The free money offered during the housing bubble turned many good people into thieves. People are basically honest and will do the right thing if given the chance; however, people are also opportunistic, and if encouraged and enabled to steal, many ordinarily good people will go down the wrong path: Lenders led many astray. During the housing bubble, lenders were desperate to loan money in what they thought were low-risk, high yielding investments. The advertising to entice homeowners to become loanowners was both effective and too-good-to-be-true. The housing bubble turned many good people into thieves. Most were petty thieves who merely gamed the system to get free money. This same group now feels completely justified asking for principal reduction as…[READ MORE]

America's largest banks engage in anti-competitive practices to drive up the price of housing, and rather than crack down, the government encourages it. Unfettered capitalism has its drawbacks. The two most notable among them are key issues in the housing bubble and bust: Ponzi schemes, and monopoly price fixing. Ponzi schemes are destructive because they create artificial demand for goods and services based on unsustainable growth in investment or debt. A Ponzi scheme is a fraudulent investment operation that pays returns to its investors from their own money or the money paid by subsequent investors, rather than from profit earned by the individual or organization running the operation. The Ponzi scheme usually entices new investors by offering higher returns than…[READ MORE]

Due to the volatile nature of California house prices, timing the housing market is something every buyer must consider and understand. California house prices are notoriously volatile. A combination of restricted inventory due to regulatory constraints and foolish optimism enabled by equally foolish lenders propels house prices to unsustainable heights; owners periodically endure painful crashes. Fortunately, the new mortgage rules change how real estate markets work, and these rules should prevent future housing bubbles; however, since the housing market is now very interest rate sensitive, we are still likely to see price fluctuations -- both up and down -- in the California housing market. Timing the housing market is more important than ever. I first wrote about the importance of…[READ MORE]

Historically, properties in this market sell at a 18.5% discount. Today's discount is 22.1%. This market is 3.6% undervalued. Median home price is $291,500 with a rental parity value of $376,800. This market's discount is $85,300. Monthly payment affordability has been improving over the last 5 month(s). Momentum suggests improving affordability. Resale prices on a $/SF basis declined from $165/SF to $165/SF. Resale prices have been falling for 3 month(s). Over the last 12 months, resale prices rose 10.9% indicating a longer term upward price trend. Median rental rates increased $0 last month from $1,697 to $1,697. The current capitalization rate (rent/price) is 5.6%. Rents have been rising for 6 month(s). Price momentum signals rising rents over the next three…[READ MORE]

Evaluating rental parity would provide a check and balance preventing comparable sales from getting overvalued. I have long contended that rental parity is the fundamental value of houses. Whenever values differ significantly from rental parity, up or down, reversion to the mean is inevitable. Buyers should be aware of rental parity because paying more than rental parity significantly limits a buyers options. First, such a buyer cannot rent the property to cover the bills, so if they had to move, they either must sell the property or endure an indefinite period of negative cashflow. Since paying more than rental parity also means overpaying, there is significant risk to the buyer that they may not be able to sell in the…[READ MORE]

Tony Bliss was a close friend of mine who lost his heroic battle with cancer in late 2012. He wrote about his experience in a series of gripping posts that reveal a beautiful and courageous man. I was deeply moved by these posts — some of which are admittedly difficult to digest. This writing is raw. Real. Be forewarned that if you read what follows, you will never be the same. You will laugh, cry, fear, hope, and stare into the abyss of your own mortality. I am honored to share this great work with you here. “Houston, we have a problem!” The clot thickens! Oh What A Night! How the Grinch Stole the Last Half of July and the…[READ MORE]

I am thankful for many things this holiday season, and not being underwater on a mortgage is one of them. The housing bubble has many lessons to teach us. I have written on the subject for five years now in hopes that people can learn from the successes and failures of those impacted by the housing bubble. Someone recently posted a link in the thoughtful remarks to a website devoted to those who are underwater. It's a chance for people to share their stories. As you might imagine, this is a giant pity party and a support group for housing bubble losers. Below is a selection of stories as well as some others I have collected over the years. Personal…[READ MORE]

The fear of homelessness is the essential motivation to get people to work to produce goods and services in our society. Modern American culture can trace its roots on the North American continent to pioneering English settlers. Life on the frontier is harsh, and each family unit is self-reliant. In a frontier society, if people didn’t work, and if they didn’t produce their own food and shelter, then they died. Fear of death from starvation or exposure was very real, and anyone who wasn’t motivated to produce something of value to themselves or others faced the near certainty of painful death. In a frontier society, there are no bailouts. We have made much progress over the last four centuries, and…[READ MORE]

If mortgage interest rates move up, either house prices will fall or sales volumes will fall unless wages go up significantly. Assuming a consistent payment, higher mortgage rates decrease the size of the loan and reduce the amount borrowers can bid on real estate; therefore, if rising mortgage rates results in smaller loan balances, then either sales volumes will go down, or house prices will go down, or perhaps some combination of both. This isn’t speculation; it’s basic math. So which outcome seems more likely? If we had a free market without government and lender manipulation, prices would fall, perhaps precipitously depending on the market; however, we don’t have a free market, and our government, federal reserve, and a cartel…[READ MORE]

Historically, properties in this market sell at a 9.5% discount. Today's discount is 12.9%. This market is 3.4% undervalued. Median home price is $473,200 with a rental parity value of $549,500. This market's discount is $76,300. Monthly payment affordability has been improving over the last 7 month(s). Momentum suggests improving affordability. Resale prices on a $/SF basis increased from $387/SF to $388/SF. Resale prices have been rising for 9 month(s). Over the last 12 months, resale prices rose 10.4% indicating a longer term upward price trend. Median rental rates declined $7 last month from $2,482 to $2,475. The current capitalization rate (rent/price) is 5.0%. Rents have been rising for 12 month(s). Price momentum signals rising rents over the next three…[READ MORE]