Archive for June, 2012

Everyone is focused on making house prices go up. Banks need higher house prices to recover the capital they put into trillions of dollars of toxic mortgages. Loan owners need house prices to go up to avoid damaged credit from a short sale or foreclosure. Home owners want to see house prices go up to feel rich. And politicians need to see rising house prices to keep everyone happy and get reelected. Economists also play the game by promoting the "wealth effect" of housing. By cloaking what's really going on with a comfortable euphemism, it becomes easy to ignore the fact we are really talking about Ponzi borrowing inevitably leading to bubbles and severe recessions when the Ponzi scheme unravels.…[READ MORE]

You knew the complaints about appraisers was coming, didn't you? The low supply is generating bidding wars on certain properties, resulting in contract prices far in excess of recent comparable sales. When the appraisal doesn't support the contract price, the buyer generally cannot make up the difference and the deal falls apart. Agents don't get commissions. Rather than entertain the notion that the contract price was too high, agents blame the appraisers for killing the deal. One of the most aggravating and ignorant arguments to come from this is that the market should determine the price. Whatever two parties agree to should be what the property is valued at. Well, that's fair enough if the deal is all cash. Whenever…[READ MORE]

Most people assume the relative lack of must-sell inventory at the high-end of the housing market is because fewer borrowers at these price ranges are distressed. Nothing could be further from the truth. So why have we seen so few foreclosures? Amend-extend-pretend. The banks are choosing squatting over foreclosure. With little government support and no political support for a bailout, the neighborhoods with house prices in excess of $800,000 are only maintained by the legions of unforeclosed delinquent mortgage squatters. With no pressure from regulators to mark their loans to market value, and with near zero cost of money, banks plan to wait until demand returns to this segment. With no home equity from the lower rungs of the housing…[READ MORE]

Robert Shiller's book Irrational Exuberance was a watershed work in behavioral economics. When I first read it, the housing bubble suddenly made sense to me. Much of what I believe I know about financial markets, human behavior, and the housing bubble is built upon his work. He is one of my heroes. And he has completely lost his mind. For all his brilliance, Robert Shiller is not noted for coming up with insightful policies based in his understanding of behavioral economics. Irrational Exuberance contained no policy recommendations, and his book, The Subprime Solution, was criticized as fanciful and unrealistic. His latest editorial in the New York Times is so ridiculous, I am shocked he put it in the public view.…[READ MORE]

As anyone watching the housing market in the Southwest in 2012 can attest to, inventory is falling.  At its current rate of decline, there will be literally no houses for sale by the end of the year. We established that banks are cutting standing REO inventories by reducing new acquisitions by 50%. They are reducing their inventory by allowing delinquent borrowers to continue to live payment-free in houses. Of course the perpetual shadow inventory extends housing downturn and creates uncertainty, but lenders believe they can force house prices to bottom by restricting MLS supply. Perhaps they are right. The success or failure of lenders' efforts to force housing prices to bottom hinges on one thing. Will dwindling supply cause prices…[READ MORE]

President Barack Obama's housing policy has been assailed by both sides of the political spectrum. The Right criticizes him because any government involvement in the housing market is socialist meddling (I happen to agree with the Right on this issue). The Left criticizes him for not going far enough to give free money and other perks to loan owners. Personally, I think Obama has navigated the political waters very well on housing. He has done enough to placate the critics in his own party, but he hasn't done enough to actually matter. In other words, Obama's housing policy has succeeded wildly by failing spectacularly. I wrote about Obama's housing policy on two other occassions. Obama’s housing policy has lead to…[READ MORE]

The reports of declining shadow inventory are wrong. Since lenders slowed their processing of REO inventory, shadow inventory stopped getting any smaller. As CoreLogic noted in their recent report, "the flow of new seriously delinquent (90 days or more) loans into the shadow inventory has been approximately offset by the equal volume of distressed (short and real estate owned) sales." In other words, lenders are only treading water, and shadow inventory will be around indefinitely. Shadow inventory liquidation will prevent any meaningful and sustained house price appreciation. Either through short sale or REO, these properties must be sold, and potential buyers know this. Back during the housing bubble, people believed if they didn't buy then, they would be priced out…[READ MORE]

Have you ever gone into a high-end retail store to look at a sale item advertized at 50% off? When you see the asking price you think to yourself, 50% off a WTF asking price is still way, way too high, right? realtors play that game too. And what's really shocking is that they openly admit it. They actually admit to manipulating buyers with false comparables to convince buyers outrageous house prices are reasonable. What do you expect from a profession that trains its salespeople at the Gap? Overpriced 'setup' houses are used to sell other nearby homes Real estate agents are using overpriced properties as negative examples to sell similar homes with lower asking prices. By Kenneth R. Harney…[READ MORE]

I have profiled many stories of the capricious nature of the housing bubble and how it impacted people for better and for worse. The daily HELOC abuse posts have covered the odious behavior of borrowers from all walks of life. Usually I relegate those stories to the bottom of the daily posts because they are so common they no longer rise to the definition of "news." However, when I discovered today's featured property I was astounded at the scale of the HELOC abuse. When I did a search on the name of the owner I came across an interesting back-story of divorce, deceit, and elder abuse. The story is so compelling, I decided to make it the focus of today's…[READ MORE]

Banks are slowing their acquisition of foreclosures to reduce their standing inventory of REO. They are also slowing the rate at which they are selling on the MLS and putting fewer and fewer homes for sale. Delinquent mortgage squatters are not taking up the slack and listing their homes as short sales, primarily because they get a free ride if they simply wait and do nothing until the bank finally forecloses. With both banks and loan owners choosing not to list their homes, the inventory available for sale on the MLS has fallen substantially. Until the incentives change, neither banks or loan owners are going to replenish the MLS inventory. Tight supply is forcing potential buyers to compete for the…[READ MORE]

In Memoriam: Tony Bliss 1966-2012