Jan282016
Many homeowners downsize when released from their bubble-era debtor’s prison
After enduring 10 years of excessive mortgage debt service, many people downsize when prices rise high enough for them to sell.
Most people visualize the housing ladder as a steady upward progression from starter home to Mansion by the beach, but that’s seldom the reality. Many people buy entry-level housing, and when prices rise high enough for them to sell and have 20% down for a larger property, the participate in the move-up market. If their income grew while they lived in their entry-level home, the step up can be quite luxurious. If their income didn’t go up much, they are probably better off refinancing into a lower-cost mortgage and staying put.
The housing bubble severely disrupted the housing market. It prompted many people to buy into a market frenzy and many others to refinance their homes at peak price levels. As a result, many people were trapped beneath their debts when house prices crashed. (See: Millions of homeowners trapped in entry-level homes for over a decade)
Many of those who bought or refinanced at the peak used unstable loan products, and they couldn’t afford to service the amount they borrowed. In an act of self-preservation, lenders often modified these loans to make the debt service manageable, but it didn’t make the debt — or the house — truly affordable. In 2013 I posited that the Loan modification entitlement will be rescinded as prices near the peak, and later that The final resolution of loan modifications will push people out of their homes.
The people affected by the rising costs of their loan modifications will not likely end up as foreclosures. The banks wait to put the screws to people until after they have equity and the homeowner can sell for enough to repay the bank; after all, the bank doesn’t want to lose money. This slow exodus won’t impact prices in the housing market much, but it does impact the lives of many families as they are subtly pushed out of their homes. After years of struggle, many of these people will take a step down the property ladder into a house they can truly afford.
After years of bubble and bust, the housing market is ‘normalizing’
“Housing is normalizing, which means prices are increasing within an acceptable range,” Adibi said. “It’s good news to everybody. … Volatility is not healthy. For nobody.”
Jeff Collins, Jan. 24, 2016
Their daughters off to college, Rick and Tami Moscoso no longer needed their 3,400-square-foot “money pit” of a house in Mission Viejo’s gated Canyon Crest community. …
So they decided 2015 was the year to downsize. …
A Rancho Santa Margarita couple’s decision to move from a condo to a house last summer may be illustrative of the 2015 market. …
They sold the house for $950,000, then bought another one for $560,000.
“It served its purpose while we had (all our) kids at home,” Rick Moscoso, a real estate photographer and videographer, said of the house. But it was “lots of maintenance, lots of house to take care of. It really was time for us to just downsize and simplify.”
Purging belongings and moving into a home a third the size of their old one was a nightmare, but worth the effort, Moscoso said.
“We were trapped by this money pit,” he said.
“We wanted to invest in us.”
I give this family credit for finally making the right financial decision. The discussions about selling their dream home to take a step down the property ladder could not have been easy, but it was clearly the right choice. They cut their housing costs significantly, and now they will have the extra money to do all the things they gave up to own that huge home loan.
Many others will choose to hang on because the moment they rise above water, the stress of being a loanowner almost immediately turns to greed about making enough money to buy a nice move-up. Unfortunately for them, many others will not keep enduring the high monthly payments when they emerge, and these newly-equitied owners will get out as soon as they can and execute a move-down trade. These new listings and move-down trades will pressure higher price points and create more demand at lower ones.
Real Estate Seminar Thursday February 4
[listing mls=”OC15233824″]
“Housing is normalizing” ?? Ha!
That’s the equivalence of a doctor proclaiming a patient is cured as long as he’s not removed from life support.
Analogy modification – “It’s the equivalent of a doctor proclaiming her patient is doing very well and recovering after a traumatic experience.”
I think its more like Dr. Frankenstein proclaiming,
“It’s Alive!”
it’s going to be hard to convince people to grab torches and pitch forks with everyone glued to cheap 65 inch TV screens and free facebook
Voting Trump or Sanders is the modern day equivalent of torches and pitch forks.
Falling Mortgage Rates Spur Housing Market
MBA: Mortgage applications rise three weeks straight
For the third week in a row, mortgage application increased, rising 8.8% from one week earlier, according to the latest data from the Mortgage Bankers Association’s weekly mortgage applications survey for the week ending Jan. 22, 2016.
The MBA noted that this week’s results include an adjustment for the Martin Luther King holiday.
The refinance index increased 11% from the previous week, while the seasonally adjusted purchase index increased 5% from one week earlier.
Overall, the refinance share of mortgage activity decreased to 59% of total applications from 59.1% the previous week, as the adjustable-rate mortgage share of activity increased to 6.9% of total applications.
