Jul242013
With stagnant wages, what will cause rents and home prices to rise?
A growing economy and increasing productivity causes aggregate wages to rise. Higher wages provides workers with more income to bid up rents and house prices. But what happens when wages stagnate? Can rents and house prices continue to rise in such an economic environment?
Real Wages Still Below June 2009 Level
By Jonathan House — July 16, 2013, 9:54 AM
Average hourly wages were unchanged from May to June after adjusting for inflation, the latest sign of households struggling to gain purchasing power in the aftermath of the Great Recession.
The flat result stemmed from a 0.4% increase in average hourly earnings being offset by a rise in the consumer price index. Over the last 12 months, inflation-adjusted hourly wages have risen by just 0.4%.
Given that the CPI readings on inflation has been tame, even nominal wages are growing very slowly. There’s a reason for that.
Standard economic models hold that wages should increase during times of economic recovery and falling unemployment. But new research from economists at the Federal Reserve Bank of San Francisco finds that normal wage models don’t apply during and after recessions.
The researchers examined data from the last three U.S. recessions and found that wages held steady or didn’t decline by very much, despite spikes in unemployment, during the downturns. Then, as the economy emerged from recession and unemployment fell, wages didn’t recover much either.
After the last recession, the fraction of U.S. workers whose wages were frozen reached a record high.
The researchers concluded that when companies lower their labor costs to adjust to declining output, they find it easier to lay off workers than to lower wages. Nevertheless, they typically fail to adjust labor costs as much as they think they need to during the downturn, so they continue the adjustment after the recovery takes hold by keeping a lid on wages.
The severity of the last recession means that the damping effects on wages are likely to continue for some time, the researchers said.
Apparently, if the magic appreciation fairy is to do her job, it won’t be because rising wages are pushing real estate values higher.
Rising wages are needed to offset rising interest rates
House prices are largely set by financed buyers. Typically, the all-cash auction market sales transact at prices 20% below MLS comparable sales where financed buyers bid up prices. 
And the only reason they are that high is because flippers will bid up to values where they know they can turn them quickly for a profit. If financed buyers were entirely removed from the market, house prices would be much lower than they are now.
Financed buyers establish their bids based on their incomes and current interest rates. Low rates like we have today allow borrowers to greatly leverage their incomes and finance relatively large mortgage balances and bid up prices. The three key variables involved are income, interest rates and allowable debt-to-income ratios.
Rising interest rates reduce the buying power of prospective house shoppers because their incomes can’t be leveraged into large loans. The only way to offset the reduced borrowing power is to increase income or debt-to-income ratios. Lenders can’t increase debt-to-income ratios due the 31% cap on GSE loans that dominate the market and recent qualified mortgage rules that cap back-end debt-to-income ratios at 43%. This leaves only rising incomes to push prices higher, and as the article stated above, that won’t be happening any time soon.
Wage inflation does not cause housing bubbles
At some point, the pressure of an expanding economy and productivity growth will force employers to bid higher to obtain and retain key employees. That’s when wages rise. If the federal reserve prints enough money, they will stimulate the economy, and they will also likely stimulate a great deal of inflation.
The study quoted above points out that real wages — wages adjusted for inflation — are flat. If the federal reserve revs up the economy with printed money, real wages may still remain stagnant even as nominal wages rise significantly. Rising nominal wages will allow both renters and prospective homebuyers to raise their bids for real property, and depending on how bad inflation gets, both rents and house prices could rise at a very brisk pace. However, this would not be a bubble.
As long as the bids are based on stable, amortizing mortgages with a reasonable debt-to-income ratio, the price increases would be normal and sustainable. Many people point to the 1970s as evidence that house prices can rise in an environment of inflation and rising interest rates. This can only occur if debt-to-income ratios get out of control. That’s what drove up prices in the 1970s. Since debt-to-income ratios are currently capped, unless that law is changed, house prices will rise along with wages, but no faster.
Real estate can serve as a hedge against wage inflation causing the general level of prices rising, but only if interest rates don’t go up even faster as the federal reserve raises rates to combat inflation. With the likelihood of stagnant wages and rising interest rates, the primary impetus to push prices higher will be effectively muted.
Those pesky HELOCs again
The former owners of today’s featured REO bought back in 1989. My records don’t go back that far, but based on the purchase price, their mortgage was probably around $140,000. They had no mortgage activity until 2006 when over a one year period they opened four different credit lines ranging from $188,000 to $255,000. The balance on the mortgage in first position ballooned to $296,000 when the property was foreclosed on last November.
