Archive for September, 2013

The housing bust losers portrayed themselves as victims and heroes. Their whining got the attention of opportunistic politicians like California Attorney General Camilla Harris who used this issue to political advantage. When Attorneys General from a number of states reached an agreement with the major banks in early 2012, many housing advocates loudly proclaimed a great victory for homeowners. When I first read through the details of the settlement agreement, it was apparent to me that the banks greatly benefit from foreclosure settlement while borrowers were left out in the cold. About a month later, the general public and mainstream media caught on to this fact. By then everyone hated the mortgage settlement, except the banks. A few months later,…[READ MORE]

The rumor came out that FHA would need a bailout and experts said nonsense.   Their "expert" opinion didn't even last 48 hours. FHA is mandated to maintain a reserve fund for the mortgages that they insurance.  Just as a reminder FHA is government backed insurance agency for low down payment loans for first time homes buyers. After the bubble popped and defaults started occurring, the reserve fund, which had more than enough money in 2007, started to run dry.  FHA needed many new borrowers that would pay mortgage insurance premiums which help to replenish the FHA reserve fund.  To accomplish this conforming limits were increased and credit scores qualifications were loosen to attract a larger pool of  borrowers.  Even if…[READ MORE]

During the housing bubble, house prices became very inflated relative to rents and incomes. Basically, there was no justification for prices, only wishful thinking and delusion about the "new paradigm." In response to the collapse of the housing bubble, the federal reserve lowered interest rates to allow borrowers to finance the same bloated mortgage balances of the bubble, but this time, the loan terms are stable. However, that still leaves us with house prices that are greatly elevated by historic measures of price-to-income or price-to-rent. So what really defined affordability? Is it the ability to make a stable monthly payment, or it is the price relative to historic measures? My monthly housing market reports take the view that stable monthly…[READ MORE]

Like California, Great Britain has witnessed several major housing bubbles since the early 1970s. Great Britain has growth restrictions like California, so when prices get overheated, supply can't come to market to blunt the increases. Once these rallies get started, they are self-perpetuating. They go on until Ponzis implode and lenders take away the punch bowl. Unlike California realtors, estate agents in Great Britain recognize that house price volatility creates volatility in their income in addition to causing a great deal of pain and hardship on ordinary citizens. Rather than lobbying for more volatility and endlessly higher prices as realtors in the US do, estate agents in Great Britain lobby for constraints on appreciation and stable house prices. It's quite…[READ MORE]

Everyone has an opinion on how rising mortgage rates will impact housing. Most of what you read in the mainstream media is wishful thinking from those who want to inspire buyer confidence in an uncertain market. The words of Pollyannas doesn't educate anyone, but it does give people who are looking for assurance more than insight exactly what they are after. Most analysts agree that rising interest rates will reduce the buying frenzy. That much is clear (See: realtors lament low demand, low supply, and collapsing first-time homebuyer market). However, analysts are divided on the long-term impact of rising rates. What Rising Interest Rates Mean for Home Prices By Nick Timiraos -- September 20, 2013, 8:00 AM It’s a hotly…[READ MORE]

I like to look into the future and stay ahead of the news cycle when I can. Three and a half years ago, I first wrote about loan assumability as a feature would garner new attention once interest rates began to rise. With the recent spike in interest rates, and with the widespread perception we are past the bottom of the interest rate cycle, the first article on this subject finally surfaced in the MSM. Expect many more to follow over the next several years. Taking Over a Seller’s Loan By LISA PREVOST -- Published: September 19, 2013 Homeowners with a mortgage insured by the Federal Housing Administration or the Department of Veterans Affairs should consider using their loan terms…[READ MORE]

The tax credit stimulus of 2009-2010 prompted many potential buyers to accelerate their plans to purchase homes to take advantage of the tax credits. Many people paid 5% to 10% more just to gain the tax credit that was a small fraction of the additional price they paid. When this stimulus was removed from the market, quite predictably, housing demand collapsed, prices rolled over, and we had 18 consecutive months of falling prices. In 2011 and 2012 in response to the lack of demand, the federal reserve launched Operation Twist to drive down long-term rates with hopes of lowering mortgage rates further to stimulate housing demand. As a result of this temporary manipulation of mortgage rates, housing demand did increase,…[READ MORE]

It was a big news week with the unTaper, plus with the Debt ceilings battles and Obamacare fights.   There is now a lot of volatility in the market and of course the media has been following those stories.  What didn't make a big news splash was that San Francisco (and now Seattle) might be exploring eminent proposals just like the City of Richmond.   Richmond brought the issue back to the forefront after it was declared dead earlier in the year.  Now, with the  possibility of San Francisco it will make lenders even more nervous.  I just don't think it will be big in the news cycles until San Francisco or Seattle agrees to participate in this program. Et tu, San…[READ MORE]

Strong arguments can be made for a ten to twenty year bear market in real estate. We are at the bottom of the interest rate cycle, and for the next thirty years, we may face an environment of slowly but steadily increasing interest rates similar to what we saw between 1950 and 1980. If that comes to pass, borrowing power will be steadily eroded just as it was steadily increased over the last 30 years. Combine this with the likelihood of a decade or more of underemployment and stagnant wages, and you have a recipe for house prices to go nowhere for a very long time. If you believe this bearish scenario will come to pass, and if you want…[READ MORE]

I recently asked, Can the fed taper housing market stimulus with no ill effects?. Apparently, the federal reserve doesn't think so. Last month I reported that rising interest rates are spoiling efforts to reflate the housing bubble. The weakness in the market is apparent to everyone since mortgage rates rose, and since the banks need continued rapid appreciation to bail out their bad bubble-era loans, a cooperative federal reserve decided not to taper its bond and MBS purchases. I can't say I'm surprised. The federal reserve won't stop printing money or raise interest rates until it absolutely has to. That is the history of this organization. Unless inflation gets out of control or the currency starts to strongly devalue relative…[READ MORE]

In Memoriam: Tony Bliss 1966-2012