Archive for August, 2016

Homeownership is considered a universal good by politicians. However, the benefits of ownership are not worth the costs of the subsidies politicians put in place. For over 100 years, every presidential administration embraced homeownership as a panacea, quelling civil unrest, creating citizens with a strong sense of community. The goal of bureaucrats and lawmakers is to create a mythical society with 100% homeownership. The powers-that-be consistently promote homeownership, sometimes with costly subsidies with little or no real benefit. Every homeowner wants to see the resale value of their home go up as rapidly as possible, and since most local governments obtain revenue from real estate taxes, government officials like high home prices too. Since more than half the country owns…[READ MORE]

Very few recent mortgage originations were from borrowers with a previous foreclosure. Less than 25% ever return to homeownership. It's human nature to find hope when times are bleak. When housing crashed, bankers and underwater loanowners clung to any hope of recovery that would bail them out from their catastrophic lapses of judgement during the housing mania. People look for hope wherever they can find it, and over the last eight years, people who work in real estate, homebuilding, sales, and so on, needed hope for a better tomorrow because their current situation was consistently bad. One story of hope was the inevitable return of legions of boomerang buyers, those who lost their homes in foreclosure but bought again. Over…[READ MORE]

Orange County Housing Market Report: August 2016 Historically, properties in this market sell at a 0.6% premium. Today's discount is 7.9%. This market is 8.5% undervalued. Median home price is $626,100 with a rental parity value of $687,500. This market's discount is $61,400. Monthly payment affordability has been improving over the last 6 month(s). Momentum suggests improving affordability. Resale prices on a $/SF basis increased from $404/SF to $406/SF. Resale prices have been rising for 11 month(s). Over the last 12 months, resale prices rose 5.9% indicating a longer term upward price trend. Median rental rates increased $25 last month from $2,865 to $2,890. The current capitalization rate (rent/price) is 4.4%. Rents have been rising for 12 month(s). Price momentum…[READ MORE]

House prices are high in Coastal California causing sales to wane and many to question whether or not we pushed prices up too high. In previous real estate cycles, when house prices began to rise, people became excited about participating in the real estate market, and the buying activity would sometimes become frenzied. This desire for real estate was enabled by lenders providing alternative financing products, products that later proved disastrous. In this cycle both potential buyers and lenders behave differently. At this point in previous cycles, affordability products proliferated, and house prices rose rapidly. With affordability products effectively banned this cycle, the only thing pushing house prices higher is record low mortgage rates. As prices rise, the buyer pool…[READ MORE]

Despite legislators and bureaucrats best efforts, the homeownership rate continues to slide. Since the Great Depression, presidential administrations with a cooperative Congress implemented policies intended to maximize the homeownership rate. At the end of World War II, the returning servicemen armed with FHA loans bought millions of new production homes and raised the homeownership rate significantly from the bottom of the depression. Apparently, the new policies were a success. However, the early success was not matched by future increases in home ownership. Once the stimulus provided by FHA loans reached a new equilibrium, the home ownership rate stabilized at about 64% and remained there for about 40 years -- despite ongoing tinkering with financing and other policies. During the mid…[READ MORE]

The cuts to the FHA insurance premium had little impact on sales overall, but more borrowers used FHA insurance. Was the policy a success? Lowering the FHA insurance fees was the right idea at the right time. Due to the losses sustained and expected at the FHA insurance fund, the fees were raised to very high levels, making FHA the new subprime. When first-time homebuyer participation rates hit a three-decade low, I predicted that Pressure would mount to lower FHA insurance fees to revive home sales. Shortly thereafter FHA loan fees were cut in half, and I stated that Lowering FHA insurance fees will spur the housing market. Why was lowering the FHA insurance fee so important? My market studies…[READ MORE]

Since most people no longer fear being priced out, prospective home buyers see high prices as a deterrent rather than an incentive to recklessly jump into the market. Generally, when the price of any good or service goes up, buyer demand at the higher price diminishes because fewer people can afford higher prices. This isn't a particularly difficult economic concept to understand except that housing markets violated this idea repeatedly over the last 40 years. In the past, rising house prices often led to an increase in the quantity demanded, not because more people could afford it, but because buyers became more motivated in order to capture home price appreciation. When prices rise faster than their wages, people can obtain…[READ MORE]

Monthly Housing Report

In Memoriam: Tony Bliss 1966-2012