Twenty-four years after buying the property, they lost it in foreclosure because they blew through several hundred thousand in HELOC money. Rather than enjoying a property that’s nearly paid off, they are now living in a rental with bad credit.
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[idx-listing mlsnumber=”NP13139251″ showpricehistory=”true”]
7691 WESTERN Ave Buena Park, CA 90620
$424,900 …….. Asking Price
$163,000 ………. Purchase Price
7/25/1989 ………. Purchase Date
$261,900 ………. Gross Gain (Loss)
($33,992) ………… Commissions and Costs at 8%
============================================
$227,908 ………. Net Gain (Loss)
============================================
160.7% ………. Gross Percent Change
139.8% ………. Net Percent Change
4.1% ………… Annual Appreciation
Cost of Home Ownership
——————————————————————————
$424,900 …….. Asking Price
$14,872 ………… 3.5% Down FHA Financing
4.37% …………. Mortgage Interest Rate
30 ……………… Number of Years
$410,029 …….. Mortgage
$114,738 ………. Income Requirement
$2,046 ………… Monthly Mortgage Payment
$368 ………… Property Tax at 1.04%
$0 ………… Mello Roos & Special Taxes
$89 ………… Homeowners Insurance at 0.25%
$461 ………… Private Mortgage Insurance
$0 ………… Homeowners Association Fees
============================================
$2,964 ………. Monthly Cash Outlays
($483) ………. Tax Savings
($553) ………. Principal Amortization
$24 ………….. Opportunity Cost of Down Payment
$126 ………….. Maintenance and Replacement Reserves
============================================
$2,078 ………. Monthly Cost of Ownership
Cash Acquisition Demands
——————————————————————————
$5,749 ………… Furnishing and Move-In Costs at 1% + $1,500
$5,749 ………… Closing Costs at 1% + $1,500
$4,100 ………… Interest Points at 1%
$14,872 ………… Down Payment
============================================
$30,470 ………. Total Cash Costs
$31,800 ………. Emergency Cash Reserves
============================================
$62,270 ………. Total Savings Needed
[raw_html_snippet id=”property”]
Unbelievably, I suspect people are willing to boost the percentage of their income they’ll plow into housing to even higher levels than they’ll do for an Audi, as housing is more of a status symbol than a spiffy leased vehicle, but they will have to make sacrifices in other parts of their lifestyles.
Those sacrifices may come in the form of living closer to work – at least in the same municipality. We may see some realignment toward urban condos and away from the distant suburbs, or smaller but more flashy dwellings in the suburbs. I smell realignment, with McMansions falling out of favor. What will come into favor in place of them, is the question.
McMansions and excessive space is another sign of status. Like Roman gluttons, people who consume far more housing than they need are seen as wildly successful and envied by others. I think the McMansion will always be popular. People may opt for small condos near train stations if the city or zip code is particularly fashionable, but I suspect most of these units that are built will be properties people take because it’s the only thing available in their price range. Unless we have a significant cultural change, most will still believe bigger is better.
I wonder what the commonly accepted definition of “mcmansion” is? Is anything above 3,500 sq ft a mcmansion? We can tour a 2,700 sq ft home in Irvine and find it suitable for our needs; but we can also tour a 4,000 sq ft house in Lambert Ranch and not think it’s “too much house.”
I think it refers to maximizing a home’s dimensions according to limits imposed by the regulating body of code. Covering your whole lot with house and going up a floor too, customizing w/ manorific trim for good measure, and doing it in a mature neighborhood to boot.
Or maybe the mountain moves to Mohammed. Since there is ever decreasing turnover of housing units in urban centers, thanks to Prop 13, commuting from the IE to job centers has mushroomed.
Since no more housing units can be built in densely packed urban areas, and is actively opposed by current residents, businesses may choose to relocate to less expensive suburban areas where lower housing costs result in lower labor costs.
Ultimately, growth restrictions will cause the mountain to move to Mohammed. If house prices become so high that the cost of living makes even high salaries untenable, businesses won’t be able to attract workers, and those businesses will move to locations where both office rents and housing costs are lower.
Plus, it won’t be a successful day on the blog if we don’t get a post from Carlos Danger.
