Archive for March, 2017

What's happening down at the beach? Historically, properties in this market sell at a 33.2% premium. Today's premium is 26.2%. This market is 7.0% undervalued. Median home price is $1,668,500, and resale $/SF is $790/SF. Prices rose 4.0% year-over-year. Monthly cost of ownership is $7,660, and rents average $6,245, making owning $1,402 per month more costly than renting. Rents rose 6.0% year-over-year. The current capitalization rate (rent/price) is 3.6%. Market rating = 9   [gview file="" height="840px" width="640px" save="1"][READ MORE]

Debt-to-income ratios must be limited because beyond a certain point, rising debt service becomes a Ponzi scheme. In The Great Housing Bubble, I wrote about how we could prevent the next housing bubble: Loans for the purchase or refinance of residential real estate secured by a mortgage and recorded in the public record are limited by the following parameters based on the borrower’s documented income and general indebtedness and the appraised value of the property at the time of sale or refinance: All payments must be calculated based on a 30-year fixed-rate conventionally-amortizing mortgage regardless of the loan program used. Negative amortization is not permitted. The total debt-to-income ratio for the mortgage loan payment, taxes and insurance cannot exceed 28%…[READ MORE]

Double digit rental rate increases are driving rapid home price appreciation in San Francisco. Historically, properties in this market sell at a 24.1% premium. Today's premium is 11.4%. This market is 12.7% undervalued. Median home price is $828,000, and resale $/SF is $532/SF. Prices rose 7.0% year-over-year. Monthly cost of ownership is $3,815, and rents average $3,406, making owning $408 per month more costly than renting. Rents rose 8.2% year-over-year. The current capitalization rate (rent/price) is 3.9%. Market rating = 8  [READ MORE]

Houses feel expensive because an unusually large percentage of the payment is going toward principal amortization. For the last few years, my monthly housing market reports rated most communities across Southern California highly, suggesting it’s a very good time to buy a house. Yet despite this dispassionate review of the math, most people who actually shop for a house feel like prices are way too high. Why is that? Well, house prices are high. The federal reserve in conjunction with government officials reflated the housing bubble to restore collateral backing to lender’s bad loans. The housing bubble that peaked in 2005/2006 witnessed house prices 20 years ahead of their time. Reflating the housing bubble in 2016 still puts us 10…[READ MORE]

Historically, properties in this market sell at a 22.3% premium. Today's premium is 11.3%. This market is 11.0% undervalued. Median home price is $778,900, and resale $/SF is $434/SF. Prices rose 5.0% year-over-year. Monthly cost of ownership is $3,589, and rents average $3,214, making owning $374 per month more costly than renting. Rents rose 4.3% year-over-year. The current capitalization rate (rent/price) is 4.0%. Market rating = 9[READ MORE] Several years ago, I was playing craps at rwbola casino when the shooter went on a long, long run. After about 40 minutes without rolling a seven, I had about $750 I took off the table in front of me, and I had about $500 still sitting on the table from the numerous times I pressed my bets or let it all ride. In the middle of the pandemonium at the table, I had a funny feeling. Despite the euphoria around me, I felt it was time to leave and just play at a VeryWell casino without Gamstop. Before I could think more about it, I found the words coming out of my mouth, "Please, take down all my…[READ MORE]

Lenders lower standards to qualify more borrowers and increase business, a precursor to another bubble, but only if risk is again mispriced. Let’s assume for a moment all qualification standards were eliminated and anyone who wanted to borrow money could get a loan, similar to what happened in 2004 through 2006. Would this cause a housing bubble? In my opinion, it would not. It would inflate prices, and it would cause a great deal of downward substitution of quality to get a property, but it wouldn’t necessarily create a housing bubble as long as loans were based on verifiable income and reasonable debt-to-income ratios on conventionally amortizing mortgages. The loose lending standards of 2004-2006 allowed many people to buy homes,…[READ MORE]

Homebuilders believe less regulation and a stronger economy are in store thanks to the election of Donald Trump. Despite being in California where an overwhelming majority of people are Democrats, homebuilders are mostly Republican in California and across the nation. Homebuilding is an entrepreneurial business that chafes at regulation, so it shouldn’t be terribly surprising to see so many Republican homebuilders. Since Donald Trump won the election, it's also reasonable to expect homebuilder confidence would rise. If Hillary Clinton had won, I don’t believe homebuilders would have been despondent, but they would have expected more of the same — increasing regulations and slow economic growth. When Trump surprised everyone and won the election, homebuilders were thrilled at the idea of a…[READ MORE]

Negative equity decreased by $26 billion in 2016, saving lenders from potential losses on millions of home loans. Can-kicking works. When lenders first began can-kicking bad loans in 2008, I didn't believe the policy would succeed, and for the first four years, it didn't. However, with no viable alternatives, all lenders embraced can-kicking through loan modifications and a permissive attitude toward long-term delinquent mortgage squatting. I believed the policy would fail because it was a cartel arrangement I thought I would be dragged into the Dolphin investment scam. Each bank gained more by foreclosing and recovering their capital than waiting because prices were still falling, and many banks needed the cash to survive the recession. However, the federal reserve and…[READ MORE]

When people view homes as an investment rather than a family home, prices become volatile, and it disrupts people's financial lives. Homeowners love it when houses go up in price; after all, it makes them rich. During a home price rally, the bulls intoxicate with greed and obsess about owning an investment property. However, once houses become an investment, the prices of houses begin to behave like an investment, and volatility enters the system. Houses should not trade with the volatility of a commodities market because it causes more harm than good. Price volatility is a very disruptive feature in a housing market: the upswings are euphoric, and the downswings are devastating — and there are downswings. Declining house prices…[READ MORE]

In Memoriam: Tony Bliss 1966-2012