Archive for January, 2013

I make no secret of my disdain for the behavior of bankers during the housing bubble. I'm not so extreme that I consider all borrowing and lending to be evil; however, I draw a clear distinction between what I consider good debt, useful for economic efficiency, and bad debt, useless and unproductive that results in misallocations of capital and human suffering. Surprisingly enough, the line separating the two is clear and easy to calculate and quantify. Signatory versus asset-backed debt Not all debt is created equal. asset-backed debt is collateralized by a cashflow-producing asset. The income stream is being used to repay the debt with interest, and if for some reason the borrower unwilling to pay back the loan, the…[READ MORE]

One of the many misperceptions that emerged from the housing bubble and its associated collapse is the idea that house prices during the bubble were normal and sustainable and that the lower values today represent a depressed value from which the housing market must "recover." In the case of asset bubbles, prices become greatly elevated from fundamental values, and the price collapse merely restores prices to their fundamental values. In reality, the housing market "recovered" during 2007 and 2008 when prices crashed back down to price levels sustainable by local incomes. Since a true "recovery" with pre-bubble prices also means an imperiled banking system and many unhappy loan owners, the government and the federal reserve have been feverishly trying to…[READ MORE]

Credit standards are not tight by historic standards. Compared to the complete lack of enforced standards of the housing bubble, credit is very tight, but compared to what preceded the housing bubble, credit standards have merely reverted to what was normal. Prior to the housing bubble, lenders verified a borrower's income and made sure the payment burden was manageable to ensure the loan was repaid. Today, lenders are doing the same. The notion of "tight" lending standards stems from the perceived entitlement to free money by people who have dubious repayment prospects. There is little reason to believe lenders will return to their bubble-era ways any time soon, particularly now that the GSEs and the FHA who control more than…[READ MORE]

With housing markets, the elephant in the room is shadow inventory. Much has been written about the subject over the last several years. It's been portrayed as an apparition among the housing bulls, as if the millions of delinquent mortgages simply don't exist. Most bulls comfort themselves with fanciful notions of loan modification programs succeeding and some simply denying there is a problem at all. Well, there is a problem. Lenders underwrote trillions of dollars worth of mortgages to people who couldn't or wouldn't pay them back. Contrary to the popular myth in the mainstream media, it isn't a problem of a few unemployed prudent borrowers temporarily unable to keep up with their mortgage payments. The few successes in the…[READ MORE]

1816 is known as the year without a summer. Due to an unusual combination of events, temperatures didn't rise that summer causing widespread crop failures and starvation. 2012 is known as the year without a seller. Due to a dramatic change in foreclosure policy, festering delinquencies at the major banks, more than a quarter of all mortgage holders underwater, and hedge funds intercepting MLS inventory at the auction sites and renting them out instead, sellers did not bring properties to the market in 2012. This wasn't a small phenomenon. Across most of the US, there were a third as many houses for sale this year as there were two years ago. In California, the reduction in for-sale inventory was even…[READ MORE]

It's human nature to dream about the future. What's going to happen next year? We all have dreams and aspirations, and the beginning of the year is usually a time of hope and optimism about the future. For those of us interested in real estate markets, it's time to take a look at the big issues that will impact the direction of pricing, sales and affordability over the coming 12 months. With so much market manipulation, the future prices of homes largely depends on what policies come of of Washington and the boardrooms of the major banks. The old days of a free market where prices are determined by market forces are gone for the foreseeable future. Prediction the future…[READ MORE]

Monthly Housing Report

In Memoriam: Tony Bliss 1966-2012