Report: FHA’s REO Disposition Strategy Weak Compared to GSEs
The Federal Housing Administration (FHA) needs to work on improving its REO disposition strategy so it can bring in higher returns when properties go to sale, according to a recent report from the GAO. In fact, when compared to Fannie Mae and Freddie Mac, the congressional watchdog found FHA disposes its REOs at a much slower pace and sees smaller returns.
The report was based on a period spanning from January 2007 to June 2012. According to the GAO, the agency’s inventory of REOs grew from over 25,000 in 2007 to a peak of over 65,000 by the end of 2011.
According to the report, “if FHA’s execution rate and disposition time frame had equaled those of the enterprises in 2011, it could have increased its proceeds by as much as $400 million and decreased its holding costs—which can include items such as taxes, homeowners’ association fees, and maintenance costs—by up to $600 million for the year.”
Although the FHA and GSEs employ similar disposition strategies, there are certain beneficial practices used by the GSEs and servicers that the FHA overlooks.
After examining foreclosure timelines, the GAO revealed the FHA takes about 340 days to dispose of its REOs after foreclosure, which is more than 60 percent longer than the GSEs’ average of 200 days.
Additionally, FHA’s returns on REOs were found to be smaller.
Over the four-and-a-half-year period inspected, the report found FHA disposed of more than REO 400,000 properties. To find the agency’s combined returns, the GAO measured the net execution rate, which is the net sales proceed divided by the property value.
Overall, the FHA’s returns were about 4 to 6 percentage points below the GSEs’ returns. When controlling for certain characteristic differences, such as value, location, and local market conditions, FHA’s returns were about 2 to 5 percentage points lower compared to the GSEs.
This is a new type of subprime MBS?
Freddie Mac Said to Boost Size of Risk-Sharing Mortgage Bonds
Freddie Mac (FMCC) increased the size of its sale of a new type of debt tied to the risk that homeowners will fail to repay their mortgages, according to a person with knowledge of the transaction.
The government-controlled mortgage-finance company may issue $500 million of the notes, up from $400 million, in the offering being managed by Credit Suisse Group AG, said the person, who asked not to be named because terms aren’t set.
The deal reflects an effort by the Federal Housing Finance Agency to reduce the role of Freddie Mac and Fannie Mae in the residential-mortgage market, where government-backed loans now account for more than 85 percent of lending. The FHFA, which has overseen the firms since they were seized by the U.S. in 2008, has been directing them to raise how much they charge to guarantee their traditional mortgage bonds and asked each to attempt to share risk this year on $30 billion of home loans.
Investors are being drawn to the notes after McLean, Virginia-based Freddie Mac boosted the extra yield it’s willing to pay relative to benchmark interest rates, the person said. After those potential spreads widened last week following the announcement of the deal, the debt may be priced tighter than those levels, though still wider than in discussions before formal marketing began, the person said.
Yes, this is sustainable.
Americans Gambling on Rates With Most ARMs Since 2008
Jung Lim plans to offset the cost of rising mortgage rates by using an adjustable-rate loan to buy a home for his expanding family. For the California endodontist, the money he’ll save makes up for the ARM’s risky reputation.
Lim, 38, whose wife is expecting a second child in December, is leaving a two-bedroom condo in Los Angeles’s Hancock Park to buy a four-bedroom house in the city’s Sherman Oaks neighborhood for $1.12 million. His lender offered him a rate for an adjustable mortgage that is about a percentage point cheaper than a fixed loan.
“If I could have gotten a 30-year fixed at the interest rate I’m getting the ARM for, I would have felt a lot more comfortable,” said Lim, who’s also a professor of endodontics at the University of California, Los Angeles. “But I’m hoping to refinance in five years or less. And we’ll be in the house for about 10 years so we could also sell. Hopefully prices have bottomed so we won’t be underwater then.”
In the second year of the U.S. housing recovery, the loans that helped trigger the housing bust are making a comeback. Applications in late June rose to the highest level since 2008 after the Federal Reserve sent fixed rates surging by signaling it may curtail bond buying credited with pushing borrowing costs to the cheapest on record. The average 30-year fixed-rate mortgage jumped 1.2 percentage points in mid-July from May to the highest level in two years, adding about $200 a month to payments on a $300,000 mortgage.
“For the California endodontist, the money he’ll save makes up for the ARM’s risky reputation.”