The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,000 or less) reached its lowest level since October 2015, dropping to 4.02%, from 4.06%.
Also falling, the average contract interest rate for 30-year fixed-rate mortgages with jumbo loan balances (greater than $417,000) decreased to 3.89% from 3.93%.
The average contract interest rate for 30-year fixed-rate mortgages backed by the FHA decreased from 3.86% to 3.83%.
It would be interesting to know how voluntary their down-sizing in house was. Have they struggled for years while the kids were in school, planning their exit to financial sanity the whole time? Will they be using any gain from the step-down to pay-off debt incurred maintaining their house and lifestyle?
Maybe not. Maybe they’ve dutifully paid-down their mortgage for many years, paid-off all other debt, and have built wealth. Maybe the gain from the step-down is just a fraction of their net worth and they’re now set for a very comfortable retirement.
Your scenario is the more typical scenario
It’s very common for people to down size when the kids move out of the house.
There is no reason to live in your 5 BR Irvine Crap shack any more… plenty of people move down the coast to 2-3 BRs near the ocean for half the cost.
Except, that 2-3 Br near the ocean costs more than the 5 BR Irvine crap shack. In Laguna or NB, you need about two million.
For the vast majority who do this, yes, they struggled until they could release themselves from debtor’s prison at the earliest opportunity.
Despite their struggles, most people didn’t strategically default. Since nearly everyone was overextended who bought or refinanced from 2003 to 2007, when the Ponzi money was shut off, they all struggled to repay their excessive debts.
The couple in the story were the few wise ones that took action to downsize. An even larger group is still struggling because they either refuse to take a step down the property ladder or they are greedy and want to get enough equity for a move-up trade.
Almost nobody dutifully paid down their debts. Nearly all debt reduction comes from bank write offs.
Ted Cruz under fire for Goldman Sachs connections
GOP Presidential candidate Ted Cruz continues to be criticized for his links to Goldman Sachs, the company where his wife Heidi, is a managing director at the firm in Houston.
While It’s no surprise that politicians need to raise money for their campaigns whether they are Democrats or Republicans, according to Maria Recio from McClatchyDC, even though liberals do not like deregulated banking and conservatives call it “crony capitalism”. But it’s banking itself that candidates deny any trade-offs.
It was reported by New York Times author Mike McIntire, that while the Texas senator was running for his second term, he borrowed $500,000 but didn’t disclose it. Cruz then said it was a mistake on his part as he didn’t report it to the Federal Election Commission campaign.
“What astonished me, then and now, was Heidi within 60 seconds said, ‘Absolutely,’ with no hesitation,” Mr. Cruz said.
According to the McClatchyDC, Goldman Sachs, like all financial institutions, wants to influence legislation and regulation, and it opposes additional taxes and the regulation of financial instruments.
Even though Cruz is under fire for borrowing money from Goldman, Washington receives monetary contributions all the time. Apparently the firm has also contributed $760,740 to former Secretary of State Hillary Clinton’s campaigns since she began her race for senate in 1999 to her current run for president.
[…] Read more from OC Housing News […]
New home sales beat expectations, rise 10.8%
Headline numbers are volatile and prone to large revisions
Sales of new single-family houses in December came in at a seasonally adjusted annual rate of 544,000, surpassing analyst expectations, according to the latest data from the U.S. Census Bureau and the Department of Housing and Urban Development.
This is 10.8% above the revised November rate of 491,000, and 9.9% above the December 2014 estimate of 495,000.
Chief Economist at Stifel Fixed Income Lindsey Piegza commented on the report saying that new home sales rose significantly more than the 2.0% expected, rising from 491,000 to a 544,000 unit pace, the fastest pace since February 2015.
Capital Economics’ response to New Home Sales said, “New home sales followed in the path of existing sales by surging 10.8% in the final month of the year. But while the jump in existing sales was due to volatility caused by TRID, the rise in new home sales provides further evidence that an improving labor market is helping to boost housing market activity.”
The Capital Economics report added, “It is possible that the unseasonably warm weather helped sales in December. But we wouldn’t put too much weight on that explanation.”
“Looking at the fundamentals, the outlook for new home sales is positive. Housing demand is rising as more Americans secure jobs and banks loosen mortgage lending criteria,” the Capital Economics report said.
It’s looking like another strong year
Recession delayed until 2017 or 2018?
I don’t see a recession any time soon. Usually a recession is triggered due to excesses in the previous expansion. Since the previous expansion this time was a completely artificial construct of the federal reserve, the only excesses were in asset values, which performed poorly last year and continue to be volatile this year. The repricing of asset values is the recession this time around. The underlying economy is only now pulling out of the doldrums from 2008.
