Author Archive: Irvine Renter

When mortgage rates are low but rising, equity growth comes through amortization rather than appreciation. Equity is the cash value stored in a owner's house. Many people assume equity is the difference between what a house is worth and what they owe on it, but this overstates the reality by 8% or more of the estimated value because if a homeowner needed to convert the house to cash, they would need to sell it, discounting the property from their perceived value and incurring fees and costs in the process. People who purchase real estate use the phrase “building equity” to describe the overall increase in equity over time. However, it is important to look at the factors which either create…[READ MORE]

Historically, properties in this market sell at a 9.5% discount. Today's discount is 12.8%. This market is 3.3% undervalued. Median home price is $510,000 with a rental parity value of $590,000. This market's discount is $80,000. Monthly payment affordability has been worsening over the last 5 month(s). Momentum suggests worsening affordability. Resale prices on a $/SF basis increased from $400/SF to $402/SF. Resale prices have been rising for 2 month(s). Over the last 12 months, resale prices rose 4.3% indicating a longer term upward price trend. Median rental rates increased $19 last month from $2,590 to $2,609. The current capitalization rate (rent/price) is 4.9%. Rents have been rising for 12 month(s). Price momentum signals rising rents over the next three…[READ MORE]

The hopes for a recovery in the homeownership rate fade as people forming new households choose to rent instead. For over 100 years, government administration policy favored homeownership. Politicians believe homeowners are more invested in local communities, so they are less likely to commit crimes or participate in the occasional riot. However, I believe politicians are more motivated to encourage homeownership because houses provide a retirement savings account that lessens the demand for public services by senior citizens. Homeownership was characterized as the best investment a middle-class family could make, and home ownership has become synonymous with the American Dream. During the early 00s, subprime lending provided poor and minority borrowers greater access to the free money from home price…[READ MORE]

Unrestricted mortgage equity withdrawal provides incentive for buyers to bid up house prices to create equity they can borrow and spend. Bubble thinking is rampant, and the primary reason for its persistence is that people want the free spending money houses provide. The huge financial reward each bubble participant received as they went to the housing ATM gave a spender’s high like no other. The real estate lottery When you reflect on it, mortgage equity withdrawal is similar to state run lotteries that sell hope to the poor at a major cost. If you are a worker who doesn’t save money, you have no chance to acquire wealth. Lotteries give those who have no other opportunity for wealth a chance —…[READ MORE]

Is it better to be widely known as a permabear or permabull? Or is it better to change with the times and gain credibility through being right? Pundits who issue forecasts want to be right, and they want to be acknowledged as being right. In the world of punditry, credibility is everything, and the best forecasters really are right more often than they are wrong -- or at least they convince people that's true. The ability to shamelessly revise history is the mark of a truly successful forecaster fraudster. Paul Krugman and Peter Schiff If you read either Paul Krugman or Peter Schiff, both write from the opposite ends of the political and economic spectrum. They often make predictions diametrically…[READ MORE]

House prices in California's Inland Empire are at or below their stable relationship between the cost of ownership and the cost of rent. After the devastating collapse of house prices in 2008-2012, buyers are rightfully wary of buying into another bubble. After watching their neighbors suffer with excessive payments and negative equity, prudent renters don't want to suffer the same fate. And with a nearly 80% increase in house prices in Riverside and San Bernardino Counties over the last three years, people have reason to worry. There are very few economists with any credibility to comment on whether or not housing is a bubble. Lawrence Yun of the NAr has no credibility to comment on anything related to real estate,…[READ MORE]

The US taxpayer insures most of the mortgages in the United States today, exposing you and me to trillions in potential losses in a future housing bust. Prior to the collapse of the housing bubble, when lenders gave free money to loan owners, 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 and the dramatically increased market share of the FHA, 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 every reason to inflate…[READ MORE]

Historically, properties in this market sell at a 0.6% premium. Today's discount is 3.6%. This market is 4.2% undervalued. Median home price is $597,800 with a rental parity value of $629,100. This market's discount is $31,300. Monthly payment affordability has been worsening over the last 5 month(s). Momentum suggests worsening affordability. Resale prices on a $/SF basis increased from $386/SF to $388/SF. Resale prices have been rising for 8 month(s). Over the last 12 months, resale prices rose 3.6% indicating a longer term upward price trend. Median rental rates increased $33 last month from $2,749 to $2,782. The current capitalization rate (rent/price) is 4.5%. Rents have been rising for 12 month(s). Price momentum signals rising rents over the next three…[READ MORE]

Are properties for sale but withheld from the MLS, so-called pocket listings, a viable way to sell real estate or a seller ripoff? A for-sale property that is not listed on the MLS is a "pocket listing." Sellers, particularly famous sellers, who don't want legions of potential buyers traipsing through their house often ask agents not to put the listing on the MLS. Agents must follow the rules of their local MLS that mandates a listing within a certain number of days, but if the listing is informal, the agent may pre-market a property to select buyers. Most often pocket listings are used by agents who want to double-end the deal and make double the commission. In that scenario, the…[READ MORE]

To sabotage the housing market, remove homeowner equity and raise borrowing costs. The result is a collapse of the move-up market and very low sales. Sometimes to find the best solution to a problem, examining how the problem could be made worse reveals options and perils that might otherwise be unnoticed. Unfortunately, upon close examination of the housing market, the path to destruction may disguise itself as the path to recovery. How the property ladder works In the real world, most first-time homebuyers use an FHA loan and buy a low-cost property. The reason for this is simple: it takes too long to save 20% for a down payment on a conventional loan. First-time homebuyers use FHA loans because the…[READ MORE]

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In Memoriam: Tony Bliss 1966-2012
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