Archive for November, 2016

The short-term reaction to Trump's victory was a massive selloff in bonds causing interest rates to soar. Will this be the start of an alarming new trend for mortgage rates? The financial media ascribes gyrations in the financial markets to current news events, mostly with no correlation at all. However, occasionally, developments in world affairs really cause the financial markets to react, and the election of Donald Trump prompted bondholders to sell in a panic, resulting in an interest rate spike. The stage was set for rising interest rates years ago when the Federal Reserve announced the beginning of a cycle of tightening monetary policy. Just the announcement caused mortgage interest rates to rise from 3.5% to 4.5% in about…[READ MORE]

Nobody knows what Donald Trump will do, but it's unlikely he will do anything that hurts real estate. Reporters across America reluctantly trashed their canned reports on how Hillary Clinton's presidency would impact the world. Since Donald Trump's victory was such a surprise, few thought much about how he would impact real estate, the economy, or anything else for that matter. Part of the blame is also on Donald Trump. During the campaign, he was long on rhetoric and short on detail. He didn't need intellectuals to embrace him, so he didn't pander to them with position papers or carefully crafted policies, leaving us all with a huge void of information on what he will actually do as president. Realistically,…[READ MORE]

The Chinese inflated a real estate bubble more than ten times larger than the United States. Bursting this bubble could destabilize the world economy. What would happen if the Chinese housing bubble burst? Obviously, a real estate crash would devastate China, but since the Chinese economy is somewhat isolated and export driven, would a Chinese real estate crash plunge the world into recession? Maybe. Coastal California real estate would suffer from a crash in China. Not only would a Chinese crash remove a hefty component of local demand, it could turn Chinese buyers into desperate sellers. While US lenders can keep distressed properties financed with US debt from the market indefinitely, but they don't control the entire market. If desperate Chinese…[READ MORE]

Nobody thought it would happen, but Donald Trump surprised everyone by winning the election to become our next President. Back in December of 2015, I predicted that Donald Trump would be the next President, but a coin flip could have predicted that too. I did something more: I also detailed why Donald Trump would win. Most of the pundits and pollsters didn't believe Donald Trump had a chance, but I predicted that when people actually voted rather than responding to pollsters that Donald Trump would consistently perform better than his polling. He did. The reasons I believed Donald Trump did better than everyone expected comes down to two main ideas. First, populists always perform better in elections. People vote privately and emotionally,…[READ MORE]

Since California can't properly fund its schools with property tax revenues, school districts must look to other sources. Is there a better way? What is the appropriate way to pay for schools? Most jurisdictions pay for schools with local property tax dollars, and since Proposition 13 was passed, California public schools, which during the 1960s had been ranked nationally as among the best, decreased to 48th in many surveys of student achievement. California's spending per pupil was the same as the national average until about 1985, when it began decreasing. With property taxes greatly reduced as a source of school funding, California schools increasingly depend on money from the general fund. With the many competing ends for general fund tax dollars, schools often…[READ MORE]

The current market rally shows signs of maturity. Is it due to die of old age, or will this rally last forever? Most people who speculate in financial markets lose money, and most of them fail to recognize their "safe investments" are actually risky speculative bets. The housing bubble was a speculative mania, and despite the wild rise in prices during the final two years, most buyers late to the rally lost money -- often a great deal of money on what they believed was a can't-miss deal of a lifetime. The basic problem is emotional. Once people take a position in a financial market, their emotions immediately impact their behavior. They begin combing financial media sites for confirmation of the…[READ MORE]

Both homeowners and renters face high housing costs, but only homeowners enjoy government bailouts, loan modifications, and protections to "keep their homes." Why don’t renters get bailed out like homeowners? It seems fairly obvious that homeowners think renters are degenerates and losers, and even the government robs working renters to subsidize unemployed homedebtors. But does that mean it’s acceptable to favor one group over another? What happens when renters lose their jobs? Does anyone step forward to pay their rent or allow them to squat like homeowners? Why not? Renters are no better or worse in the eyes of politicians; both renters and homeowners vote. And even if renters were a degenerate sub-species of humans, reporters and homeowners would be…[READ MORE]

For audiences ranging from academic researchers to ordinary homebuyers, housing market data suiting everyone is available free on the Internet. The future of data is free. Twenty years ago, real estate agents provided value simply because they had access to the secret list of houses for sale. Anyone who wanted to buy a house needed to use a real estate agent just to find out what was for sale. Data alone had value. Not anymore. The Internet excels at dissemination data. From the beginning, individuals and organizations that wanted to attract people to their site learned that giving away data and information was a good technique. The competition for traffic drives website owners to provide better content, including more data.…[READ MORE]

As home prices move higher, existing homeowners cheer, but new homebuyers assume excessive debts to climb the property ladder. Most people accept the idea that ever-rising house prices are good, and that a decline in house prices is bad. However, this idea appears to only apply to housing. People don't cheer when food or gas prices go up, but they do when house prices rise. Of course, food and gas are immediate consumption items, whereas a house is both an item of consumption and an asset. This fact often prompts people to pay absurd prices to satiate their desires, believing that it's a "good investment." Most of the time, buying a house is a good investment, but late in the…[READ MORE]

The mainstream media litters the internet with articles about how rising mortgage interest rates won't hurt the housing recovery. To better understand why rising interest rates are such a big issue to housing, it's worth reviewing the impact falling interest rates have had on house prices for the last 25 years. House prices and rental parity The basis of all house prices valuations is rental parity, the price point where the cost of ownership equals the cost of a comparable rental. Rental parity is a tether on house prices because if resale values become detached from their fundamental values, once the kool aid intoxication wears off, prospective buyers benefit more from renting that owning, and prices invariably fall to this…[READ MORE]

Monthly Housing Report

In Memoriam: Tony Bliss 1966-2012