The homeownership rate is plunging because the housing bust tarnished the American Dream dream, and a new generation chooses to rent instead. For nearly 100 years, US government housing policy maximized the homeownership rate and the rate of growth in house prices. Politicians characterized homeownership as the best investment a middle-class family could make, and home ownership equated with the American Dream. During the early 00s, on the surface conditions looked great. House prices appreciated rapidly, mortgage equity withdrawal fueled an economic boom, subprime lending provided home ownership opportunities to everyone, and a record number of Americans realized the American Dream. Government officials touted the success of their policies, and critics of these policies were mocked or widely ignored as…[READ MORE]

We need policies that help stabilize tenancy and facilitate renters saving for retirement. The US government treats renters like second-class citizens. Our current policies make it very difficult for renters to stabilize their housing costs or save for a comfortable retirement. Perhaps in an era where homeownership was attainable for everyone, such policies were tenable, but now with coastal states restricting new construction, significant portions of the population simply can't afford a home. Current government policies irreparably harm these renters. Politicians believe that high rates of homeownership foster social stability because people won't loot and riot if they feel invested in the community. Social engineering aside, there is one particularly strong financial reason politicians favor widespread homeownership: it allows them to…[READ MORE]

Loan modifications always had high failure rates, but modifications since 2014 fared worse than bubble-era loan mods. Every attempted loan modification delays a foreclosure, keeps an overextended borrower in a state of debt servitude, artificially props up home prices, and keeps much-needed supply off the market. Perhaps it wouldn't be so bad if the attempts to modify loans succeeded at high rates, but the truth is that they don't. Nearly 75% of loans modified fail within two years. The public good served by these loan modifications is not readily apparent. At first, the banks did this just to survive the downturn. Then it became a political necessity as millions of people lost their homes. Now, it only serves the sense…[READ MORE]

The Federal Reserve's oft-forgotten policy of buying mortgage-backed securities helped keep mortgage rates low over the last several years. The monthly housing market reports I publish each month became bullish in late 2011 due to the relative undervaluation of properties at the time. I was still cautious due to weak demand, excessive shadow inventory, the uncertainty of the duration of the interest rate stimulus, and an overall skepticism of the lending cartel’s ability to manage their liquidations. In 2012, the lending cartel managed to completely shut off the flow of foreclosures on the market, and with ever-declining interest rates, a small uptick in demand coupled with a dramatic reduction in supply caused the housing market to bottom. Even with the…[READ MORE]

Donald Trump uses executive orders like land acquisition professionals use letters of intent. When I first saw the headlines touting Donald Trump's repeal of Dodd-Frank by executive order, I literally laughed out loud. I wondered, who does he think he is, Emperor Trump? Does he really think he can change laws by executive order? Does he fail to understand the separation of powers in the US Constitution? The US Constitution, the document Trump swore to uphold, bestows all lawmaking power on the US Congress. The chief executive, the President, can either sign a Congressional bill, or he can veto it, but the President has no power to make law -- not that Trump's supporters seem to understand that. The more…[READ MORE]

Home price affordability will be the biggest issue in housing in 2017, particularly if mortgage interest rates rise. Over the last 40 years, California inflated three different housing bubbles. Starting in the 1970s with regulations like CEQA, California began to restrict growth. This inhibited builders and developers from bringing new product to market to meet demand in many areas. As a result, demand pressures caused prices to rise. Rather than react to rising prices as a deterrent to buying, the sudden upward price movements served as a catalyst for even more buying as homeowners became speculators hoping to cash in on rapid appreciation. As with all financial manias where asset values become detached from fundamentals, the first three housing bubbles…[READ MORE]

Californians embraces housing policies that benefit high wage earners and homeowners over the working poor. House prices in California surpass most of the rest of the United States both in real terms and relative to local income. Residents offer many bogus reasons for high house prices -- everyone wants to live here, incomes are higher, the sunshine tax, foreign safe haven and so on -- but none of these reasons accurately explain why house prices are so high. California housing costs rank among the highest in the nation because we don't build enough housing units, resale or rental, to accommodate population growth and job creation. To make matters worse, the solutions offered to remedy the situation fail to address the…[READ MORE]

A huge new tax on foreign investors coupled with a crackdown on capital outflows is a double whammy discouraging Chinese Nationals from investing in Vancouver. If governments really want to stop a certain behavior, what must they do to really stop it? Is passing a law good enough? Well, drugs are illegal, and it never did much to discourage drug use. What about changing the financial incentives? According to the best realtor, vancouver real estate is extraordinarily expensive relative to the incomes of local residents largely because Chinese investors buy up Vancouver real estate. The provincial government in British Columbia wanted to discourage foreign investors, so they recently passed a 15% tax on them, specifically to discourage them from investing there…[READ MORE]

Hedge funds profited from banks that failed to execute the same business plan to recover more of their original loan capital. If banks had taken the same approach to the bust as hedge funds, they could have recovered much more on their bad bubble-era loans. By 2012 they bankers finally realized they could stop foreclosing and selling the REO for rock-bottom prices and instead wait until prices recovered to execute an equity sale. However, there was another business model they could have used to recover more money quicker. Special Home Investment Trust By far the fastest and most efficient way to recover lender capital was to foreclose on their non-performing loans, rent the properties (perhaps even to the former owners),…[READ MORE]

Trump wants to cut government regulations, but Dodd-Frank is too well defended, and gutting it will look like a green light for Wall Street thieves to pillage Main Street USA. Why should we keep Dodd-Frank? Does it really inhibit economic growth, or does it merely inhibit Wall Street's ability to steal from Main Street? The fact is that Dodd-Frank works well, so financial elites hate it. Despite rumors to the contrary, Dodd-Frank vastly improves the mortgage lending market. Dodd-Frank does nothing to prevent sound lending, but it does crack down on the kind of stupid lending that was very profitable for Wall Street during the housing mania. The success of Dodd-Frank is also the source of the political pushback from lenders…[READ MORE]