Aug012013
Titanic failure of American housing policy, home ownership rate hits 18-year low
The goals of US government housing policy are to increase in resale value of houses and maximize the home ownership rate. Buying a home is characterized as the best investment a middle-class family can make, and home ownership has become synonymous with the American Dream.
During the early 00s, on the surface conditions looked great. House prices were appreciating rapidly, mortgage equity withdrawal was fueling an economic boom, subprime lending was providing home ownership opportunities to everyone, and the American Dream was being recognized by a record number of Americans.
For government officials, this was touted as the success of their policies. Critics of these policies were mocked or widely ignored as the ravings of madmen. Yesterday, I detailed how Housing subsidies are detrimental to America. Evidence of this epic failure is the collapse in home prices and the resulting 7-year economic malaise caused by the withdrawal of the HELOC abuse stimulus from the American economy. Now we can show their failure was complete as the home ownership rate recently hit an 18-year low.
American Dream Slipping as Homeownership at 18-Year Low
By Prashant Gopal & Clea Benson – Jul 30, 2013 7:23 AM PT
The U.S. homeownership rate, which soared to a record high 69.2 percent in 2004, is back where it was two decades ago, before the housing bubble inflated….
Like home prices, the home ownership rate is only supposed to go up. Hitting an 18-year low is unprecedented and an undeniable sign of failure by policy makers.
With ownership at 65 percent and home values rising, housing industry and consumer groups are pressing lawmakers to make the American Dream more inclusive by ensuring new mortgage standards designed to prevent another crash are flexible enough that more families can benefit from the recovery. Regulators are close to proposing a softened version of a rule requiring banks to keep a stake in risky mortgages they securitize, according to five people familiar with the discussions.
Lending standards were pretty flexible in the 00s, and look where that got us. Putting irresponsible people into a temporary ownership position benefits no one. (For more information on the lobbying efforts, see Easing of Mortgage Curb Weighed .)
“Low down-payment loans coupled with exotic adjustable rate mortgages helped fuel a massive housing bubble, which ultimately burst and took down the financial sector,” said Sanders, who was the former head of mortgage-bond research at Deutsche Bank AG. “So the question now is do we want to do this again?”
No, we don’t.
Hitting Bottom
The homeownership rate in the second quarter was unchanged from the prior three month period, according to Census Bureau data released today. It will hit bottom at about 64 percent in the next year as families leave the foreclosure pipeline and enter rental homes, according to a May analysis by London-based Capital Economics Inc. It’s currently the lowest in almost 18 years after averaging about 64 percent for 30 years through 1995. …
Effective home ownership rate is under 50%
Lost in the discussion about home ownership rates is the issue of negative equity. People who don’t have equity in their homes don’t own anything other than their loan. When you consider that 25% of those whose name is on title have no real ownership, you must subtract 25% of the 64% from the home ownership rate. That puts it at about 48%.
“The key now is to encourage homeownership that isn’t based on bubbles, but is instead based on a solid foundation where buyers and lenders play by the same set of rules, rules that are clear, transparent and fair,” Obama said in a July 24 speech.
Obama says the right things, but will he do anything substantive to change the system? I’m not holding my breath.
Presidents have been promoting homeownership at least since the Federal Housing Administration was created by Franklin Delano Roosevelt in 1934 to insure mortgages so more borrowers could qualify. Over more than 50 years, administrations touted property buying as a way to put lower-income families on a path to social and financial stability by forcing savings and making for a more involved citizenry.
Successive Clinton and Bush administrations unleashed ambitious programs to widen buying. Clinton’s “National Homeownership Strategy” in 1995 set a goal of allowing millions of families to own homes, in part, by making financing “more available, affordable, and flexible.”
It’s hard for either side to gain political advantage on this issue. It was a group failure. The political Right has erroneously claimed the housing bubble and resulting collapse were caused by the GSEs, the darlings of the Left. Unfortunately, this doesn’t comport with the facts.
“I’m not suggesting indiscriminate access to homeownership but there are many borrowers who are capable of demonstrating the capacity to pay,” Wartell said. “Those who are able to benefit from the low rates and prices are the investors and those families who weathered the recession most successfully. And those who had a job loss or foreclosure, in many cases through no fault of their own, have the double whammy of being shut out of a rising market.”
That’s the breaks. Although some small percentage of foreclosures were due to circumstances outside of the borrowers control, most foreclosures were caused by irresponsible borrowing as people overextended themselves and profligate spending as HELOC abusers treated their home equity as income. There is no way to single out the unfortunate people who were not at fault from the legions of fools who were.