And what about the money he will lose when interest rates rise and his ARM is more expensive than the FRM he could have obtained? Stupid is as stupid does.
But I’m hoping to refinance in five years or less. And we’ll be in the house for about 10 years so we could also sell. Hopefully prices have bottomed so we won’t be underwater then.”
Hope is not a good plan. If wishes were horses, we’d all have ponies.
Hope is the last refuge of the incompetent. But, I suppose, for those in desperate situations, false hope is better than no hope at all.
The only way the ARM strategy is superior to FRM is if house prices rise despite the rising rates. In this case, look at the ARM as a long-term lease with option to buy. If you can buy the house for 500k with 20% down, you will pay about 250 less per month. With a 5/1 ARM, the rate is fixed for 60 months, saving you 15k over a FRM. The catch is that your lease is up after 5 years, and you better move or the landlord (bank) is going to jack your rent. The bank can also raise your rent incrementally every year thereafter to the contract maximum.
If housing prices are stable, you are going to lose the 15k you saved plus another 15k when you pay the 6% commission on the 500k sale price – not to mention other moving fees. If you apply the difference to the loan balance, however, a small rise in prevailing rates will be absorbed by the drop in principal.
For instance, a 400k balance can be paid down to 342k by applying the 250/mo savings over the FRM (FRM bal = 364k @60mo; ARM bal = 342k @60mo). When you refi the 342k balance at 6%, the new payment is 2050/mo up from 1796 for the ARM, and slightly more than the FRM payment of 2026/mo. The only problem is that now you have extended the term by another 5 years, so the money you saved on the ARM will show up on the back end of the loan. If the rates rise higher than 6%, then the payment shock can be even worse.
The only way that I have found that ARMs make sense is to: 1) massively underbuy; 2) get the longest term available (7/1 ARM; 10/1 ARM); and, 3) pay down the principle during the fixed period before the rate resets. This can be a great way to build equity and move up later on, but requires living in smaller quarters than your family may amicably tolerate.
Personally, I value my sleep more than I value the small amount of money that wouldn’t ultimately be saved by going the ARM route. Why hang your financial hat on something with a shaky foundation like house prices and interest rates? And the more buyers that turn to ARMs as affordability products, the more likely that housing prices will fall about the time that the ARMs reset. This street looks familiar, haven’t we been here before?
“…The only way that I have found that ARMs make sense is to: 1) massively underbuy; 2) get the longest term available (7/1 ARM; 10/1 ARM); and, 3) pay down the principle during the fixed period before the rate resets…”
Agreed, except I would hold the cash rather than pay-down the mortgage and treat the end of the fixed-period as a balloon payment due.
Oh my god, $425/sf for a shack that should be plowed?
That is as bad as the height of the bubble!
That’s the whole point of lenders withholding inventory and lowering interest rates. They want prices to be as bad as the height of the bubble because it’s the only thing that will save their skins.
“The location is fantastic; you can walk to Knott?s Berry Farm, and you are close to so many great things in Buena Park: schools, parks, recreation, shopping, and the world famous Beach Blvd. or as we locals reverently refer to as Highway 39”
LOL!
My son and I got to Knott’s frequently. Often I have to drive buy some of the nearby residences on my way out. They are not the finest properties in OC.
“…world famous Beach Blvd…”
You know the Realtor spin machine is running at full RPM when they have to refer to Beach Blvd as “world famous”.
LOL Are these Realtors yanking my fence pole? I have lived here for 64 years and never once have heard Beach Blvd referred to as “world famous” or anything else other than “congested”.
Maybe this realtor was thinking about “World famous” Harbor Blvd and its “World Famous” massage parlors..? Buts that another story for another blog.
world famous for all things vice!
I was born in Westminster, and have lived almost my entire life in Orange County, including stints in 8 different OC cities spread over the north, central and south. Not once have I ever “reverently” referred to Beach Blvd. as Highway 39. It’s BEACH FRICKIN BOULEVARD dude! And it’s crowded as all heck trying to drive from the 22 to Huntington Beach.
LOL. I need to find out more about the realtor on this listing and see if he/she can create me some BS marketing materials to manipulate in out-of-town suckers for my business… LOL again!!!!
Most people want it all. The McMansion, the flashy whatever on four wheels, the big boat or RV, the lavish vacation and the Cometely remodeled interior with all the bells and whistles. And they want it all RIGHT NOW.
