many of these lower-priced homes are REOs, which are attractive to both investors and buyers.
“REO sales continue to make an impact on the overall health and recovery of the housing market,” the data provided stated.
On a national level, the REO saturation rate has fallen from the March 2009 peak of 41 percent to 18.4 percent in January.
After measuring price trends in metro areas, Clear Capital noted one surprising occurrence-no Florida metros made the top 15 list for price growth.
“On a more micro level, Florida metros, namely Miami, Orlando, Tampa, and Jacksonville, were all missing from the top 15 performing market list. Since September 2011, at least one of these markets made the list,” said Villacorta. “While this isn’t confirmation that the recovery is finished in the sunshine state, it’s certainly something to keep an eye on.”
On average, metros on the top 15 list registered yearly gains of 13.4 percent, well above the national average, but reported quarterly gains under 5 percent. Six of the top 15 metros were in California.
Top Five Markets
(Based on quarterly gains)
Atlanta (+3.2 percent)
Phoenix (+3.0 percent)
San Jose (3.0 percent)
Las Vegas (2.9 percent)
Birmingham (+2.7 percent)
This partly a reason I think lenders are just going to stick with Qualified Mortgage. They will be less liable, but who knows.
DOJ lawsuit against S&P mortgage ratings
Posted by Kerri Ann Panchuk on February 4, 2013 01:42 PM
It’s been nearly two years since a Senate Subcommittee studying the financial crisis released a report, suggesting the nation’s major credit rating agencies — including Standard & Poor’s and Moody’s Investors Service — were partly to blame for the 2008 financial crisis.
Back in 2011, the Senate Permanent Subcommittee on Investigations reported that “inaccurate triple-A credit ratings” introduced key risk into the financial system and then contributed to the financial meltdown when the ratings giants underwent massive downgrades of the same mortgage-backed securities just months before the financial crisis.
The 2011 Senate Subcommittee report said the massive downgrades made by the credit ratings agencies a few months before the financial meltdown “precipitated the collapse of the residential mortgage backed-securities and CDO secondary markets” since the changes were “unprecedented in number and scope.” The report added that “more than any other single event (the downgrades) triggered the beginning of the financial crisis.”
If the Wall Street Journal’s latest article alleging the Justice Department and state prosecutors are about to file civil charges against S&P over mortgage bond ratings, then it seems the Senate Subcommittee’s findings are coming back to life, albeit two years after the Congressional investigators first released those findings. CNBC elaborated on the WSJ report, alleging the lawsuit involves 30 triple-A rated CDOs.
S&P was not available to immediately comment Monday afternoon. But early on, the credit rating agency pushed back against the 2011 report placing blame on the credit rating agencies.
“As we have said many times, we have been disappointed by the performance of our ratings on certain mortgage-related securities,” S&P said back in 2011.
“The actions we took to downgrade U.S. RMBS and CDOs in 2007 and 2008 reflected the unprecedented deterioration in credit quality, but were not a cause of it. We regret that, like many others, we did not foresee the speed and extent of the housing downturn.”
What’s most interesting about the potential civil charges is that it has been nearly two years since the report came out of the Senate, placing blame on investment banks, rating agencies and other parties tied to mortgage bond issues.
The question is what else in the report will eventually resurface as potential civil charges or parties to a massive settlement? And why just S&P? If Moody’s was named in the original Senate report, will additional ratings giants find themselves named in suits filed by the government?
It seems the further we get from the financial crisis, the more we hear about the alleged transgressions of yesterday.
Florida’s foreclosure king attorney faces bar discipline
By Kerri Ann Panchuk February 5, 2013 • 10:54am
A former foreclosure attorney known for living a luxury lifestyle while engaged in one of Florida’s largest foreclosure robo-signing scandals is now facing disciplinary action from the Florida Bar Association, according to documents from the organization.
David J. Stern was known in Florida as much for his luxury lifestyle of yachts and courtside seats at basketball games as he was for the trail of legal issues that surrounded the foreclosure law firm he manned until facing the loss of Fannie Mae and Freddie Mac’s business and allegations from Florida’s then attorney general of sloppily handling foreclosures.
The other Florida area law firms under fire at the time included Shapiro & Fishman, Florida Default Law Group and the Law Offices of Marshall C. Watson.
But David J. Stern became one of the most well-known names in the wake of the robo-signing, foreclosure document mishandling scandal. Numerous lawsuits were filed after Fannie Mae, Freddie Mac and top servicers dumped the law firm in the wake of the AG’s investigation.
Documentation issues tied to the firm’s work continued to plague individual foreclosure cases last year, well after David J. Stern had already exited from the practice of handling foreclosures.
It’s not specific how the Florida Bar’s rulings will impact Stern. However, under the rules he is accused of violating, the list of potential disciplinary actions includes everything from probation to suspension and disbarment.
As of Feb. 5, the Florida Bar Association had Stern listed as in good standing on its website, but that could easily change with the findings of probable cause for discipline released in just the past few days.
Housing Already Shows Signs of a New Bubble
By Diana Olick | CNBC – 3 hours ago
When housing began to simmer back in 2002, prices were rising around seven percent a year, then eight percent in 2004 and a stunning 12 percent in 2005.
At the time, words like “bubble,” and “unsustainable,” were uttered with every monthly reading. No one had seen home prices soar like that since the mid 1970′s.
Historically, prices nationally rise about three to four percent a year. The market was clearly too hot, and by 2007 it had reversed dramatically, with prices falling nationally for the first time in history.
Fast forward to today and the housing recovery.