Owning a home that is fully paid off provides stability in retirement and if the U.S. has a greater share of aging renters that could put a strain on taxpayers, said Christopher Mayer, a real estate professor at Columbia Business School in New York.“Having a path that people can become a homeowner is an important path,” Mayer said. “And it’s really important for middle to lower income folks who have a hard time saving and for whom targeting savings programs are not very successful.”
I used to be a firm believer in the benefits of loan amortization as a forced savings account. Far too many people don’t have any fiscal discipline, and amortizing loans forces them too. Unfortunately, with unrestricted HELOC access to this forced savings account, lenders found a way to completely invalidate the best feature of amortizing mortgages. This also invalidates the goal of public policy encouraging home ownership. Policy makers need to plug this hole by restricted loan-to-value ratios to no more than 80% of value on any refinance or second mortgages. Texas has such a law, and it prevented a housing bubble there.
While homeownership has a natural appeal because people like permanence and the ability to make a property their own, it has been oversold, Yale University economist Robert Shiller said.
The 65 percent homeownership rate may even be high compared with robust economies such as Germany’s, where 53 percent own homes and Switzerland, which has a rate of about 35 percent, Shiller said. Homeownership may inhibit economic growth by limiting the ability of families to move as freely for jobs and the government subsidies could be used for other purposes, he said.
“We’ve learned that the risks matter,” Shiller said. “We’ve seen the consequences of encouraging people to put all their life savings in one investment. Public support for homeownership will be lower for years to come and I would be surprised if this boom turned out to be as big as the last one.”
This boom will go on just long enough for banks to get out from under their bad loans. The manipulation of the market through limited inventory will persist until prices reach the peak where banks can foreclose or struggling loanowners can sell without a loss. Until we get there, and until this bad debt is purged, the inventory restriction will persist. That alone appears enough to push prices back to the peak. After that, we will be back to a normal market with balanced supply and demand. Lenders are praying interest rates remain low enough long enough to let this play out. If interest rates go up and buyers can’t finance peak prices, lenders are in real trouble.
The home ownership low is caused by failed housing policy
There is no question that the low home ownership rate is a direct result of failed policies that put people into homes under circumstances where they couldn’t sustain ownership. It’s not the direct correlation through the GSEs that political right would have us believe, but the connection is just as real. Failure to regulate derivatives caused a massive amount of capital to flow into unregulated toxic loan products. It was a double failure of the Greenspan federal reserve exacerbated by government subsidies and policies that encouraged too many people to buy houses they could not afford.
Robbing the family
The former owner of today’s featured property bought a property she couldn’t afford at the peak. The second mortgage was borrowed from a private family trust. She immediately opened a $30,000 HELOC after putting nothing down, and in just over a year, she defaulted, and Wells Fargo foreclosed. The family loan for her down payment was lost.
Somehow, she came up with the money to force Wells Fargo to give her the property back, but then she defaulted on the new loan. After a series of loan modifications and redefaults, the property was foreclosed on again this May. It’s hard to tell how long she was squatting, but it was off and on for at least five years.
[raw_html_snippet id=”newsletter”]
[idx-listing mlsnumber=”PW13148842″ showpricehistory=”true”]
26182 VIA MONTEREY San Juan Capistrano, CA 92675
$449,900 …….. Asking Price
$280,000 ………. Purchase Price
12/12/2012 ………. Purchase Date
$169,900 ………. Gross Gain (Loss)
($35,992) ………… Commissions and Costs at 8%
============================================
$133,908 ………. Net Gain (Loss)
============================================
60.7% ………. Gross Percent Change
47.8% ………. Net Percent Change
73.3% ………… Annual Appreciation
Cost of Home Ownership
——————————————————————————
$449,900 …….. Asking Price
$15,747 ………… 3.5% Down FHA Financing
4.38% …………. Mortgage Interest Rate
30 ……………… Number of Years
$434,154 …….. Mortgage
$129,717 ………. Income Requirement
$2,169 ………… Monthly Mortgage Payment
$390 ………… Property Tax at 1.04%
$0 ………… Mello Roos & Special Taxes
$94 ………… Homeowners Insurance at 0.25%
$488 ………… Private Mortgage Insurance
$210 ………… Homeowners Association Fees
============================================
$3,351 ………. Monthly Cash Outlays
($531) ………. Tax Savings
($584) ………. Principal Amortization
$25 ………….. Opportunity Cost of Down Payment
$76 ………….. Maintenance and Replacement Reserves
============================================
$2,337 ………. Monthly Cost of Ownership
Cash Acquisition Demands
——————————————————————————
$5,999 ………… Furnishing and Move-In Costs at 1% + $1,500
$5,999 ………… Closing Costs at 1% + $1,500
$4,342 ………… Interest Points at 1%
$15,747 ………… Down Payment
============================================
$32,086 ………. Total Cash Costs
$35,800 ………. Emergency Cash Reserves
============================================
$67,886 ………. Total Savings Needed
[raw_html_snippet id=”property”]
Historically, in many, but not all large cities, home ownership was a great investment. Unfortunately, this might not be the case anymore. Now, new mortgage finance rules restrict your investment options. So, young families are unable to finance the homes at the same price point as 10 years ago.