You are missing the job losses that would eventually come with asset values.
I agree though, no recession in 2016.
Not sure about “any time soon though”. I could easily see one by 2018 as at least a 50% probability.
What happens when times do eventually get better?
Money velocity will finally increase of course, leading to inflation. Given the tens of trillions of dollars worth of fiat currency sloshing around the globe, central banks will have to pull that in.
Would the private sphere be willing to purchase all of the assets held by the central banks or is there a correction of some sort that would be expected?
Would that lead to the deflation of our asset bubble? The central banks wouldn’t want nominal prices to decrease though. Would central banks take advantage of that event to raise the inflation target a percent or two (lessons learned from this recession)? It seems easier to let inflation run higher when assets are deflating.
There are 2 scenarios I can see playing out when Mortgage Rates finally increase….
Scenario 1: Inflation is out of control, rates have to increase, home prices also go up…. this has been the typical scenario in the past.
Scenario 2: The fed raises rates, the failed monetary policy sends us into a recession…. asset prices drop with job losses… eventually mortgage rates go back down.
I see scenario 1 at around a 20% probability while I see scenario 2 as around an 80% probability.
The hard part is timing it exactly right. It won’t happen in 2016. It probably won’t happen until at least 2018 if not longer.
Good points.
It almost seems like a game of chicken.
Scenario 1 plays out if the hoarders of fiat currency are worried about inflation.
Scenario 2 plays out if the hoarders of fiat currency decide the global economy is going to shit and decide to hoard more.
Both are self fulfilling prophecies.
I don’t foresee scenario 1 happening unless the inflation is driven by huge wage increases, which seems pretty unlikely.
When we had inflation, higher interest rates, and house price appreciation, it was because lenders became aggressive with DTIs in anticipation of future wage inflation. Since DTIs are now capped, I don’t see this getting out of control like it did in the 1970s.
Irvine Renter its seriously ridiculous how you think DTI were out of whack in the 1970s… they weren’t… incomes were going up… you are using current year pricing with previous year income to get those DTIs
Scenario 3: The Fed raises rates and no recession happens.
What matters is how fast rates rise. Technically, rates have been rising since 2009, albeit very slowly.
Many others have been saying that the Fed raised rates too soon because stock prices have fallen. I don’t know. It seems like the stock market is falling mostly because oil prices have fallen. Other sectors of the economy are doing well: healthcare, consumer discretionary, etc. Unemployment is low, but wage growth is abysmal (thanks to falling CPI via energy). Consumers are doing better because of lower gas prices.
Once falling oil prices stop subtracting from inflation, wage growth will accelerate. This will further accelerate inflation. When we have 3-4% inflation towards the start of next year, a .25% fed hike won’t matter much.
The irony is that the same people who are up in arms right now about the Fed hiking too soon will be equally upset about the Fed not hiking soon enough.
Recession just underway??
http://www.bloomberg.com/markets/economic-calendar
By the time the MSM tells people about being in recession, it will be too late.
Transport. indx
http://stockcharts.com/c-sc/sc?s=%24DJTTR&p=W&b=5&g=0&i=p17070011137&r=1454011769831
Baltic Dry indx
http://stockcharts.com/c-sc/sc?s=%24BDI&p=D&st=2000-01-28&en=%28today%29&i=p06717909765&r=1454012010180
yield curve pancaking
http://stockcharts.com/h-sc/ui?s=%24DJTTR&p=W&b=5&g=0&id=p83083958935
http://stockcharts.com/h-sc/ui?s=%24BDI&p=D&st=2006-01-28&en=%28today%29&id=p39106767347
Those are some ugly charts. I don’t think the Baltic Dry Index is a good indicator any longer. And with the stock market, I think everything became overvalued, and the market is finally accepting reality now, and reality is less rosy than the market anticipated.
Durable goods orders/shipments tanking…
http://1.bp.blogspot.com/-gTKtgXt_vFc/VqpYhhVI3VI/AAAAAAAAhQI/eyubQIh7SIU/s1600/Durable%2BGoods%2B2016-01-28.png
BTW, anyone who shorted the market when the federal reserve raised rates had to be patient through the holidays, but they must be pretty happy today.
Which Slumps First, Stocks or Economy?
One of the consensus talking points among optimists recently has been that the ugliness in the U.S. stock market does not jibe with the outlook for the overall economy, which may not be beautiful but is also not so hideous that you should be afraid to take it home to meet mom.
