Author Archive: Irvine Renter

If Millennials were really coming back to the real estate market, first-time homebuyer percentages would not be near three-decade lows and falling. Have you noticed that many financial media reporters write stories about what their sponsors want to be true without any facts in support? I understand the urge for self preservation, and even the desire to tell people what they want to hear, but it doesn't improve the credibility of the financial media when reporters fabricate stories about trends and developments that don't in fact exist. MOPE (Management of Perspective Economics) is the false belief that economists and the media can stimulate economic growth and activity by convincing the public the economy is vibrant when it’s really not. This…[READ MORE]

Successful real estate investing involves analyzing cashflow and obtaining a return on investment independent of resale value. Imagine you lived in a place where real estate was the only viable market where you could invest money. Further imagine that properties in this real estate market that had no expenses and no income. If this were your world, how would you go about selecting which property to invest in? In such a market, you only make money if someone is willing to pay you more in the future than you paid today. Since the investment offers no other metric for returns, speculation on future values is all you have to work with. What criterion would you use to select your properties?…[READ MORE]

Lowering FHA insurance fees increased sales volumes and prices at the low end. Prices went up faster than incomes, so houses are less affordable. Further, Last September I noted that High loan costs cause FHA originations to plunge; in fact, FHA financing is so expensive, it’s like taking out a 12.4% second mortgage! Something had to be done if the housing market were to sustain current pricing or build any momentum for the future. Last November I reported that first-time homebuyer participation rates hit a three-decade low, a major problem for the long-term health of the housing market. I later predicted this would pressure would mount to lower FHA insurance fees to revive home sales. About a month later President Obama…[READ MORE]

Housing will be the front lines in the battle over interest-rate policy during the next decade because higher rates will disproportionately impact housing. The federal reserve signaled their intention to raise rates beginning in 2013. The infamous "taper tantrum" of May 2013, when mortgage rates rose from 3.5% to 4.5% in about 6 weeks, was a direct result of Ben Bernanke's announcement that zero percent interest rates wouldn't last forever. We are now reaching the end of 2015, and to the surprise of most economists (but not readers here) it appears unlikely interest rates will rise this year; however, at some point interest rates will rise. The only questions are when, and by how much. One school of thought is…[READ MORE]

As rising prices restore collateral backing to bad bubble-era loans, lenders ramp up foreclosure proceedings to get their money back. Starting in early 2009, lenders placed their faith in the success of loan modifications. Lenders define success differently than underwater homeowners (loanowners): Success to a lender means obtaining a few more payments prior to a short sale or foreclosure, whereas success to a loanowner means maintaining ownership permanently. Loan modifications were granted ostensibly to "keep people in their homes," but this was disingenuous spin. It isn’t their home, and it never was. The people obtaining loan modifications borrowed a huge amount of money, often with nothing down, to get their name on title and occupy real estate. Underwater loan owners…[READ MORE]

With the bulk of new home sales in Irvine, California, selling to Chinese nationals, declining sales there is an indicator of overall Chinese capital flows. I don't believe we will see another real estate crash caused by American lenders. Since they mastered the art of can-kicking to keep supply off the MLS, they managed to reflate the old housing bubble. It's very likely they would employ this same technique to prevent any future house price collapse caused by loan delinquency. However, despite the huge influence lenders have on the market, they don't control all the supply. If there is any issue that has real potential to drive real estate prices down, it’s the possibility of foreign buyers, particularly the Chinese,…[READ MORE]

Baby Boomers need Millennial buyers to purchase overpriced homes to fund the Boomers' retirements. Have you noticed all the financial media stories about why Millennials aren't buying homes? Who cares whether or not Millennials buy homes? Shouldn't the Millennials themselves be the only ones who care whether they rent or whether they own? Shouldn't the choice be one for them to make in consideration of their own lifestyles, needs, and goals? Who benefits from a concerted effort to cajole Millennials into buying houses? Besides Millennials themselves, only two major groups of people care about Millennial homebuying: real estate industry professionals, and Baby Boomer homeowners. People in the real estate industry that make money on transactions -- homebuilders, lenders, realtors --…[READ MORE]

As mortgage rates rise, home sales will decline, shattering the myth of escape velocity in residential real estate. 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]

As loan modifications redefault, and as the market can absorb the supply, lenders are finally foreclosing and resolving their bad loan permanently. A wave of foreclosures flooded the housing market in 2008 and left millions of homeowners underwater. Most people believe the storm surge receded as lenders ran out of delinquent borrowers to foreclose on, but nothing could be further from the truth. In reality, lenders merely delayed processing millions of foreclosures by can-kicking bad loans in hopes that rising prices could bail out both the bankers and the homeowners with an equity sale. For the most part, this policy worked. Distressed properties disappeared from the MLS, and fueled by record low mortgage rates, prices rose briskly once the supply…[READ MORE]

During the housing bust, every effort was made to keep homeowners in their houses. Renters were mercilessly thrown in the street with little or no fanfare. Our real property system functioned well for centuries with very little change. Prior to the housing bubble, it was widely accepted that people borrowed money to buy houses and if they didn’t pay it back according to the terms of the promissory note, the mortgage agreement allowed the lender to call an auction to get their money back. Housing was an earned reward, not an entitlement. The basic dilemma is simple, most people don’t have the cash to buy a house, and it would take them most of their adult lives to save for…[READ MORE]

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In Memoriam: Tony Bliss 1966-2012
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