In the 90s, when I started a family, I purchased my first home in Newport Heights with 3% down. I still own this property as a rental, and it is worth nearly 4X the purchase price. Under today’s rules, I would not be able to purchase an equivalent home with 3% down. Instead, I would be forced to save more money, then I would need to purchase in some inland empire S hole. Talk about a poor investment … the inland empire.
So, the new government mortgage regulations have wrecked the investment options available to a young family with modest means. Great. What happened to capitalism? Many young families are better off renting until the republicans return to power and unwind the socialism.
Yea I wish for those days. I make a good living, but to get a house with a good school district the wife better be making the same amount too. Hell to the kids. Let them grow up with only their friends as guidance. It’s not a coincidence the hard drugs are all located adjacent to the most prestigious high school in my city.
Sorry I’m a bit miffed. Just got overbid on a house by $50k and I was already over my intended budget when I made the offer..
Don’t worry about losing your overbid. The cash investors and wall street were doing you a favor by taking over the house and eating all the risk with the current REIT and rental markets gamble. Pretty soon they will all jump ship and dump them at at loss or at cost.
Jimmy,
Seems to me that the 3% down mortgage you got is as socialist as any other mortgage. What lender would lend long when their funding is short? Particularly with a small down payment. Hence the GSEs.
Advocating actual capitalism suggests a readiness to abandon the GSEs, foreclose on delinquent borrowers and allow careless lenders to fail.
In an environment where my taxpayer money may be used to rescue any of the above, I prefer a more substantial down payment requirement.
Like you, I like the coastal communities; they’re probably a safe long term bet for price stability. But I don’t get your past comment about how your returns are magnified by leverage; beach properties will pretty much all be cash flow negative unless there’s no debt. In fact, my wife and I will likely aquire another cash flow proprty away from the beach and then we’ll rent in CdM.
Agreed. His 3% mortgage was in the form of the Big Bubmint he decries…
It’s pretty much just shelter. I paid another person for my shelter for 7 straight years (landlord). I now pay BankofMerica for the privilege.
Not really an investment if I live in it myself. It’s pretty much one gigantic monthly divot in my finances.
The “dream” of owning outright (no mo mortgage) still exists, but it’s elusive. If I didn’t have that “housing” line item every month, then I would be able to save and invest that much more (gold, foreign stocks, other real estate).
Answering yesterday’s question about whether the Fed will or will not taper. No, the Fed will not taper, but it will say it is and it will be lying. The Treasury Dept. has said that the federal debt has been $16,699,396,000.00 for the last 70 days, even though the Federal reserve has been buying treasuries at a rate of $85 bil per month. And the Treasury has been redeeming less than they have been selling.
The Fed will not decrease it’s buying of treasuries, but it will lie about it.
FOMC Attempts to Placate Investors with Hollow Assurances
Despite concerns about rising mortgage rates and low inflation, the Federal Open Market Committee (FOMC) voted Wednesday to continue its policy of near-zero interest rates and its $85-billion-per-month bond-buying program.
Along the way, Federal Reserve Chairman Ben Bernanke picked up the vote of St. Louis Fed President James Bullard, who a month ago joined Kansas City Fed President Esther George in dissenting. George had been the sole “no” vote at the four previous FOMC meetings this year. She joined the Board as a voting member in January. The vote to continue its policy was 11-1, with only George voting “no.”
“Economic activity expanded at a modest pace during the first half of the year,” the committee said in the statement issued at the end of the meeting. While repeating earlier language citing “further improvement” in labor market conditions and household spending and business fixed investment, the FOMC warned about the housing market and federal fiscal policy.
“The housing sector has been strengthening, but mortgage rates have risen somewhat and fiscal policy is restraining economic growth,” the committee said, adding, “[I]nflation has been running below the Committee’s longer-run objective, but longer-term inflation expectations have remained stable.”
The committee repeated its intention to “keep the target range for the federal funds rate at 0 to 1/4 percent” and said it “currently anticipates that this exceptionally low range for the federal funds rate will be appropriate at least as long as the unemployment rate remains above 6-1/2 percent, inflation between one and two years ahead is projected to be no more than a half percentage point above the Committee’s 2 percent longer-run goal, and longer-term inflation expectations continue to be well anchored.”