Feeling the Pain
But what if the chickens and eggs are all mixed up here? In other words, what if instead of an ugly economy sinking the stock market, the stock market turns so ugly that it sinks the economy? It’s a possibility that is being considered by the likes of JPMorgan Chase’s Dubravko Lakos-Bujas, who on Tuesday became the most bearish strategist on Wall Street and (probably) made many nostalgic for his perennial optimist predecessor Tom Lee.
The problem relates to psychology, an area that may be an even trickier than quantitative finance. According to Lakos-Bujas:
There is increasing risk that elevated volatility starts incurring enough technical damage to market psychology and spills over, negatively impacting investor, consumer and business sentiment, resulting in a lack of risk taking, and eventually creating a negative feedback loop into the real economy.
That feedback loop is already squealing loudly on Wall Street, where everyone dresses too well to be considered part of the “real economy” but where the headlines describing the negative effects of financial-market volatility have been piling up. Initial public offerings have ground to a halt. Corporate debt issuance is off to the slowest January. As a result of these and a hodge-podge of other reasons, bank stocks are in a bear market.
It doesn’t appear to have reached Main Street yet. Richard Fairbank, chief executive officer of Capital One Financial Corp., told analysts that most indicators of the “quote, unquote, real economy” in the U.S. continue to look pretty strong. “Obviously, the economy is something of a wild card, and if the turmoil we’re seeing in financial markets spills over into the real economy, we would expect that to show up in our credit metrics eventually,” he said. “But we are not seeing any indications of that now.”
Ive been reading how housing is improving. I hate reading these generalized national data because it means nothing to us locally. How is Irvine and rest of OC housing doing?
It’s doing awesome if you own a home.
If you are renting in the bay area or Irvine… then things have not gone so swimingly
And as far as the rent inflation goes, I’m not sure that’s going to stop soon.
The rental vacancy rate is too low in SoCal. We need more supply.
The last couple years housing has been awesome for housing in Irinve/SF, but its seems things are changing here in Irvine. I cannot comment on Bay area as I do not follow that area.
It will be interesting to see how things go in the next couple months. I do not expect housing in Irvine to be awesome. No data to support this, just my observation from glancing at redfin and zillow on a daily basis.
Irvine new home sales struggle due to high prices. This will be an ongoing problem as it’s not as simple as just lowering price for homebuilders.
The resale market is reasonably strong, largely because interest rates remain below 4%. The local economy is improving, so more people have high-paying jobs that can afford houses. The increased demand is showing up in slightly higher sales and higher prices for resales. As long as rates remain below 4%, that will continue.
If mortgage rates start rising, all the strength of the market will evaporate.
Mortgage rates rising?
It’s going to be harder to get bacon when pigs fly.
The good news is, if you want a new Irvine home, you have a few neighborhoods to choose from and you’re now in the driver’s seat. You can likely get the type of lot you want (location and size) and have minimal upgrade expenses due to builder credits. There are only a couple developments selling so well that these benefits don’t exist.
You’re obsessed with outcomes. Here’s why attention to process pays off.
Sports fans and investors tend to make similar errors. Perhaps the biggest is focusing on outcomes rather than process. Sports fanatics are all Monday morning quarterbacks; they can read you chapter and verse — after the fact — what should have been done late in the game on 4th and goal from the 2-yard line.
It’s called hindsight bias, and it afflicts investors, too. They can tell you what asset classes you should have owned last year, which hedge fund manager you should have invested with 20 years ago, and why you should have bought Netflix, Tesla and Apple about 5,000 percent ago. (Thanks for nothing!)
So what is process, and how does it differ from outcome?
Process is simply the methodology used to accomplish an undertaking. It could be a simple checklist or a complex systematic approach. Process focuses on the specific actions that must be taken, regardless of the results.
Outcome is the result; it could be due to skill, luck, intelligence or many other random factors. At the end of the day, outcome is who won or who lost the game, how many planes landed safely, what stocks went up or down and what surgical patients lived or died.
In sports terms, think of process as your playbook and outcome as the final score. In investing, process is your approach, investment style, discipline and consistency, while outcome is your return or performance.
Imagine you are watching two people in a coin-flipping contest. One of them flips 10 heads in a row; the other’s are more random — heads, tails, tails, heads, tails, etc. Are you willing to bet a substantial sum that the first flipper’s next toss will be heads? If you said yes, you are outcome focused.
It seems brazen, yet that is exactly what many investors do. They chase the hottest coin flipper of the moment. In finance, that is the person with a “hot hand” — the mutual fund whose manager just finished a great streak, someone who ended up on the cover of a magazine, or any recent award winner.
If you have not analyzed and understood a manager’s methodology, how can you possibly know whether the results are due to skill or chance? We are all too often, to quote Nassim Taleb, fooled by randomness.