Barely a year in, home prices rose over eight percent annually in December, according to a new report from CoreLogic. While still down double digits from their 2006 peak, prices are suddenly soaring again and raising some serious red flags.
Analysts at Clear Capital, which runs a four-month moving average price index, note that January’s numbers show, “momentum stalls.” While they blame this on seasonal slowdowns, they point to Florida as a concern.
“Florida metros, namely Miami, Orlando, Tampa, and Jacksonville, were all missing from the top 15 performing market list. Since September 2011, at least one of these markets made the list,” cautions Dr. Alex Villacorta, Director of Research and Analytics at Clear Capital. “While this isn’t confirmation that the recovery is finished in the sunshine state, it’s certainly something to keep an eye on. These markets led the recovery in late 2011, and share some of the hallmarks for recovering markets overall.”
Florida’s housing market has been driven by distressed homes, and investors buying them at a rapid pace.
Other markets that saw the most distress during the housing crash, like Phoenix, Las Vegas, and much of California, have also seen so much investor demand, that prices are up by double digits from a year ago.
Phoenix leads the pack, with prices up 26 percent from a year ago, according to Clear Capital. The “REO saturation” there, that is the share of sales that are foreclosures (Real Estate Owned) is 17 percent. Mind you, that is down from over 50 percent just a few years ago, when the market was still crashing. The story is the same in Las Vegas, where REO saturation is still 38 percent, prices are up over 15 percent annually. Investors have cleaned out the inventory so much that they are now bidding up prices higher than any expectations, and that is pushing many potential owner-occupant buyers out, especially first-time home buyers.
In Florida, where there is a huge pipeline of distressed loans, foreclosures had been severely delayed due to the so-called “robo-signing” foreclosure processing scandal. After years of negotiations and now final bank settlements, foreclosures are moving again. This increased inventory may be what is slowing the big price gains.
More concerning is that the investor price drives are not playing out in other parts of the country, specifically in the South and Midwest.
In St. Louis, Chicago, Charlotte and Dallas, distressed properties are making up about one third of the market, often higher than markets out West, but home prices are either flat or down annually, a far cry from the jumps out West. That is because investors are not as interested in these markets. As banks now begin to ramp up foreclosures, not just in Florida, but especially in states like New York and New Jersey where judges had been holding up the process as well, more distressed inventory will come on the market with fewer potential buyers. That will push prices there down.
Essentially, the recovery is becoming increasingly bifurcated, with much of the nation still suffering as some markets see bubble price dynamics.
And here’s just one more red flag.
Most of the investors in those bubble markets are big money, hedge funds. They have claimed that they are in the market to hold and reap rental rewards, but as prices jump, they may be inclined to take their profits now.
What we had thought were safer, long term buys, may now turn into the flips of the last decade. The question will be if there are enough non-investor buyers out there to support those sales?
True, consumer confidence in housing is returning. Improving employment is making home buying an option again. Price gains have brought many potential buyers out from underwater on their mortgages, allowing them to move again. Of course they would have to list their homes first, adding to inventory.
You can see where the dynamics become so complicated that it is easy to have huge housing optimism among the many warnings. Inventories are very low right now, and that is driving prices. Most predict prices will continue to rise through 2013, but prices always lag sales, and these prices are reflecting the sales of last year, the investor sales. If sales do not continue to be strong, and lately they have not been, then prices could easily turn in the hot markets and worsen in the still struggling markets.
The main reason I think this latest bubble won’t even come close to the last one is that the mania just isn’t there. Sure there are some buyers bidding up the limited inventory, and with low rates realtors/”boiler room” mortgage brokers are pushing houses and loans onto everybody they can. But when you talk to people about housing, it’s a drastically different conversation than it was in 2005. Everybody is so beaten down. There are still so many underwater, and many renters who see current prices as insanely unsustainable. To get a true bubble you need mania, and we just don’t have that now. I also don’t see how the “hot money” can stay in the market indefinitely. Successfully maintaining a massive portfolio of single family rentals is next to impossible. It just doesn’t scale. Try to imagine a world where half the houses in a nice neighborhood are rented out by hedge funds. Where’s the demand for that? The combination of a beat-down consumer and lack of reality around large-scale SFH investing means this mini-bubble will pop soon.
Agreed. In 2005 everyone I talked to complained about the high prices, but wanted in. In 2013, everyone still complains about the high prices, but nobody is clamoring to get in. Needless to say, but it’s much harder to “get in” today, which probably tempers enthusiasm…
The lack of participation by ordinary citizens (sheeple) is certainly lacking. If owner-occupants start coming back to the market in large numbers, perhaps a new bubble might form, but with so much bad credit out there, a big influx of buyers isn’t likely to happen any time soon.
Question is, as risk rises, at what point will 6% cash returns FAIL to restrain a stampede to the exits???
Tail risk: Kamala Harris Declares War on Lenders, Loan Servicers in CA
”The CA experiment concocted by AG Harris in “rule by trial lawyer” may eventually cause the federal government to stop guaranteeing mortgages in CA entirely. Imagine how the CA housing market would perform with no loan guarantees from FHA or the GSEs.
More on this unfolding disaster in future issues ofThe Institutional Risk Analyst.
http://www.zerohedge.com/contributed/2013-02-05/tail-risk-kamala-harris-declares-war-lenders-loan-servicers-ca
” ”The CA experiment concocted by AG Harris in “rule by trial lawyer” may eventually cause the federal government to stop guaranteeing mortgages in CA entirely.”
I could see the California Legislature passing a law that says banks must make home loans in California. Good luck enforcing that one.
Oh you know. Democrats always think they can pass a law commanding water to flow uphill.
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