In a subtle change of language designed to assuage nervous stock investors—who often thoroughly parse each committee comment—the FOMC statement said the committee “reaffirmed its view that a highly accommodative stance of monetary policy will remain appropriate for a considerable time after the asset purchase program ends and the economic recovery strengthens.”
In its statement following the last meeting on June 19, the committee had used the word “expects” instead of the phrase “reaffirmed its view.”
The committee statement said George “was concerned that the continued high level of monetary accommodation increased the risks of future economic and financial imbalances and, over time, could cause an increase in long-term inflation expectations.”
We always wondered about the terms for loan modifications.
GSEs Raise Fixed Interest Rate for Standard and Streamlined Mods
Fannie Mae and Freddie Mac are raising the fixed interest rate for non-HAMP (Home Affordable Modification Program) modifications.
The new interest rate adjustments serve to reflect current market conditions and will be applied to standard and streamlined modifications.
Starting September 1, 2013, interest rates for modifications will rise from 4 percent to 4.625 percent. The new interest rate will also be used when evaluating borrowers for trial period plans for standard and streamlined modifications. The 4 percent rate was the standard since December 1, 2012. Prior to that, the rate was 4.25 percent from September 1 to November 30, 2012 and 4.625 percent from July 1 to August 31, 2012.
Non-HAMP mods can be used for borrowers who are not eligible for HAMP or for those who defaulted on a HAMP modification.
Read the whole article, a lot of changes might be coming.
A quick-and-dirty guide to the housing finance reform battle
Over the past few weeks, a quiet effort to deal with a pair of housing finance agencies still in conservatorship has been quietly trudging through committees in the House and Senate. There are now two bills in the hopper to overhaul the system, and battle lines are starting to form. Ellen Seidman, a senior fellow at the Urban Institute who’s done the rounds of regulatory agencies and helped on a recent reform proposal, describes the camps in simple terms:
“You’ve got an ideological right that wants no government guarantee at all, except grudgingly through the Federal Housing Administration,” she says. “And you have sort of everybody else wanting some sort of guarantee.”
A lot’s encapsulated within that “everybody else.” Indulging for a moment the idea that both chambers of Congress might actually pass something in the not-too-distant future, here’s a look at the two plans, and who’s pushing for what.
In the Senate, Mark Warner (D-Va.) and Bob Corker (R-Tenn.) have introduced a bill that would:
Create a “Federal Mortgage Insurance Corporation,” based on the Federal Deposit Insurance Corporation, that would collect insurance premiums and provide a backstop only after a certain amount of private capital is exhausted–incentivizing companies securitizing mortgages to manage risk more carefully
Wind down Fannie Mae and Freddie Mac within five years, and transfer all resources of the Federal Housing Finance Agency to the new FMIC as soon as it’s established
Levy a small fee on every loan securitized by the FMIC for a Mortgage Access Fund to support affordable housing programs
It would be great if they would do something about the inequitable mortgage interest tax deduction. Why the hell should someone living in Dallas making the same income as someone in Irvine, pay thousands of dollars more in federal income taxes because of the of the MTD.
What a scam that has become.
BTW, many politicians from Fly-over country are starting to question this massive subsidy.
And what business does the average taxpayer have subsidizing a $1,000,000 mortgage on a Southern California house?
Scramble To Exit Housing Market Peaks With “American Homes 4 Rent” IPO Pricing At 44% Discount
Two months ago we first observed the scramble by various hedge funds, in this case Blue Mountain, to take advantage of the peak sentiment in housing, and specifically rental housing (which just hit an all time high as reported previously) by rushing to capitalize on recent investments and dump exposure to the witless public.
Specifically, we envisioned the then just announced IPO of the aptly named American Homes 4 Rent (yes, with a “4” not “for”), also known as AMH, which however came at precisely the wrong time for the market: just as mortgage rates were soaring and Colony American Homes postponed its own parallel IPO.
AMH priced overnight, selling 44.1 million shares at a price at the bottom of the $16-18 range to raise a total of $706 million: a 44% discount to the $1.25 billion suggested in the prospectus filed back in June.
But what is most curious about the AH4R IPO is that it was only in November of last year that none other than Blue Mountain – the hedge fund located on the fifth floor of the JPM HQ best known for first raping then rescuing the JPM London Whale: one wonders just how much Andrew Feldstein might have overheard at the 48th Street Starbucks but we digress) invested over $70 million in the rental company. Six months later it is perfectly happy to be classified as a “selling shareholder.”