Successful results in investing could very well be a mere coincidence — a result without any underlying causation on the manager’s part. Meaning, the outcome was not the result of process, but rather, dumb luck.
Perhaps that manager’s investing style (momentum, value, trend following, etc.) came (temporarily) back in vogue. Maybe his sector became red hot, or the part of the world he focuses on is seeing a (temporary) boom. What looks like personal greatness very often is not (and vice versa).
This is not to say you should always ignore bad outcomes. A series of poor results may indicate an issue with process.
Ironically, investors as a group have a tendency to attribute their own successes to the skill and insight they possess; at the same time, any losing investments are blamed on bad luck. That’s outcome focus married to ego, and it’s not how you make money in the markets over the long term.
Why are we so easily fooled by random outcomes? The pattern recognition subroutine in your brains evolved to identify threats. That shadow in the tall grass might be a predator waiting to make you its lunch. Hence, generating false positives means that you might be wrong 99 of 100 times, but on the savannah, that 100th event saves your life.
People tend to be outcome focused, often to the detriment of choosing a good process.
The key to becoming more process focused is to understand that good outcomes follow good processes. Without understanding the underlying process, good outcomes could just as likely be due to blind luck as to skill.
You should be reminded of this every time you read the disclaimer “past performance is no guarantee of future results.” What you are actually seeing is an admission about random outcomes. Past performance is no guarantee of future results if the past performance is just as likely the result of luck as it is the result of skill.
Luck = outcome, and skill = process.
We never really know what the source of a good outcome is; however, we have a high degree of confidence what the probabilities are for a good process. A strong process is a guarantee — not of outcome or results, but of the highest probability of obtaining desired results. That’s why it is so important to investors.
Always important to remind yourself of this (or learn it). I’m not gonna tell you where house prices will be next year, nor over a longer period. However, I will share how you should approach your house purchase process.
FOMC: When interest rates rise again, it will be gradual
In the first Federal Open Market Committee meeting since the Federal Reserve decided to raise interest rates, the committee decided to keep the federal funds rate at a range of 0.25% to 0.50%, which doesn’t come as a giant surprise.
In a note before the minutes came out on Wednesday, Chief Economist at Stifel Fixed Income Lindsey Piegza, said that they didn’t expect a change in rates at the January meeting, so soon after liftoff.
“As expected, the FOMC decided there would be no change in the federal funds target rate,” said National Association of Federal Credit Unions Chief Economist Curt Long.
“The committee identified low inflation in the near term, resulting in part from the recent drop in oil prices, as well as weakness abroad and in financial markets as the primary risks to its outlook. While conditions could certainly improve prior to the committee’s next meeting in March, if these issues persist, it will be difficult for the committee to pull the trigger on a rate hike at that time,” he continued.
The FOMC announced in its December meeting that it officially raised the federal funds rate for the first time since June 2006.
“Given the economic outlook, and recognizing the time it takes for policy actions to affect future economic outcomes, the committee decided to raise the target range for the federal funds rate to 0.25% to 0.50%. The stance of monetary policy remains accommodative after this increase, thereby supporting further improvement in labor market conditions and a return to 2% inflation,” the FOMC said in a statement for the December meeting.
As for when the Fed will raise rates again, the committee said in its January statement, “In determining the timing and size of future adjustments to the target range for the federal funds rate, the committee will assess realized and expected economic conditions relative to its objectives of maximum employment and 2% inflation.”
“The committee expects that economic conditions will evolve in a manner that will warrant only gradual increases in the federal funds rate; the federal funds rate is likely to remain, for some time, below levels that are expected to prevail in the longer run. However, the actual path of the federal funds rate will depend on the economic outlook as informed by incoming data,” the statement said.
Has anyone considered that this “recession”, in stock prices at least, was caused by holding rates too low for too long?
In a normal recession, production outpaces demand causing disconnects between supply and demand. Supply misjudges future demand, goods are overproduced and prices fall until inventories fall back in line with demand.
If growth is accelerated by low rates, is it possible that zero rates for an extended period might cause investments to be made that don’t result in a realized profit? Especially since the consumer is seeing more expensive goods without higher wages.
If low rates are causing the problem, how could maintaining them at an artificially low level also be the solution?
Spin and Propaganda from Jonathan “Blowing” Smoke
It’s Official: 2015 Was a Banner Year in Housing, But What’s Next?
With the latest numbers on existing- and new-home sales from the National Association of Realtors®, we can now close the books on 2015. And quite a year it’s been! As we’d expected, 2015 produced major growth and some big-time milestones in housing’s recovery.
