Archive for February, 2013

Earlier this week I detailed why I believe future housing markets will be very interest rate sensitive. The current market environment is completely controlled by interest rate policy at the federal reserve and distressed loan processing policy at the major banks. The combination of demand stimulus and supply control caused the housing market to bottom in 2012. Of course, since these are market manipulations, the future direction of home prices is uncertain. The market has many more headwinds than tailwinds. Shiller’s Bottom Line: Risk Lingers in Housing February 26, 2013, 7:00 AM -- By Nick Timiraos It’s possible that home prices have hit a bottom, but heavy government involvement to stabilize the mortgage market and the broader economy has made…[READ MORE]

The desire for home ownership is stronger than ever. There are many emotional reasons to covet home ownership, and these are valid reasons to buy a house. However, over the last 30 years, the desire to own a home for family and security has been darkened and twisted by the desire to make outsized profits on imagined appreciation. Although would-be buyers who are prudent and conservative were shaken by the collapse of housing prices, the Ponzis benefited greatly from the price volatility, and their desire for real estate has grown. The moral hazard of the housing bust and bailouts has ensured the Ponzis will want another crack at it, and now the FHA is giving loans to Ponzis to reenter…[READ MORE]

Economists who focus on larger trends, the so-called macro-economists, have rightly pointed out that housing markets in the past haven't been very sensitive to fluctuations in interest rates. For example, during the 1970s, interest rates rose significantly, which should have caused house prices to drop, but instead California inflated a housing bubble. During the crash from the bubble in the 1990s, interest rates declined, and so did prices. The same has been true of the Great Housing Bubble. With these significant periods when mortgage interest rates did not impact house prices the way the math would suggest, why would the housing market be more sensitive going forward? The new qualified mortgage rules take away the mechanisms lenders used to inflate…[READ MORE]

The banks are stealing your money... again. The US Government and the federal reserve spent billions bailing out the banking system in 2008 from a financial crisis created by foolish lending. Commercial banks and Wall street securitizers pumped trillions of dollars into dodgy mortgages, much of which was refinance money given to Ponzis, so it wasn't just late purchasers who were in trouble. When the toxicity of the lending products became apparent, a credit crunch ensued, and residential real estate prices plummeted by 30% or more nationwide. With limited collateral backing their bad loans and millions of delinquent borrowers, lenders couldn't foreclose on all the properties to recover their capital. The problem was so large that the banks couldn't absorb…[READ MORE]

The Federal Reserve (US central bank) influences interest rates and by extension mortgages rates.  One of their key tools is the buy or selling of bonds, it adds or subtracts money from the money supply .  Since 2008 and the Federal Reserve has purchased over $1 trillion dollars worth of US residential mortgages in the form of bonds.  The effect of this unprecedented mortgage bond purchasing  pushed mortgage rates down to the lowest levels since the 1940's.  This $1 trillion dollar figure represents 10% of the of the outstanding residential mortgages in the US.  To explain it in another way, if you have a residential mortgage there is a 10% chance that it's owned by the Federal Reserve.  This is…[READ MORE]

During the housing bubble, the infusion of HELOC spending money stimulated the California economy. The resulting job growth caused wages to rise as employers scrambled to find help to meet the Ponzi demand. One of the biggest hurdles potential employers faced was the enormous cost of housing. Potential employees from out-of-state were faced with selling their $300,000 homes to buy a $750,000 comparable home if they moved to California. Many decided not to make the move for this reason. A $20,000 raise sounds enticing until you consider housing will cost $40,000 a year extra to enjoy the same standard of living. Inflated house prices causes two problems for California. First, as described above, it creates a barrier for middle class…[READ MORE]

Realtors, builders, mortgage brokers, basically anyone with a financial interest in a real estate transaction is complaining that lending standards are too tight. From the beginning of these complaints four years ago, it's all been complete bullshit. Lending standards were completely abandoned during the housing bubble as all the parties allowed greed to overcome their better judgement. Any return to sane standards was going to require tightening -- a lot of it. The market first reacted to a huge wave of defaults by tightening standards suddenly and violently in a massive credit crunch in August of 2007. This effectively dried up funding for the most toxic loan products and caused loan balances to plummet. The lower loan balances translated to…[READ MORE]

Real estate appreciation is religion in California. Ever since the first bubble in the 1970s enriched a generation, everyone in California sees owning a home as a short cut to riches. The bubble of the 1970s saw dramatic price reductions in some areas and a lingering stagnation in others. Prices did not fall to previous levels of affordability, and learning nothing from that downturn, Californians quickly inflated another bubble in the late 1980s that peaked in 1990. The downturn from that bubble was a little deeper and a little longer, but Californians were undeterred in their faith in real estate wealth. When prices finally bottomed out in 1997, Californians waited a few years, but they they inflated a truly massive…[READ MORE]

The mainstream media is obsessed with making people believe the housing market has bottomed. Even if it requires spinning negative news, they write as if they have a duty to bolster consumer confidence. I think market reporters have a duty to the truth, whatever that truth might be. To do less than that, to spin the news like a two-bit realtor, is a disservice to those who may rely on the news for important decisions about purchasing a house. I think much of the mainstream media's coverage of the housing market is wrong, and when they resort to intentionally spinning bad news, it's downright shameful. Let's take a look at some recent headlines regarding delinquencies: National Mortgage Delinquency Rate Down…[READ MORE]

Affordable house prices are the best economic stimulus. Housing costs make up the largest proportion of a households monthly budget (besides taxes). If this amount were smaller, if it made up a smaller portion of a household's monthly budget, then they would have more money to spend on other goods and services and stimulate the local economy. It isn't rocket science; it's just common sense. However, greed and shortsightedness cause many to desire house prices that increase in price rapidly and attain levels of affordability that price most out of the market. Eventually such extremes lead to a crash, but since so many profit for the short time prices shoot skyward, people deny the possibility of a crash and let…[READ MORE]

In Memoriam: Tony Bliss 1966-2012