Translation: the hedge funds that bought in barely six months ago into what everyone knew would be the easiest and most levered wave to ride the accelerated housing bubble, are now rushing to get out before the emperor’s lack of clothes is obvious for all to see. If they can that is: for those who are forced to pull their IPOs, the sad housing reality summarized so aptly by Carrington is about to unfold.
From Bloomberg:
American Homes 4 Rent, based in Agoura Hills, California, sold 44.1 million shares for $16 each, according to data compiled by Bloomberg, after offering them for $16 to $18. The shares will start trading today, listed on the New York Stock Exchange under the symbol AMH.
The company, with almost 18,000 properties, is the second-largest in the U.S. homes-for-rent market, after Blackstone (BX) Group LP, and is going public at a time when investors are cooling on the fledgling industry. American Homes 4 Rent raised almost 44 percent less than the $1.25 billion amount estimated in an initial propectus by the company in June.
Two months later the game is up, and those same hedge funds, while profitable, are willing to eat a 44% drop in their initially hoped for returns in just a two month period
The final question: who was lead left on the “straight to muppet dump” prospectus? Who else.
http://www.zerohedge.com/news/2013-08-01/scramble-exit-housing-market-peaks-american-homes-4-rent-ipo-pricing-44-discount
Since the founder of American Homes 4 Rent is the same guy that founded Public Storage, I’m just curious if you think the IPO of his previous company represented a scramble to the exits for the storage unit industry?
Did he use the proceeds to exit the industry or did he buy & construct even more storage units?
Uh… there is no point comparing apples to oranges; ie.,
1) the contents of storage units don’t require income as sustenence, don’t endure medical issues/expenses and don’t need daily caloric intakes to survive. The contents of home rentals do.
2) home rentals typically devour 35–55% of a family’s monthly income to maintain. A storage unit devours a paltry 1.5%.
3) outlays to maintain18,000 rental homes far exceed those of 2200 storage facilities.
Next!
So your theory is that he didn’t understand these things going in and now he’s “scrambling to exit”?
Given his history building the most successful storage unit company in the country, maybe he has access to information that you don’t. 😉
I predict that this little outfit (AMH), is going to get CRUSHED.
Indeed… as of June 30 ’13, only 48% of the properties of American Homes 4 Rent were leased.
Despite the mainstream media’s attempts to convince everyone that rising interest rates won’t impact housing, sellers aren’t buying it.
Sellers Worry Rising Rates Will Lower Demand
Rising interest rates aren’t just a burden for potential homebuyers. According to the latest survey from Redfin, 47 percent of sellers said they are worried about rising rates, expressing concerns that buyer demand will be lowered as a result. The share is up drastically from 23 percent in the previous quarter.
Seller concerns over rising prices, however, eased in the latest quarter, falling from 32 percent to 29 percent quarter-over-quarter.
More sellers are also planning to list their home right away, with the share rising to 31 percent from 29 percent over the last quarter.
An increasing percentage of homeowners are also anticipating larger price gains, with 17 percent stating prices will rise “a lot,” up from 15 percent in the previous quarter.
Among the homeowners surveyed who don’t plan to sell, a significant majority—75 percent—said they plan to stay because they are happy with their home. Another 12 percent said they plan to rent out their home, down from 15 percent in the last quarter.
Additionally, sellers expressed less interest when considering the option of renting for the first time in four months.
In the third quarter of this year, 49 percent said they are considering renting rather than selling, down from 52 percent in the previous quarter and down from 46 percent a year ago.
The survey included 1,448 homeowners located across 20 metropolitan areas who used Redfin in the last three months.
There are 5 units in my complex for sale. All last year there wasn’t 5 units total for sale. They are all asking WTF pricing. The bidding wars must be over, because some of them have been on the market for 3 weeks. We hit peak pricing for 2013…probably this decade.
“According to the latest survey from Redfin, 47 percent of sellers said they are worried about rising rates, expressing concerns that buyer demand will be lowered as a result.”
Haha … these people are worried about demand. These poor people have no idea what is coming … especially in OC where the debt/mortgage markets play a huge key in propping up prices. They simply don’t know what is coming.
BTW. the 10-year Tres. was up .13 basis points today. That’s exactly a 2-year high. UP GO THOSE MORTGAGE RATES!
Bernanke appears to have lost his ability to talk rates down.
Surging demand, right?
Mortgage Applications Drop for Seventh Straight Week
Mortgage application volume declined last week at a more sudden rate than in previous weeks, according to data from the Mortgage Bankers Association (MBA).