How good was it? Total home sales grew 7% over 2014 for the best year since 2007, based on 6% growth in existing-home sales and 15% growth in new-home sales. The increase in 2015 was a stark contrast to the decline in total sales in 2014.
And en route to housing’s definitive recovery in 2015, we hit plenty of landmarks—including a new nominal record for the median price of existing homes in June, a substantial decline in distressed sales, an uptick in the share of first-time buyers, and an increase in the share of new homes among total sales.
We are expecting growth again in 2016, but it will be more moderate for existing-home sales—and just a bit stronger for new-home sales. The demographics that fueled all that growth in 2015 should be just as strong in 2016. More employment growth should lead to similar household formation, and affordability will still favor buying over renting for those who are qualified and ready to settle down.
The year ahead should also see further gains in first-time buyers and more sales and purchases by retirees who are seeing their opportunity to capture the price appreciation they have enjoyed since 2011 and move to a home better suited for their retirement.
January is off to a good start for our growth forecast materializing in 2016. Despite the nauseating declines and turbulence in the financial markets, consumer confidence stayed firm and even increased in January.
It appears that consumers looking to buy in 2016 are heeding our advice and getting started in their home search. And ironically, those weak financial markets just gave them an early housewarming gift: Mortgage rates are lower now than when the year began.
The two biggest factors that held the market back in 2015 are also the primary problems now: tight supply and tight credit. Supply should improve somewhat in 2016 as new construction grows and as more existing homeowners such as retirees decide that it is the perfect year to sell and buy.
The tight credit situation is not likely to improve dramatically in 2016, so one of the best moves potential buyers can make is to work on increasing their credit score. Start now.
Is construction cooling? Several surveys hint at a slowdown
Construction has been red hot in recent years, but a series of surveys suggest industry bosses see a slight cooling in 2016.
An industry confidence index of contractors and equipment distributors, crafted from a survey conducted by Wells Fargo Bank, dipped to 108 for 2016 from a record 130 in 2015. Please note that any score above 100 suggests strong optimism – a level surpassed each year since 2012.
The survey found that 62 percent of executives polled see construction industry expansion in the next two years, and 52 percent expect profits to improve this year.
“The construction industry is telling us that overall sentiment remains positive, though not as overwhelmingly positive as the previous year,” said John Crum of Wells Fargo Equipment Finance.
Home developer enthusiasm may have chilled a bit, too.
A survey of homebuilding executives by the National Association of Home Builders and Wells Fargo hit its cyclical peak last fall. The Housing Market Index was at 60 in January, after hitting 65 in October. With this index, any score above 50 denotes optimism.
“January’s reading is right in line with our forecast of modest growth for housing,” NAHB Chief Economist David Crowe says.
At $1,882, Orange County rent reaches record high in 2015
Rents in Orange County hit an all-time high at the end of 2015, continuing a trend that’s been driven by strong job growth in the region and few empty apartments.
The average asking rent at the county’s bigger apartment complexes was $1,882 during the fourth quarter of last year, up about $101 a month – 5.7 percent – from a year earlier, according to Real Answers, an apartment and real estate information company.
Local rents have been rising almost without interruption for six years, jumping in 22 of the 24 quarters tracked since 2010.
But rent hikes haven’t yet driven tenants out of the market.
Vacancies at big apartment complexes last quarter were 5.1 percent, unchanged from the third quarter of 2015 but down slightly from the end of 2014.
But a separate survey by Reis Inc., which includes buildings as small as 20 apartments, showed a similar trend in the county.
Locally, the average asking rent in the Reis survey was $1,753 a month last year, up 4.1 percent from 2014. The vacancy rate in the Reis survey was 3 percent.
Orange County was the seventh-priciest rental market out of 82 large U.S. metro areas surveyed, Reis figures show. Only New York ($3,495 a month), San Francisco ($2,556), Boston ($2,100), San Jose ($2,080), Westchester County, N.Y. ($2,033) and Fairfield County, Conn. ($1,998) were found to be more costly.
Regionally, Reis found that Orange County was higher than San Diego ($1,558), Ventura County ($1,571) and Inland Empire ($1,176).
Housing bears can keep enjoying annual 5% compounding rent increases while they cheer and hope for a huge housing downturn.
We can all debate whether the economy is doing better or worse, but the rental numbers generally reveal the true underlying strength in the local market. People pay rent out of current income, so rising rents are a sign that the local economy is strengthening.
Exactly and they show the real income increases for the slice of the market that matters.
If you used average rent people are actually paying, not what landlords are currently renting for which has everything to do with supply and demand.
Compare the census data and current going rates and you’ll find a huge gap.
