Archive for January, 2017

Higher mortgage interest rates will reduce future loan balances; thus today’s homeowners will not experience the home price appreciation enjoyed by previous generations. Many would-be homeowners rush to the market to lock in low mortgage rates out of fear of being priced out forever. Nervous buyers fear that if they wait, they will fail to get a place of their own. Due to our chronic shortage of homes, there is some basis for this fear, but potential buyers considered the ramifications of that occurrence, the fear would evaporate. If today’s homebuyer were to be priced out tomorrow, they probably wouldn’t be alone in that predicament. In fact, if a great many people are priced out by rising mortgage rates, by…[READ MORE]

State Administration of Foreign Exchange requires all buyers of foreign exchange to sign a pledge that they won’t use their $50,000 quotas for offshore property investment. It's really happening. The outflow of capital from China prompted the decree to stop Chinese Nationals from investing money in offshore real estate. In several posts I describe the twin threats to the US housing market: rising rates, and reversal of flow of foreign capital. Rising mortgage interest rates will affect the entire housing market, but a reversal of flow of foreign capital will most strongly impact coastal housing markets. In particular, if the influx of Chinese capital were to stop coming in and actually reverse, Coastal California, and especially Irvine, would be most…[READ MORE]

More than eight years after the government took over mortgage finance, the US taxpayer still insures the bulk of the loans in the housing market. Prior to the collapse of the housing bubble, when lenders foolishly loaned money to people operating personal Ponzi schemes, it was theirs to give — and to lose. But when the losses overwhelmed our banking system, the government took conservatorship of the GSEs, and they backstopped the largest banks with our too-big-to-fail guarantees. With those two steps, the government now assumes nearly all risk of loss in the US mortgage market. With taxpayers absorbing future losses through explicit and implicit guarantees, lenders have no reason to fear inflating another housing bubble. Another bubble would generate…[READ MORE]

For the missing MLS inventory to return to the market, borrowers need debt forgiveness, and house prices need to move even higher. I advise buyers to be sure they plan to live in the same place for at least two or three years for prices to rise high enough for them to sell and cover the sales costs. In a normally appreciating market like we have today, it still takes seven to ten years for prices to rise high enough to pay the costs and leave a first-time homebuyer with the 20% equity needed for the down payment on a move up. The breakeven barrier of two or three years keeps most properties off the market unless the buyer is…[READ MORE]

Competition for limited housing stock will prompt low-income workers to allocate any pay raises to securing better housing, enriching landlords. Advocates for raising the minimum wage aspire to help. Many working-class Americans barely subsist earning minimum wage — and some only survive living in appalling conditions. Advocates of raising the minimum wage believe forcing employers to pay more will put more spending money in the pockets of low-wage workers and improve their quality of life. Many advocates for eliminating the minimum wage are industry shills paid to peddle lies so employers can exploit workers without paying them a livable wage. However, many advocates for freezing the minimum wage or eliminating it completely also believe they help lower-income Americans. They argue that…[READ MORE]

Higher FHA mortgage fees hurt real estate markets most in areas that did not vote for Donald Trump. In one of his first acts as President of the United States, Donald Trump suspended the lowing of FHA mortgage insurance premiums scheduled by outgoing president Obama. If Trump had done nothing, on January 27th, FHA mortgage insurance premiums would have dropped from 85 basis points to 60 basis points, a significant reduction. In effect, Donald Trump raised FHA insurance premiums with his decree. Why did he do this? Lowering FHA insurance premiums would help first-time homebuyers and working-class families on the margin afford a home of their own. Is the real estate mogul anti-ownership? Does he want to price out working-class…[READ MORE]

Rising mortgage interest rates caused an alarming 10% decline in potential first-time homebuyers. Over the last several years, most pundits predicted mortgage interest rates would rise. With the exception of the taper tantrum, a 1% rise in mortgage rates during a six-week period in mid-2013, mortgage interest rates trended consistently downward, nearing record lows again just before the election. For those interested in getting mortgage loans, this is vital information. Paired with the flawed predictions of rising rates, market analysts were always quick to assure everyone that rising mortgage interest rates would have no impact on the housing market and that people would be able to get home loans with no problem. The economy is strong, they said. Incomes are rising,…[READ MORE]

The Federal Reserve's Dudley believes people will forget the lessons of the housing mania and return to profligate home equity spending. When people lose money (or foolishly waste it), they often behave differently after the incident. Wise people actually take action to prevent a recurrence of the tragedy. For example, if a thief breaks into someone’s house, the homeowner installs better locks or alarm systems to avoid a future loss of property or worse. However, when the crime is more complex than breaking-and-entering, or when the government is the facilitator of the crime, it can be much more difficult for the victims to protect themselves, but it’s just as necessary. Ben Bernanke reflated the housing bubble partly to expand consumer spending…[READ MORE]

Some progressives want people to occupy houses they don't own and don't pay for. It’s sad when someone is forcibly evicted from their family home. People develop strong emotional attachments to real property, so many people feel compassion and empathy for those enduring such a difficult loss. Since nobody wants to feel the pain of loss, many people suggest we should stop foreclosures -- or at least the evictions after the fact. (See: Should evictions be banned to stop hurting people’s feelings?) When people rally to stop foreclosure, they forget there is a next chapter to the story. What happens to the family and the house after the foreclosure? First, the house doesn’t sit empty. The distressed debtor who rented…[READ MORE]

Millennials are worse off than Baby Boomers were at this stage in their life cycle. Growing up in the Midwest, I remember the relative prosperity of ordinary families in the 1960s and 1970s. Working-class families supported themselves on union labor contracts granting them a high quality of life. A sole breadwinner without a college education could make enough money to buy a house, two cars, recreational vehicles, and family vacations. Today, working-class families with two breadwinners can't afford any of those items today, and even those with higher educations struggle to make ends meet. I remember the arguments against unions in the 1980s. Their power was excessive in the 1970s, they held back business expansion due to the high labor costs,…[READ MORE]

In Memoriam: Tony Bliss 1966-2012