The Weekly Mortgage Applications Survey fell 3.7 percent for the week ending July 26, the association reported. On an unadjusted basis, the index decreased an estimated 4 percent.
The Refinance Index dropped 4 percent from the previous week, though the refinance share of total mortgage activity was unchanged at roughly 63 percent. Mike Fratantoni, MBA’s VP of research and economics, noted the refinance index is now “more than 55 percent lower than its recent peak, reaching the lowest level in over two years.”
Meanwhile, the seasonally adjusted Purchase Index decreased 3 percent week-over-week. The unadjusted index was also down 3 percent, standing about 5 percent higher than the same week a year ago.
The average contract interest rate for a 30-year fixed-rate mortgage was unchanged at 4.58 percent, though points fell slightly to 0.38 from 0.40 for 80 percent loan-to-value ratio loans.
Hitting car sales too.
Car Sales Miss Expectations Across The Board
While much is being made of the ISM smash this morning and China’s ‘official’ PMI overnight, it seems cognitive dissonance is on the rise as China’s ‘other’ PMI collapsed and US Construction Spending dropped precipitously. It was only a month ago that ISM was sub-50 and that housing (and construction spending) was set to lift us out of the growth-scare. Apparently not. But there is another pillar of this recovery that has been stalwart during the equity market rally – that of US auto sales… until now…
*FORD U.S. VEHICLE SALES UP 11%, EST. UP 17%
*GM JULY U.S. VEHICLE SALES RISE 16%, EST. UP 20%
*CHRYSLER JULY U.S. VEHICLE SALES UP 11%, EST. UP 16%
It seems that all that channel-stuffing, subprime-lending, term-extending has hit its peak as, despite smiles and being ‘pleased’, US auto companies are underperforming expectations (as Ferrari exceeds)
How many weeks have purchase applications declined?
This many……
hint: it aint pretty 😉
http://confoundedinterest.files.wordpress.com/2013/07/mbapurchlt.gif
why are you so bullish on housing?
rates will go up and this whole phony “recovery” will vanish. do you choose to ignore this or are you unable to comprehend it?
All asset classes will be affected by higher rates, but people need to put their money somewhere. Bonds and gold are absolute losers in a rising rate environment. So stocks and real estate are the other two options, and the better two because they have the ability to increase yields. The US stock market has been on fire for over 4 years thanks to low rates and I think it’s due for a major correction sometime in the next 2 years. (Foreign stocks are already beaten down so they may fare better.)
Real estate has only done well for about 18 months, but that was off a severe correction and it can still absorb a lot of price gain or rate shock before unaffordability is reached. Also, many lenders are rapidly loosening standards now that refi’s are starting to dry up and that will help ease the affordability pinch. (You heard it here first.) Lastly, the Fed is explicit in their support for real estate prices and they won’t do anything to stop this “recovery” until peak pricing is achieved, making everybody that bought during the previous bubble whole once again.
Silly MR…
1) Lower prices will ”ease the affordability pinch”, NOT leveraging into oblivion
2) Being that the fed couldn’t prevent the previous ”severe correction” it would take unbounded naivety to believe they have the ability to prevent the next
3) Reality is, the fed is explicit in their quest to create the perception of ”making the previous bubble buyers whole” which is not literally ”making them whole”, but merely the further dilution of money
Sad really. Period!
Only a lender would think affordability comes through greater leverage.
I didn’t say “leveraging into oblivion” or “greater leverage”. I said rapidly loosening standards.
Remember a few months ago the media was reporting how difficult it was to get a mortgage? You won’t be hearing as much of that now. The buyer pool just got bigger.
Capiche?
I think you also need to research what rising rate kills POG. Saying that bonds and gold are absolute losers in a rising rate environment is absolutely incomplete, misstated, and misleading.
Because he bought a home with appreciation being a priority.
Sorry it offends you, but eventually your losses on gold will make you come around to seeing things my way.
Mellow Ruse says:
June 28, 2013 at 12:43 pm
el numeraire is toast. My prediction: Gold will bottom at $500 and stay there.
—————————————————————————————
June 28, 2013 10:00am– $1190
Aug 02, 2013 10:00am– $1312
I didn’t say it would happen in the next month now did I?
Remember, I also posted a Ritholz article predicting a dead cat bounce back to $1,400. Have some patience muchacho.
http://ochousingnews.g.corvida.com/news/award-winning-realtor-fouls-competing-house-with-dead-rats#comment-43140
Back on the roller coaster again today – MBS down, rates up. I hope investors have a strong stomach.
http://www.mortgagenewsdaily.com/mbs/
How bout that….. a marketplace where ~$40bil per month worth of price support (welfare) courtesy of the fed can’t even buy stability. As trust continues to wane, carnage lurks.