You would be shocked to know how many people are more into the showing off they are successful on the front end but absolutely lveraged on the back end. I should know my relatives were one of those people. I estimate she lost oh about 750k. All because she is a financial moron.
And there are many like her everywhere. Sad? Yes. Completely and utterly preventable? Absolutely.
People need to realize that you must live within your means. Yeah you can go quite a while on a ponzi but eventually it catches up with you
What the government is teaching them is that if go Ponzi, we will bail you out and help subsidize your Ponzi lifestyle. Ponzi borrowers whether they be corporations or individuals should be allowed to fail.
We live in a culture full of people who buy things they don’t need with money they don’t have to impress people they don’t know.
Sad, but true.
The govt must do this or else the sheeple would get restless. Americans will have thier day like the greeks.
I am suprised how man people are moving away from debt, and plan on paying with cash. Looks like an underground revolution to me.
A luxury is truly earned when one has enough passive income to pay for it.
HousingPulse: Investor Activity Down Sharply
Current homeowners are playing a bigger role as housing market participants amid a sharp slowdown in investor activity, according to data from the Campbell/Inside Mortgage Finance HousingPulse Tracking survey.
Among three buyer types-current homeowner, first-time homebuyer, and investor-the survey showed current homeowners were the only group to see activity rise in June.
Last month, current homeowners represented 44.6 percent of the purchase market, up from 43.8 percent in May based on a three-month moving average.
At the same time, the share for first-time homebuyers fell to 35.7 percent from 36 percent month-over-month.
Even more notable was the decrease in investor purchases. As rising home prices discourage investors, HousePulse found home purchases from investors slipped to 19.7 percent, down significantly from 23.1 percent from February. The percentage also represents the lowest level since September 2012.
Falling in line with the decrease in investor activity was a drop in the supply of distressed properties.
According to HousingPulse, the share of foreclosure or short sales transactions plummeted year-over-year, falling to 28.2 percent from 40.3 percent in June 2012. The percentage represents the lowest level in at least three and half years.
The HousingPulse survey also revealed investor traffic decreased for the fourth straight month in June.
Agents across the United States also offered insight into investor activity, with one Arizona agent stating, “Investors have left our market with rising house prices,”
In California, one agent reported, “Values have increased by 20% since January and investors are backing away.”
We should just end QE and can really stimulate home buying.
New Home prices fall as number of sales increase
The price of a new single-family dropped to its lowest level in seven months in June as sales surged to a five-year high, the Census Bureau and HUD reported Wednesday.
The seasonally adjusted annual rate of sales welled 8.3 percent in June to 497,000. Economists surveyed by Bloomberg expected June sales to increase to 484,000 from May’s originally reported 476,000. May sales were revised down to 459,000.
The median price of a new home, according to the Census/HUD report, fell 5.0 percent in June to $249,700, the third time the median price has dropped in the last four months. May’s median price was revised down to $262,800 from the originally reported $263,900.
While the inventory of new homes for sale rose to 161,000 in June—the highest level since September 2011—from 159,000 in May, the months’ supply fell to 3.9 from 4.2 in May, matching January for the lowest supply since October 2004.
The Census/HUD homes sales report continued to show a decided shift to lower-priced homes; 33 percent of homes sold in June were priced less than $200,000, up slightly from 26 percent in May and 24 percent in April. At the other end of the range, 15 percent of home sold in June were priced at $400,000 or higher compared to 16 percent in May and 24 percent in April.
The average price of a new home slipped $12,400 in June after falling $29,400 in May, which was the largest month-over-month decline since August 2008, when the average price fell $36,400. The average price has also dropped in three of the last four months.
Despite the monthly decline, June’s median price was up 7.4 percent over June 2012. The average price in June was 8.5 percent higher than June 2012.
I think the true test for REITs is going to be when they have a couple of consecutive quarters of lackluster returns. What happens when investors want to move their money to greener pastures? Houses aren’t like stocks or bonds. You can’t sell a couple of billion dollars in rentals in a nanosecond. Where are they going to get the money from if 20% of the investors want out? Petty cash? To replace current investors with future investors the market price of the REITs will have to fall based on the current rates of return. Once the value of the REITs falls, more investors will look to lock in profits. This is how any speculative investor boom ends, with a washout of all those late to the party.