“slice of the market that matters”
OC rents began to jump right after the institutional ‘players’ set-up shop in SoCal.
they timed the market perfectly LOL
Made me laugh. Nice one!
It’s amazing OC rents went up so much considering how much new supply came to market.
I think rents took off when the Fed started QE. Now, rents are like a runaway train.
This bear ‘s den has had a 3% maximum allowable increase for the last 5 years. Stocks did OK in that time, so really, no regrets.
Do you want to buy? How long are you willing to wait and how far must prices drop before you’ll consider buying?
Yes, but I need either the property to be income profitable or resellable (without a loss) in order for it to make sense for my situation.
So no, not right now since those situations don’t exist according to my math. I’m willing to wait until it makes economic sense or forever, whichever comes first.
Pending Home Sales Disappoint, “Sizable Stock Market Losses” Blamed
Following the post-regulatory-change spike in existing and new home sales, pending home sales disappointed with a mere 0.1% rise MoM (missing expectations of a 0.9% rise). The weakness of the forward-looking indicator of home closings was blamed – as usual – on low inventories but also on “sizable losses in the stock market.” The 3.1% YoY sales increase is close to the weakest since November 2014.
Not what New and existing home sales suggest (but more like homebuilder sentiment)
http://www.zerohedge.com/sites/default/files/images/user3303/imageroot/2016/01/28/20160128_nar1.jpg
Lawrence Yun, NAR chief economist, says contract activity closed out the year on stable footing but lost some momentum, except for in the Northeast.
“Warmer than average weather and more favorable inventory conditions compared to other parts of the country encouraged more households in the Northeast to make the decision to buy last month,” he said. “Overall, while sustained job creation is spurring more activity compared to a year ago, the ability to find available homes in affordable price ranges is difficult for buyers in many job creating areas. With homebuilding still grossly inadequate, steady price appreciation and tight supply conditions aren’t going away any time soon.”
According to Yun, although healthy labor market conditions will persuade more households to buy, it’s possible overall demand could be somewhat curtailed in coming months. The stock market’s sizeable losses since the start of the year and the effect slowing manufacturing activity is having in some areas — especially in the energy sector — could cause some to hold off on buying.
“The silver lining from the market turmoil in recent weeks is the fact that mortgage rates have slightly declined,” says Yun. “Buyers looking to close on a home before the spring buying season begins may be rewarded with a mortgage rate at or below 4 percent.”
The regional breakdown was as follows:
* The PHSI in the Northeast increased 6.1 percent to 97.8 in December, and is now 15.3 percent above a year ago.
* In the Midwest the index decreased 1.1 percent to 103.6 in December, but is still 3.6 percent above December 2014.
* Pending home sales in the South declined 0.5 percent to an index of 119.3 in December but are 1.0 percent higher than last December.
* The index in the West decreased 2.1 percent in December to 97.5, but remains 3.4 percent above a year ago.
So much for the balmy December weather serving as a boost to new housing, and construction jobs.
So “good” weather and not the threat of rising interest rates is what caused people to buy. Interesting, you learn something every day.
How to maintain certainty when you’re completely wrong
There’s been a con theme of retort from many across the financial media. It consists of a two-sided response. The first sounds something like this: “How long have you been saying things were dire while the markets have continually risen?” This is a backhanded way of dismissing anything one has said previously, currently, as well as followup during the discussion. i.e., You’ve been labeled a scare monger. And a poor one at that.
The other is the outright or, blatant dismissive. It sounds something like this, “Well that’s your opinion. I should state there are many more who take the opposite view.”
Well, yes there are. However, that doesn’t mean they are either correct in their assumptions or, can argue why their view is correct. Yet, this is what’s done when someone wants to invalidate your point. It’s a snarky little way to dampen any legitimacy to one’s argument without further discussion. It’s a technique that’s used by many across the financial media as well as others. It’s subtle, however, to a trained ear – it speaks volumes about the user.
Personally I’ve had such things thrown at me and I detest them, for they’re vapid statements made by people who have either lost an argument they can not win or; think they are so smart they openly tout they don’t need deodorizers in their bathrooms. When I’ve been faced with the latter response my knee-jerk reaction has been to cite something similar to following:
“Well, that may be the case. But let’s just remember: Many a bull or pig believed based on valid assumptions that indeed; the farmer has their best interest at heart. After all who could argue otherwise based on all the free food, room, and board they receive? Unless you’re one of the few that escaped the “stock” yard and seen where the happy-trail ends. The one’s remaining in the yard can argue the other side all they want – it doesn’t mean they are right or, have a valid argument. Does it?”