The marketplace will find stability, unfortunately the Fed and the economy won’t like the LEVEL at which the market finds stability.
Yessir. There’s always a buyer at the right price!
Whoa, what a ride so far today and it’s not even closed yet.
10 year yields are tickling at the high levels reached on 7/5/13…MBS absolutely hammered today.
FYI, per Yahoo Finance:
Close of 10 Year Yields
2.7230 ~ Aug 1, 2013
2.7150 ~ July 5, 2013
2.7400 ~ Aug 1, 2011
Credit rating agency Standard & Poor’s (S&P) downgraded its credit rating of the U.S. federal government from AAA (outstanding) to AA+ (excellent) on August 5, 2011.
I think it is also worth noting the pretty modest scale of change we are talking about: over 30 years the ownership rate has varied in the 64-69% rate.
By what logic did anyone conclude that 64% is completely unacceptable but 69% is a great level to be at, one that justifies extraordinary sacrifices to reach…?
It’s the same logic that believed 69% was too low. Politicians want 100% home ownership, and anything less is a precursor to riots and anarchy.
I think very hot, long drives and oh possible bankruptcy.
Most affordable ZIP Codes for home buyers
Despite skyrocketing home prices in Southern California, real estate bargains still exist. Here are the 10 most affordable ZIP Codes.
Barstow, 92311
Skyline Drive-In on California’s Old Highway 58 in Barstow. Median home price: $60,000.
Joshua Tree, 92252
Homes by the Utah Trail in Joshua Tree National Park. Median home price: $71,000.
Blythe, 92225
This state gateway leads to Blythe, the first California town you meet on Interstate 10. Median home price: $74,000.
Twentynine Palms, 92277
The 29 Palms Inn, found near the Twentynine Palms Art Gallery and on the way to Joshua Tree National Park. Median home price: $78,500.
Sugarloaf, 92386
A snowboarder flies above rooftops in Big Bear Lake, about four miles from Sugarloaf. Median home price: $100,000.
Yucca Valley, 92284
A road running through Yucca Valley. Median home price: $100,000.
San Bernardino, 92411
A road through this San Bernardino neighborhood. Median home price: $105,000.
Hemet, 92543
Fishing on Diamond Valley Lake in Hemet. Median home price: $110,000.
Price is the equialibrium between supply and demand…clearly demand for these communities is not high.
Know someone who bought 2 side by side 4plexes in Blythe. We told him not to. Tenants were a nightmare – substance abuse, violence, nonpayment, high turnover.
I would hesitate taking ownership even if the purchase price were $0.
Lots of options for $0 purchase price homes in Detroit!
Yep, some of these big 1920s “beauties” are for sale for just $500. But who’s going to live there with no water or electric services, rampant crime and no fire department?
http://www.zillow.com/homedetails/3209-Fullerton-St-Detroit-MI-48238/88607698_zpid/
I’ll repost this tomorrow…very timely today.
Obama pivots back to housing as homeownership slides to 18-year low
Startling new housing data released this week could take the pep out of President Obama’s blitz of economic rallies, as they show homeownership dropping despite the push — by him and his predecessors — to prop up the market.
The new Census figures show homeownership dropped in the second quarter to an 18-year low of 65 percent. The rate, which hit a record 69.2 percent in 2004, has now fallen to its pre-housing bubble days nearly two decades ago.
The president, on the heels of the report, plans to head to Phoenix on Tuesday for a homeownership-themed stop on his multi-city tour — part of his recent pivot back to the economy.
But it’s unclear whether, given the government’s track record, new federal policies could or should be used to help Americans realize their picket-fence dreams.
Richard Barrington, of Money Rates, argues that homeownership is returning to more reasonable levels, and that the government should not push folks into buying homes they can’t afford.
“In the heat of the housing boom, mortgage lenders pushed the envelope too far in terms of whom they allowed to qualify for a mortgage,” Barrington told FoxNews.com. “A more selective population of homebuyers should also be a more stable one.”
The housing industry has been lobbying hard lately for lawmakers to soften the country’s mortgage standards, making it easier for more Americans to buy homes. But it won’t be easy.
The re-calibrated reality, some say, is that jobs have been lost, the economy has tanked and the dream of homeownership for all has faded. First-time buyers and minorities are among the groups feeling it the most, the new Census Bureau data reveals.
That leaves lawmakers tasked with carving out a new set of housing regulations for eligibility that will need to strike a balance of keeping rates reasonable for riskier borrowers while making the market attractive for first-time buyers.
A half million dollar for a tiny house…here we go American dream.
