The wave of HELOC recasts is upon us, and lenders must cut deals with borrowers or face another wave of delinquencies and foreclosures. Since last night was the kickoff of the NFL regular season, it's only fitting that lenders prepare for another long season of can-kicking bad loans. This time, instead of first mortgages going bad, the second mortgages sitting on top are due to recast. A loan recast is different than a rate reset. When a loan resets, the payment could go up or down depending on the prevailing rate at the time. However, when a loan recasts from an interest-only payment to a fully-amortized payment, the payment will almost certainly go up -- probably quite substantially. Home equity…[READ MORE]

Some people like extra living space, others like to show off. Buying a McMansion appeals to both types of buyers. For years urban planners worked to change public attitudes toward smaller houses near public transit stops. The tiny home movement ties into the revulsion many people feel for the ostentation and excess of large houses, particularly those with little or no architectural merit. Despite the efforts of urban planners and tine-home advocates, most Americans still believe bigger is better. I recently noted that new homes over the next decade will be smaller, not because people want smaller homes, but because younger and less affluent buyers will dominate new home sales. The trend toward smaller homes isn't a reflection of changing taste,…[READ MORE]

 Until they are forced to by a crisis, it's unlikely the next president or Congress will pass meaningful housing finance reform. Between the GSEs (Fannie Mae and Freddie Mac) and the FHA, the government directly backs more than 80% of loan originations in the United States. Legislators recognize the GSEs should be eliminated because their implied government backing is now explicit. These entities are not private entities, although many private investors would like them to be so they could profit off the government guarantee. Whenever people start discussing how to reform or terminate the GSEs, invariably someone will try to scare everyone by claiming US housing finance will cease to function, the housing market will crash, or some other nonsensical…[READ MORE]

High wage growth and nimby behavior that unduly restricts housing supply is a combination that inflates house prices in major cities. For whoever has will be given more, but whoever does not have, even what he has will be taken away from him. Jesus Christ -- Mark 4:25 The rich get richer and the poor get poorer. Karl Marx considered this trend inevitable, and he even named it the Law of Increasing Poverty. The unbridled capitalism of the 19th century led to extreme concentrations of wealth as powerful individuals ruthlessly created monopolies to crush their opponents while delivering low-quality products at very high prices. On a more basic level, the rich get richer because they don't consume everything they produce. Their savings…[READ MORE]

When sellers can't get their asking price, their alternatives are not great, but if they bought below rental parity, at least they have an option that isn't financially devastating. My first job out of school was with a retirement community developer in Leesburg, Florida. Since I had the expertise, and since it was cheaper than renting, in 1997 I built my own house at 2 Weston Road. Even though I could have built it cheaper, since I was going to live there myself, I put in nicer finishes and landscaping than a builder ordinarily would have provided. The added cost wasn't a problem until about a year after I moved in when I took a job 80 miles away, and…[READ MORE]

While some underwater homeowners were saved by federal reserve policy, the main beneficiaries of this stealth bailout were the banks. The populace was sold on quantitative easing and mortgage interest rate stimulus as a measure to save "Main Street." It was said this money pumped into the economy would create jobs, and the combination of jobs, increased incomes, and low mortgage rates would cause a boom in housing which would elevate loanowners above water. What was sold as a big benefit to Main Street devolved into another massive bailout of the banking industry with few tangible benefits to the people the programs were ostensibly designed to help out. Proponents of these policies can point to the rapid increase in house…[READ MORE]

The housing market sales doldrums we experience today is partly a result of the smaller Generation X hitting their prime homebuying years. Most anticipate a resurgence of housing when Millennials start buying homes in larger numbers. Back in 1997 a demographic study shook the homebuilding industry when it said housing demand would crater and house prices would be depressed because Generation X was so much smaller than the Baby Boomers. As it turned out 1997 was the bottom of the market, and both sales and home prices rose dramatically in a 10-year run that ended with the Great Housing Bubble. So much for demographics. With such dramatic and high-profile misses, it's difficult to put too much weight on a demographic…[READ MORE]

As mortgage rates rise, home sales will decline, and if it goes on long enough, prices will fall. In rocketry, escape velocity is the speed required to propel an object into a stable orbit. In a housing market, escape velocity is a rate of price and sales volume increase necessary to sustain an increase in demand required to push prices higher for the long term. Escape velocity is the elusive dream of real estate pundits, a group who doesn’t understand what it was or why it disappeared (probably forever). In previous real estate cycles (pre Dodd-Frank), as prices went up and buyers were priced out of the market, lenders responded by offering affordability products toxic mortgage financing terms. As affordability…[READ MORE]

Home mortgage interest deduction encourages high wage earners to borrow more; capital gains tax exemption encourages wealthy to invest more in personal homes. The combined effect inflates house prices. Politicians promote home ownership through a variety of subsidies and tax loopholes, ostensibly to promote a sense of community and quell civil unrest, the modern bread and circuses. A 2014 Republican tax reform proposal curtails homeownership subsidies, and the proposal was vigorously opposed by realtors, homebuilders, and lenders who benefit from the subsidies. Supporters of the subsidies generally control the perception of their largess through planted stories in the financial media appealing to homeowners who rely on the subsidy to reduce their tax bills; however, those who want to reduce these subsidies occasionally gain…[READ MORE]

By providing more housing units, apartment developers will lower housing costs over time and relieve the pressure on Californian's personal budgets. Combating the chronic shortage of available housing in California requires building more places to live. It matters little if these new housing units are small furnished apartments or large mansions. As developers build more, all segments of the housing market will be more affordable to everyone in California. How to lower housing costs Imagine what would happen if California legislators found the political will to actually solve the housing crisis in California rather than giving in to the Nimbys. If Governor Brown formed a committee and charged them with crafting a policy to bring housing costs down as quickly…[READ MORE]