Usually that’s when the conversation truly ends. There’s no further follow-up except for the ensuing stink-eye I’ll then be showered with. However, at least it ends with the snark now being called into question rather, than the other way around. (I know N. N. Taleb uses the turkey analogy which I’m of the same idea. It’s just my roots began in the beef business.)
Remember: These are techniques used or employed as to invalidate legitimate arguments with vapid reasoning. Once you understand and can discern them in real-time – you’ll never see an argument or discussion in the same light again. And these forms of discussions are now coming across both the financial airwaves, as well as print, at a fast and furious pace.
Why you might ask? Easy: everything you were told by that media that should no longer happen – is happening – at – an ever-growing fast and furious pace. So much so the “everything is awesome” crowd are now looking more like “deer in the headlights” with every passing market movement.
I only dismiss folk who predict extreme events with certainty, and are proven wrong repeatedly (Schiff).
Zero Hedge predicted 10 of the last 1 recessions
When you agree with a permabear like Peter Schiff on those 1 in 10 occasions when he is right, he will chide you for being late in recognizing the truth. On some occasions the “I wasn’t wrong, I was early” argument is accurate, but when someone is permanently bullish or bearish, they are just a broken clock that’s right twice a day.
Here’s my list of people who I believe might be able to anticipate likely outcomes in the future:
1. George Soros
2. Warren Buffet
If you are not on that list, I’m not to inclined to believe your predictions about the future.
“The other is the outright or, blatant dismissive. It sounds something like this, “Well that’s your opinion. I should state there are many more who take the opposite view.””
Using the word opinion injects a certain uncertainty into the discussion. When facts are so evasive that experts “guesses” matter, then it’s time to run for the hills. Look at the analysis. If it makes sense, go with it. If it doesn’t, don’t. If the opposite view is stark-raving mad, it doesn’t really matter if 99 out of 100 people share it.
HSBC curbs mortgage offering to Chinese citizens in U.S.
http://www.reuters.com/article/us-hsbc-china-mortgages-idUSKCN0V61DT
Europe’s biggest lender HSBC will no longer provide mortgages to some Chinese nationals who buy real estate in the United States, a policy change that comes as Beijing is battling to stem a swelling crowd of citizens trying to get money out of China.
An HSBC (HSBA.L) (0005.HK) spokesman in New York told Reuters on Wednesday that the new policy went into effect last week, roughly a month after China suspended Standard Chartered (STAN.L) and DBS Group Holdings Ltd (DBSM.SI) from conducting some foreign exchange business and as authorities try to limit capital outflows.
China’s stock market slump, slowing economic growth and weak real estate prices have encouraged Chinese individuals and companies to try to shift money offshore for higher returns, a headache for Beijing as the capital outflows undermine efforts to prop up the yuan and domestic investment.
Realtors of luxury property in cities like New York, Los Angeles, and Vancouver, said more than 80 percent of wealthy Chinese buyers have ties to China.
In the United States, real estate agents and regulators say Chinese buyers often prefer to buy property in cash and they are the biggest foreign buyer.
Data from the country’s National Association of Realtors shows they bought $28.6 billion of property in 2015, up from $22 billion in 2014.
HSBC declined to clarify which clients would be affected by the change beyond describing the policy as impacting some Chinese nationals.
Luxury homes news website Mansion Global, which first reported the HSBC policy change, said it would affect Chinese nationals holding temporary visitor ‘B’ visas if the majority of their income and assets are maintained in China.
In Vancouver, an HSBC spokeswoman said HSBC’s Canadian arm already had similar policies in place and was actively reviewing those policies in the context of the local regulatory environment to determine if and what changes are necessary.
She added that the bank has a very conservative risk appetite and favors customers with strong ties to Canada, or who are building strong ties to Canada.
China’s State Administration of Foreign Exchange said late last year it would soon launch a system to monitor foreign exchange businesses at banks and put people who tried to buy more foreign currency than is allowed on a watch list.
Those found trying to purchase more than the maximum $50,000 in foreign currency a year would be placed on a watch list, it said.
“HSBC fully complies with all applicable regulations in the markets in which it operates and constantly reviews its policies to protect its customers and support the orderly and transparent operation of financial markets,” a statement from the London-based bank said.
HSBC’s pivot away from lending to some Chinese nationals abroad comes as other international banks clamor to lend more to wealthy Chinese.
The Royal Bank of Canada (RY.TO) scrapped its C$1.25 million cap on mortgages to borrowers with no local credit history last year in a bid to tap into surging demand for financing from wealthy immigrant buyers.
A spokeswoman representing RBC in Hong Kong was not immediately able to comment on the bank’s Canadian business.
That won’t help sales in Irvine.