“The manipulation of the market through limited inventory will persist until prices reach the peak where banks can foreclose or struggling loanowners can sell without a loss. Until we get there, and until this bad debt is purged, the inventory restriction will persist. That alone appears enough to push prices back to the peak.”
In many areas of Socal, the market is already at the peak, if not past it. The asking prices I’m seeing right now in my search area (Yorba Linda, 2000sf SFR) show slight distress only in the 2006-7 years. All other listings are well above prior sale values.
Here is the data from my search area (easier to read if saved as text file and import into excel with space delimitation). The list price vs prior sale is the percentage above the prior purchase that the seller is listing the property for. For example, if the seller is listing at 100k and purchased for 80k, that is 100/80=1.25 or 25% listing over prior sale. Amortization adds equity at about 2%/yr. This is shown in the next column. Realtor fees reduce the equity by 6% which is in the next column. The final column calculates the amount of equity if 10% was put down in the prior sale. You can see that if a conventional amortizing loan was used with 10% down they are listing the property to get 15% equity after realtor commission even in the 2006-7 years.
Year Purchased # of listings List price vs prior sale +2% equity per year from amortization -6% realtor commission 10% down at purchase
2012 4 32 34 28 38
2011 7 47 51 45 55
2010 9 26 32 26 36
2009 0 — — — —
2008 5 12 22 16 26
2007 2 -2 11 5 15
2006 8 -2 12 6 16
2005 9 18 34 28 38
2004 4 28 46 40 50
2003 4 57 77 71 81
2002 3 74 96 90 100
2001 2 65 89 83 93
2000 7 105 131 125 135
1999 4 129 157 151 161
1998 3 164 194 188 198
1997 3 139 171 165 175
1996 2 174 208 202 212
1995 4 173 209 203 213
1994 1 183 221 215 225
1993 4 215 255 249 259
1992 1 127 169 163 173
1991 3 145 189 183 193
1990 4 138 184 178 188
1989 5 130 178 172 182
1988 2 167 217 211 221
While there is still a lot of distress out there, even in the prime areas, listings in this area have increased 3 fold in the last 5 months, and these sellers are representing equity based on the prior sale values. A certain percentage of these have hidden debt, but if their debt wasn’t within a few percent of their represented equity, they wouldn’t be listing at these prices because no sale would be possible.
A few observations: 1) there are a whole lot of sellers who bought their homes before 2003 that have a whole lot of equity. 2) Many of these sellers are looking to downsize, not move up since they are nearing retirement/empty nesters, so the equity they need to re-buy is even less than I show here. 3) The listings from 2010-12 are seeking double digit returns on their investment. This is their desire, not what they will ultimately take to get out. They can take less, and will have to as rates rise. 4) The purchasers in 2006-7 are pretty rate sensitive, unable to reduce their prices as rates rise. But, through amortization, they are building 2% equity/yr. And these sellers aren’t a very big part of the market, but will be a growing cohort as the years pass and the loan balances decline through amortization. 5) As sales volumes drop, the equity sellers will adjust to the market, if they want/need to sell. The non-equity sellers weren’t really in the market to begin with and will be pushed off the field onto the sidelines by the rising rates. 6) The only way prices rise from here is if incomes grow or rates fall. With 2013Q1/2 GDP at 1.1 and 1.7% respectively, incomes are more or less stagnant relative to inflation. Rates just rose by 1% and appear to be holding. So a big elephant just sat on the bubble market and the pressure is starting to build. 7) Pending sales have dropped from 60 to 43 in this area since July 8. A drop of 28% in one month. Asking prices have dropped from $357/sf to $350/sf over the same time period (-2% drop in asking prices in the last two weeks – or -48% annual rate). If these trends continue, prices will have collapsed back to 2012 levels by the end of the year. No worries. The correction has begun. 9) Cash buyers have ramped up their activity since July 1st going from 12% of the market over the prior 3 weeks (4/31 closed sales) to 35% in the last week (6/17 closed sales). Cash buying determination is based on escrows that last less than 20 days. Cash sales don’t appear to be pushing prices up, however, paying 98.2% of asking prices – about the same as financed purchases.
Problem is, in a heavily subsidized, over-leveraged, uber-speculative market, recaptured equity (or any equity for that matter) has become nothing more than a temporary credit that can be deleted.
Federal Reserve Owns 30.5% of the US Treasury Market … and Will Own All of it by 2018
http://godhelpusall.com/federal-reserve-owns-30-5-treasury-market-2018/5232#
Can the Federal Reserve tell the US Treasury, “Don’t worry about it, you don’t have to pay me back”?