Archive for April, 2013

My hero, Ed DeMarco, is on his way out as head of the FHFA that runs Fannie Mae and Freddie Mac, the GSEs. Ed DeMarco is a tragic figure who showed how difficult it is in Washington to do the right thing (see: Head of GSEs Edward DeMarco faces replacement, unfortunately). His actions in looking out for the best interests of taxpayers put him in the firing line of pandering politicians on both sides of the aisle. The left assailed him for refusing to give free money to loan owners. His opposition to principal reduction prevented politicians from buying votes with taxpayer money. The right wanted him removed because he vigorously pursued banks for buy-backs on the bad loans they…[READ MORE]

Is buying based on a low monthly payment a good idea? In the past with toxic financing products fouling the market, many buyers used affordability products to borrow much more than they could reasonably afford. Those are the same people who are currently underwater clinging to their loan modifications hoping that prices rise so they can sell before their payments go back up. In general, buying based solely on monthly payment is a path to destruction. However, in today's housing market, the monthly payment affordability is based on stable 30-year fixed-rate mortgages. Those loans won't blow up in the future putting the owner in financial distress. The near record low interest rates we currently enjoy makes the reflated bubble prices…[READ MORE]

It's a difficult time to be a housing bear. The chorus of cheerleaders in the financial media are keen to report on the supposed strength in housing, and locally prices are going straight up. Given those realities, are the rantings and ravings of housing bears just noise to be ignored? Mark Hanson, an independent housing market analyst,  correctly and accurately predicted the crash in housing. He is one of the last remaining housing bears. Let's take a careful look at the well-reasoned positions of housing bears and see if there is any merit to their concerns. California Housing Still Bouncing Along the Bottom by Mark Hanson - April 6th, 2013, 4:00pm Major housing market headwinds create flat to negative 2013…[READ MORE]

Economists say there is no free lunch. Apparently, those economists don't work at the federal reserve. Interest rates are near record lows, and the federal reserve has been printing money to buy $40 billion a month in mortgage-backed securities to reduce mortgage rates further and provide direct stimulus to the housing market. The reason they're doing this is simple, Banks are still exposed to $1 trillion in unsecured mortgage debt, and if the federal reserve doesn't make house prices go up to restore collateral backing to underwater borrowers, the too-big-to-fail banks will fail. Whatever misgivings many critics may have of federal reserve policy, the policy makers at the federal reserve don't feel they have  other options. They must make house prices…[READ MORE]

Is the 30-year fixed rate mortgage is just too risky of a product? Banks don't like it because it creates asset-liability mismatch. It's become a risky product for taxpayers because the mortgage underwriting process has become too easy and the risky loans are backed by the government, and the Ponzi type borrowers have taken advantage of the situation. The 30-year fixed-rate mortgage is government-sponsored product. In fact, it was the first affordability product, but it had underwriting requirements that reduce the risk to the lender and added stability to the banking system. The three simple underwriting requirements made this loan the bedrock of our housing market for over 60 years: A 20% down payment requirement A through credit check with…[READ MORE]

I recently opined that Now is the time to reform the home mortgage interest deduction. The need to reform this deduction is clear; it does nothing to boost the home ownership rate, it costs the government $70 billion a year, and it merely inflates home prices for high wage earners who count on the deduction when they consider taking on debt to purchase a house. In an era of sky-high federal budget deficits, the myriad of tax breaks given to special interests are on the chopping block. If you agree there is a need to reform the home mortgage interest deduction, the question becomes "what is the best way to reform it?" Politicians are considering a variety of proposals and…[READ MORE]

House prices are rising rapidly in Orange County and most of Coastal California. There are anecdotal reports of bidding wars, and many properties are selling for 5% to 10% above recent comparable sales. As I've documented, Orange County home resale volume is very weak by historic norms, and the only increase in housing demand is coming from investors, so the competition for housing is not coming from resurgent owner-occupant demand. So why are we having bidding wars? If any of you are old enough to remember the OPEC oil embargo of the 1970s, you've seen first hand what happens when normal demand faces a dramatic decline in supply. Gasoline supplies dried up, and motorists were forced to wait in long lines…[READ MORE]

When most people think about a bull market in any asset class, it begins with an increase in demand for the product. In housing, this demand has historically been from owner occupants taking jobs and competing for the available housing stock with their new income. All sustainable housing market rallies in the past have been built on strong job growth and increasing wages. Not so with our current housing recovery. This has many questioning whether or not this recovery is real. The engineers of this house price rally at the federal reserve hope to drive up prices to create momentum which will stimulate the economy and cause the job growth and increasing wages needed to keep the momentum going. Only…[READ MORE]

Ben Bernanke, chairman of the federal reserve, has pledged to keep interest rates low through 2015 to instill investor confidence. However, there is dissention at the federal reserve, and Bernanke will likely not be reappointed in 2014 at the end of his term, so federal reserve policy could change. Further, the federal reserve does not have absolute control over interest rates, and if investors want to exit government bonds in mass, interest rates may rise (bond prices fall) even with the federal reserve buying all the bonds it can. But how likely is that scenario? Bernanke would like you to think the probability is zero, but is it? Let's take a look back in history when conditions were similar to…[READ MORE]

"Those who cannot learn from history are doomed to repeat it." George Santayana "What experience and history teach is this - that people and governments never have learned anything from history, or acted on principles deduced from it." G. W. F. Hegel The causes of the housing bubble are myriad and complex. Learning the lessons of history from the housing bubble is made more difficult by distortions of fact by political partisans seeking to further their self-serving agendas. The political right incorrectly blames the GSEs for inflating the housing bubble because they want to see those entities eliminated. The political left wants to blame the banks for everything so they can feel justified giving free money to loanowners to buy…[READ MORE]

Monthly Housing Report

In Memoriam: Tony Bliss 1966-2012