Most of these real estate REITs have five to ten year holds on the money. Even if the investors wanted out, they’re stuck. It’s the only thing that would prevent a massive forced selloff from redemption requests.
What would prevent one from buying EARN (Blackstone backed REIT, for example) today and selling it tomorrow?
An exchange traded REIT has no hold periods, but they have commitments of cash from bondholders that do have hold periods. You can sell a share of a REIT or a bond to someone else, but you can’t force the REIT to buy it back.
Private equity funds, which most of these are, require the investor to sign a subscription agreement with terms written by the equity fund. Any of these that invest in real estate have long-term redemption hold periods.
Leading Economic Indicators Flat in June
The Conference Board’s Leading Economic Index (LEI) for the United States was unchanged at 95.3 in June following increases in April and May, the group reported.
“Declines in building permits, new orders and stock prices were offset by gains in consumer expectations, initial claims for unemployment insurance, and other financial indicators,” said Ataman Ozyildirim, economist for the Conference Board. “However, the LEI’s six-month growth rate remains positive, suggesting the economy will continue expanding through the end of the year.”
Meanwhile, the Coincident Economic Index, which tracks the current state of the economy, increased 0.2 percent to 105.9, mirroring increases in April and May.
The Lagging Economic Index, a measurement of indicators that change after the economy as a whole changes, rose 0.3 percent to a value of 119.0. The monthly change is slightly below May’s 0.4 percent increase but above April’s 0.2 percent gain.
Report: 26% of HAMP Borrowers Redefaulted, Rate Continues to Worsen
Upon closer examination, the government’s Home Affordable Modification Program (HAMP) has not helped as many borrowers as it may seem, according to a report from the Office of the Special Inspector General for the Troubled Asset Relief Program (SIGTARP).
HAMP, a loan modification program created to prevent foreclosures, has provided about 1.2 million modifications to distressed borrowers since its inception in 2009. Of those borrowers, 306,538 fell behind on their payments by three months, which means in actuality, 865,100 are still in actively in the program, the taxpayer watchdog agency revealed. Borrowers who miss three consecutive payments become disqualified from the program.
Of the total number of redefaulters, 22 percent have entered into the foreclosure process.
SIGTARP also found the percentage of modified homeowners who end up as redefault has steadily increased over time. In 2009, the percentage ended the year at 1 percent and has since risen to 26 percent as of April 2013.
The likelihood of falling out of the program also seems to increase over time.
For example, among oldest HAMP modifications, the redefault rate was 46 percent. For loans modified in 2010, the redefault rate averaged 38 percent. On the other hand, homeowners who received modifications in early 2013 have a redefalt rate of less than 1 percent.
The report also found states with a smaller numbers of HAMP borrowers tended to have higher redefault rates. Mississippi, which has provided just over 4,500 modifications, has a redfeault rate of 35 percent, the highest out of any other state. Alabama was close behind with a default rate of 33 percent, followed by Tennessee, Delaware, Louisiana, and Missouri, where the rate was 32 percent for each state.
Based on region, Western states averaged the lowest default rate of 21 percent and had the highest number of permanent modifications as group.
Thanks for posting. That looks like fodder for a future post.
The fodder is coming fast these days.
So many people bought houses that they could “just barely” afford and now a few years later they don’t have those houses anymore. I was approved for nearly 3x what I spent on my house. If I had taken all of that I would be living in a van down by the river right now. Afloat Flood Service
Dave Ramsey counsels, “Only take on a mortgage (after you’re completely debt-free) that is a 15-year fixed rate loan where the mortgage payment is no more than 25% of your NET income. Try that calculation for an eye-opener! It’s especially harsh if you’re in a high income tax state (CA 9.3%) and you’re in a high federal income tax bracket. Then exclude all of your benefits deductions and 401k contributions, and your income has shrunk by more than a third.
For as good as that advice is, it would put high wage earners in 1-bedroom condos in OC.
Or homes would cost less?
That advice is from the 50s? My rent is about 20% of my net monthly income, and I know I am lucky to be renting so cheap. A great situation for me with a lot of money to buy what we need or want. Too bad it doesn’t translate well to house buying.
While I appreciate what Dave Ramsey’s advice is, and it is solid for fiscal discipline, that would mean my wife and I and our child and potential other children would be living in a one bedroom apt in a dumpy area of OC. Or she would have to leave all the duties of our 2 businesses to me and go get a job and dump our kid(s) in daycare. That’s not an option. We have a seriously imbalanced economy in OC.
