Pending homes sales are rising quickly as 2012 starts. Is this demand based on fundamentals? Is the market strengthening? When the bear rally of 2009 began, I consistently stated the rally would not hold. My reasoning was simple: the housing market was still inflated and the demand was artificial. For the housing market to put in a durable bottom, several factors must be in place: All market props must be removed. The demand must be natural. Prices must be at or below rental parity. Prices must be affordable for a bottom to be durable. Rents must be rising. Rental parity must not be declining for resale prices to be stable. Employment must be rising or stable. Rising unemployment hinders demand.…[READ MORE]

A Brief History of the Housing Bubble From 2003 to 2006, American lenders and borrowers inflated a massive housing bubble. From 2007 to 2012, this bubble has been deflating, but the bottom is proving elusive. The housing market is closer to the bottom than to the top, and if a viable solution can be found to bring supply and demand into balance, the tremendous affordability from low prices and low interest rates will help a bottom form in the near term. The conditions preceding the housing bubble, serve as a baseline to establish a sense of normalcy, a guidepost to stable valuations. When the distortions of value due to the housing bubble are corrected, the preceding conditions will be restored.…[READ MORE]

Last week, I covered the community of Cortona in the Village of Laguna Altura. Before that, I provided an overview of Laguna Altura in the post on Toscana: Laguna Altura is an Irvine Company Village located at the intersection of Highway 133 (Laguna Canyon Road) and Interstate 405. The proximity to the Irvine Spectrum and nearby offices are ideal for local workers who desire a short commute. The ease of access to Interstate 405 and Interstate 5 cuts down the commute time of anyone working at a greater distance. This adjacency to the freeways does make the community a bit noisy despite efforts to buffer the sound. Further, the main entrance is on Laguna Canyon Road, a busy thoroughfare bringing…[READ MORE]

Despite pockets of high pricing, under the presidency of Barack Obama, house ownership affordability on a monthly payment basis has hit an all-time low relative to rents and incomes. This should be cause for celebration. People no longer have to apply an onerous portion of their monthly budget to house payments and related expenses. If this condition persists, the economy will recover quickly from the stimulus of newly freed disposable income. However, rather than celebrating this tremendous achievement, people decry the failure of Obama's policies. This is wrongheaded. High real estate prices are not desirable or beneficial to society. It creates excessive debt burdens which curtails consumer spending except for the brief and unsustainable housing market rallies where people are…[READ MORE]

What is a Mello Roos tax? The Community Facilities District Act (more commonly known as Mello-Roos) was a law enacted by the California State Legislature in 1982. The name Mello-Roos comes from its co-authors, Senator Henry J. Mello (D-Watsonville) and Assemblyman Mike Roos (D-Los Angeles). The Act enabled "Community Facilities Districts" (CFDs) to be established by local government agencies as a means of obtaining community funding. When California Proposition 13 passed in 1978, it restricted the ability of local governments to raise property taxes by more than an inflation factor. The budget for services and for the construction of public facilities therefore could not continue unabated. As a result, new ways to fund public improvements in respective locales were considered.…[READ MORE]

Many have speculated as to when the housing market will bottom. The short answer is, nobody knows, but there are some guideposts to watch out for. First, in order for house prices to bottom, they must be affordable. Sub-4% interest rates combined with falling prices have made houses affordable on a monthly payment basis. Second, supply and demand must rebalance and demand must outstrip supply for prices to go up. That criteria is more elusive. When the housing bubble popped in 2006, people began defaulting on their mortgages. A credit crunch ensued in 2007, and foreclosures began to mount. By 2008 we reached the threshold of how many foreclosures the market could adsorb, so lenders began accumulating shadow inventory --…[READ MORE]

The federal reserve is dominated by Keynesian economists who all have one thing in common: when their policies fail, they believe doing more will somehow succeed. If the definition of insanity is repeating the same behavior expecting a different result, then all Keynesian economists and all federal reserve officials are certifiably insane. Bernanke Doubles Down on Fed Bet Defied by Recession: Mortgages January 20, 2012, 3:40 PM EST -- Bloomberg -- By Jody Shenn Jan. 11 (Bloomberg) -- Ben S. Bernanke is signaling his willingness to double down on a three-year bet that’s failed to revive housing, showing the extent of the Federal Reserve chairman’s effort to wrest a recovery from the deepest recession. The policy so far has failed…[READ MORE]

Principal forgiveness is the worst policy option. Despite this fact, it's so appealing to loan owners and politicians, reporters are keen to write about the prospect. However, the world is not comprised only of loan owners. Nearly 40% of households are renters, and of the remaining 60% who own homes, 90% of them are still paying their mortgages. Ninety-four percent of the population is asked to fix the problems of the 6% who are loan owners and the banksters who created the problem. Lenders and loan owners have problems. Lenders made loans their borrowers can't repay, and now both parties to the deal are turning to the US taxpayer for a bailout. Somehow, these two groups have convinced themselves they…[READ MORE]

Last week, I covered the high-end community of Toscana in the Village of Laguna Altura. The overview of Laguna Altura is from that post: Laguna Altura is an Irvine Company Village located at the intersection of Highway 133 (Laguna Canyon Road) and Interstate 405. The proximity to the Irvine Spectrum and nearby offices are ideal for local workers who desire a short commute. The ease of access to Interstate 405 and Interstate 5 cuts down the commute time of anyone working at a greater distance. This adjacency to the freeways does make the community a bit noisy despite efforts to buffer the sound. Further, the main entrance is on Laguna Canyon Road, a busy thoroughfare bringing traffic from Laguna Beach…[READ MORE]

It is shocking -- and a little frightening -- to see how clueless and inept the people in charge of our money supply really are. Recent releases of federal reserve open market committee transcripts clearly show the federal reserve completely missed the housing bubble, and they grossly underestimated its impact on the economy. If policy makers do not identify the problem, they can't craft policies to properly react to the problem. The people in charge at the federal reserve under Alan Greenspan -- many of whom are still there -- are embarrassingly inept. "Dear Mr. Greenspan, I think you're pretty terrific ... " Treasury Secretary Timothy Geithner (then the president of the New York Federal Reserve Bank) Alan Greenspan's ship…[READ MORE]