Local officials in San Francisco denied a sound building project due to angst over Donald Trump's election and the persuasion of a Bernie Sanders sock puppet. Nimbys oppose new developments for two reasons. First, they don't want to deal with more people in their neighborhoods and on their streets, and second, they don't want competing housing supply on the market that would prevent the value of their house from inflating further. Since opposing new development carries no cost, and since killing new development brings rewards, the incentive is to oppose -- and nimbys no longer feel shame for this behavior. California NIMBYs don’t love their children. If they did, they would at least support enough new development to accommodate their…[READ MORE]

Local Chinese government officials and real estate developers corruptly conspire to take land from peasants without just compensation. In most countries around the world, a legal process known as eminent domain exists for taking private land for public purposes. Without eminent domain, we wouldn't have roads or other forms of public infrastructure necessary to sustain society. In the United States, and in most of the world, when a government body takes a piece of property through eminent domain, the person surrendering the property receives just compensation. If the parties fail to agree on what constitutes just compensation, they can petition the court to decide for them. In most instances, the courts render a fair and unbiased opinion of the value…[READ MORE]

The conforming loan limit is set to rise by 10,650 in Coastal California, reducing down payment requirements by $8,520 on homes prices above this limit. During the housing bubble, the conforming limit rose as high as $417,000, but when the housing bubble burst, this limit was raised to $729,750 in markets like Coastal California that needed the most government support to maintain peak prices. In 2011, the conforming limit was lowered from $729,750 to $625,000 ($546,250 in San Diego). The hard cap on FHA and GSE loans forces many borrowers to use a jumbo loan. Lenders who originate jumbo loans have stricter standards than the FHA or the GSEs, and most importantly, they require 20% down. Most potential buyers lack…[READ MORE]

The mortgage and foreclosure debacle of 2008 was cut short by government intervention. A second round of deferred distressed sales is yet to hit the market. Is the mortgage and foreclosure crisis resolved or merely delayed? Americans believe the mortgage and foreclosure crisis of 2008 is over, a misperception fostered by a financial media eager to disseminate good news. Most people were lead to believe an improving economy put people back to work, and those hard-working Americans cured their loans of past-due payments. Unfortunately, reality differs from the accepted narrative. While the notion of the noble borrower dutifully recovering from the perils of the Great Recession appeals to Americans, most borrowers were overextended before the recession hit, and lenders cut deals with these borrowers to…[READ MORE]

Most homeowners ignore the carrying costs during their ownership period when they calculate the gain or loss on a sale. If someone claims they bought a house for $900,000 and sold it for $1,000,000, how much money did they make? $100,000? No, not even close. People tend to forget about the transaction fees and carrying costs when they compute the gains and returns on their real estate purchases. In the example above, when the buyer paid $900,000, the actual costs paid at closing were probably $5,000 to $15,000 higher due to closing costs, appraisals, lender fees, insurance, and other miscellaneous closing costs. The homeowner lost another large chunk when they sold. Most people still pay a 5% to 6% commission…[READ MORE]

California nimbys prevent the construction of housing needed for the next generation of Californians. Last month I wrote about how American Dream equates with home ownership, and the California Dream resembles the exclusionary policies of the landed gentry of Elizabethan England. Like the working classes of Elizabethan England, the working class in California is doomed to rent from the landed gentry -- the antithesis of the American Dream of homeownership. Besides the death of the American Dream and the creation of a permanent underclass of transitory renters, the California model of the neo-landed-gentry disturbingly excludes our children from the homeownership club, sentencing many of them to this new renting underclass. It's apparent that the people responsible for this mess, California Nimbys, don't love their…[READ MORE]

With millions trapped underwater, and with those with equity experiencing weak wage growth, most people choose to remain in their homes rather than moving up. Americans love their homes. Over the last decade, they became so enamored with their abodes that many decided not to leave. Prior to the housing bust, homeowners remained in place for a little over four years on average. Over the last decade, that timeline stretched to nearly eight years. Why are people staying in their homes so long? While some people undoubtedly found their dream home years ago, people retain their current home for reasons other than their affinity for it. Nearly 6 million people remain trapped in their entry-level homes they purchased a decade ago. Perhaps…[READ MORE]

At this point in history, the benefits of an overheating economy outweigh the detriments of a little inflation. The Federal Reserve controls the economy's gas pedal. They can step on the pedal by lowering rates to inject more fuel into the economic engine. They can also let off the gas by raising interest rates. For the last eight years, the federal reserve held the pedal to the metal, but even at top speed, the economy wasn't firing on all cylinders. Finally, the economy appears to be recovering from the 2008 recession. Unemployment is low, growth is stable, and wages are finally starting to rise. With as dismal as the economy has been for the last decade, many probably wonder why…[READ MORE]

By greatly reducing the tax advantage of mortgage debt, many high-wage renters may choose to remain renters rather than assume large debts to buy a house. However, by reducing taxes on lower-income Americans, Trump's tax plan should stimulate demand for entry-level housing. Over the years, I wrote several posts critical of the home mortgage interest deduction because it's an expensive tax subsidy that only serves to inflate house prices in areas dominated by high wage earners. While several options exist for modifying, replacing, or eliminating the subsidy, only one of these options is politically feasible -- and it's the one Trump proposed. As it stands today, only a small segment of high wage earners claim this deduction. In theory, this subsidy…[READ MORE]

The housing cycle probably hasn't reached a turning point because the far-flung suburbs haven't recovered yet. The old real estate adage says "you drive until you qualify." Potential homebuyers substitute to far-flung suburbs (exurbs) because high house prices push them away from more desirable markets closer to employment centers. Basically, if people drive far enough, they will find a house they can afford. This phenomenon causes many California homeowners to endure brutal commutes. The cost-push substitution effect explains why recoveries start in the most desirable neighborhoods closest to employment centers and radiate outward to the exurbs. In past recoveries, the most distant commuter markets fully recovered and even participated in the subsequent bull run (bubble cycle). One notable difference between this…[READ MORE]

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In Memoriam: Tony Bliss 1966-2012
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