His overall stance against consumer debt is good, but I agree that some of his advice is questionable, particularly when it comes to investments. He advises saving up and paying cash for rental properties for example. Yeah, you won’t be at risk of going bankrupt that way, but you won’t be buying many properties either.
FYI …
10 year bond up sharply today …
up .10 basis points to 2.62%
How many Fed people will need to get on TV again to talk it down again?
That foreclosure map just above the comments section is accurate? I see 4 times the number of houses in my price range than what is listed in the MLS and many are in the expensive area that is way out of my price range.
The map is accurate. It’s a direct feed from Foreclosure Radar.
Many of those pre-foreclosure properties will end up getting a can-kicking loan modification to prevent it from reaching the MLS. That’s the game the banks are playing.
I don’t know if we need another news article posted. However, this doesn’t bode well Home Mortgage Interest Tax Deduction.
Second-home mortgage deduction future in question
Members of the Congressional committee overseeing tax write-offs are largely disconnected from the average voter since they are eight times more likely to own a second home with a mortgage, National Mortgage News claims in a report.
The article suggests these lawmakers could carry a bias, resulting in a reluctance to fix the tax code when it comes to mortgage deductions on second homes.
Lawmakers are examining the estimated $8 billion a year that they could raise from ending the second-home mortgage deduction; however, more than 40% of members of the House Ways and Means Senate Finance committees have second mortgages, the article said.
Despite the polarity between committee members and the average American, members say having a second home will not sway them from creating good policy.
Rumors are that the QRM rule will be watered-down only requiring originators keep a portion of the loan on their balance sheets if the back-end DTI is > 43%.
http://www.bloomberg.com/news/2013-07-24/softened-mortgage-rule-said-to-be-proposed-soon-by-u-s-agencies.html?cmpid=yhoo
A panel of six financial regulators is close to proposing a softened version of a pending rule requiring lenders to keep a stake in risky mortgages that they securitize, according to five people with knowledge of the discussions.
The Federal Reserve and the Securities and Exchange Commission, among others, plan to suggest that lenders must keep a share in the risk of mortgages issued to borrowers who spend more than 43 percent of their income on debt, said the people, who asked to remain anonymous because the discussions are not yet final.
The move would mark a victory for a coalition that includes the National Association of Realtors, the Mortgage Bankers Association, and dozens of other housing-industry participants and consumer groups who protested when the agencies in 2011 released a more stringent draft of the rule, commonly known as the Qualified Residential Mortgage or QRM rule. That proposal would have required lenders to keep a share of mortgages with down payments of less than 20 percent and those issued to borrowers spending more than 36 percent of their income on debt.
“If what we’ve heard about the proposed QRM rule is true, then we are very pleased that the agencies are moving towards a broad definition that will benefit the American people by ensuring access to safe, affordable options for buying a home,” Gary Thomas, president of the National Association of Realtors, said today in an e-mailed statement.
Dodd-Frank Act
The regulation, mandated by the 2010 Dodd-Frank Act, will reshape who can lend and who can borrow because banks will probably make only those loans that conform to the new standards.
The new proposal, which may come in a matter of weeks, would align the Qualified Residential Mortgage rule with similarly named guidance governing risky home lending: the qualified mortgage, or QM, rule. That regulation, issued by the Consumer Financial Protection Bureau in January, contains no down payment requirement and offers legal protections to banks for loans to borrowers spending no more than 43 percent of their income on debt.
“Having them as similar as is humanly possible will reduce unnecessary regulatory burden,” said Julia Gordon, director for housing finance and policy at the Center for American Progress, an advocacy group with ties to the Democratic Party.
The agencies will seek public comment before each holds a vote on the final rule. Agencies involved in the rulemaking also include the Department of Housing and Urban Development, the Federal Housing Finance Agency, the Office of the Comptroller of the Currency, and the Federal Deposit Insurance Corp.
The regulators also may ask separately whether the securitization rule should include a down payment requirement of 30 percent, the people said.
Members of the coalition that has been lobbying for a change in the rule say they are opposed to a down payment requirement because it could block low-wealth borrowers from the market.
“What’s the best down payment should be a decision that’s made by the lenders,” Gordon said in a telephone interview.
[…] It isn’t stellar wage growth (See: With stagnant wages, what will cause rents and home prices to rise?). […]