I began writing about the housing market back in February of 2007. Over the last five and one half years, I've covered a lot of ground. Many of my earliest posts serve as a foundation for my philosophy that comes through my daily posts. I know many of you who read this blog have been with me from the beginning, but I have also picked up many new readers along the way. Since we are entering the recovery stage of the market, and since this material will be new to many I plan to revisit many of my old posts over the coming weeks to remind everyone why we inflated a massive housing bubble and what we should learn from it. I will update the old posts with new historical data as appropriate and new cartoons, and bring these insights to a new generation. [READ MORE]
Archive for October, 2012
Homebuilding usually leads the economy out of recession. The Great Recession did not end with a building boom largely because of overbuilding during the housing bubble. A false price signal triggered excessive homebuilding, and it took five years to work off the inventories. The collapse of the housing bubble saw new home sales and construction fall to the lowest levels ever recorded -- and those records go back to the 1960s. To make matters worse, rather than experiencing a sudden drop and a "V" bottom leading to a new boom, new home sales flat-lined at record lows for five straight years. This basically wiped out the homebuilding industry. A few years ago, I heard the Riverside County manager of KB Home quip, "I'm building 10% of the homes with 10% of the staff I had in 2006." That's no exaggeration. The[READ MORE]
The housing bust is littered with sob stories about people losing their family homes. As I noted Responsible Homeowners are NOT Losing Their Homes.
To see the truth in this statement, one needs to have a clear definition of “responsible homeowner.” A “responsible homeowner” is a buyer who, if they utilized financing, did not stray from the conservative parameters set forth by lenders (prior to the bubble) and financial planners. This includes using a maximum 28% debt-to-income ratio on the mortgage, at least a 20% downpayment and fixed-rate conventionally amortizing financing. Few who fit this definition are going to lose their homes; although, some of them may chose to walk away from the debt because they are hopelessly underwater. The only ones who fit the above definition who are in danger of losing[READ MORE]
realtors don't stop finding reasons to buy until buyers have enough. It doesn't matter if the reasons are good or bad, they just needs to be plausible and salable. Today, I want to explore why realtors are responsible for the rubbish they promote. I want to start by saying that there are many good Realtors (deserving of a capital "R"), and they are as dismayed about the practices in their profession as I am. I have the utmost respect for the character of Randy Rector, broker of record for Evergreen Realty, and many other Realtors and brokers have approached me and told me they share many of my frustrations. I am painting bad realtors with a broad brush, and I want to recognize that good Realtors exist, and my exasperation is not a reflection on them.
With Expertise comes ResponsibilityBad[READ MORE]
When consumers take on debt, eventually it's paid off. Debt is not an asset people spend their lives accumulating, at least it's not supposed to be. Paying off debt is a process known as deleveraging. In a growing economy, young people take on debts to buy cars and houses while old people pay off debts. In aggregate, debts should grow at a measured pace. When lenders make debts grow too fast, the economy becomes over-stimulated and debtors become insolvent. When large numbers of borrowers become insolvent, a credit crunch ensues, and the bills come due. This flushes out the Ponzis and mass deleveraging takes place. When economists think about deleveraging, they envision people who got a little overextended tightening their belts and paying back their loans. This collective belt-tightening causes the economy to suffer because money that people previously spent buying[READ MORE]
Do people who lie, cheat, and steal always do better than the rest of us? Apparently in some professions they do. Obviously, in criminal professions, the people who get ahead are the ones most willing and able to violate the rules. In professions with shades of gray, and real estate sales has some dark fringes, living on the dark side of the shades of gray has financial rewards that seduce many. Real estate sales offers a chance for quick riches with little or no accountability and few educational hurdles to overcome. The profession does attract some good people, but it shouldn't be surprising that such circumstances also attracts the dregs of society. The most odious characteristic of the National Association of realtors is how they seek to legitimize bad and unethical behavior by labeling it "sales," or as I prefer to[READ MORE]
If there is any justice in our financial system, delinquent mortgage squatters will face negative consequences for receiving their free ride. Right now, millions of people are not paying their mortgages, and the banks are not foreclosing on them. I paid my rent for the last five years and many loanowners struggled to pay their bloated mortgages, but after milking their properties of all the equity, many Ponzis quit making their mortgage payments and have been living payment-free ever since. It's not fair to those who pay for their housing to subsidize those that do not. Delinquent mortgage squatters have been offered every chance to redeem themselves. Lenders and the government are offering loan modifications that have consistently gotten better for loanowners over time. Everyone who signed on to a toxic mortgage has been offered a stable government-subsidized loan. Anyone who[READ MORE]
Spring of 2012 saw a chorus of housing bulls loudly proclaim the arrival of the recovery. All dissent was squelched as the conversation of housing evolved from debating whether or not the market had bottomed to what form the recovery would take. I've never seen such a coordinated effort among journalists to influence public opinion and bolster consumer confidence. Perhaps they think they have a duty to the market. I feel I have a duty to the truth. The bears have not completely gone away. Zero Hedge, Barry Ritholtz, Keith Jurow, and Mark Hansen have remained bearish, and they provide some of the most compelling bearish arguments in the national conversation today. Some of the bulls (like the NAr) dismiss the bears and their arguments without debating their facts or their bearish interpretations. Obviously, those[READ MORE]
For home inventories to recover, sellers must come back to the market. Since so many loanowners are underwater, particularly at lower price points, very few organic sales occur on below-median properties. Further, since below-median loanowners have a strong incentive to squat until foreclosure, few of these properties are coming to market as short sales. That leaves us with a depleted market that is only be replenished by foreclosures. And as I noted on Monday's post MLS inventory is NOT coming as foreclosure filings dry up, banks are in no hurry to process foreclosures and bring these properties to the MLS. To make matters worse for would-be buyers at these price points, about half of the foreclosures that are processed are being purchased by hedge funds at the[READ MORE]
What would make a strong foundation for a recovery? First, a housing recovery should be built on solid job growth -- something that isn't happening. Job growth of high-paying jobs would translate to more mortgage originations and purchases by owner occupants. Since job growth stimulating owner-occupant purchases should be the foundation of a recovery -- and since that isn't happening -- the recovery is being built on a shaky foundation. The recent price rally -- call it a housing recovery if you wish -- is built on two things: 1) lender restricted inventory, and 2) low interest rates. If either of those two factors change, the housing recovery could easily be snuffed out. After all, the real demand behind a recovery simply isn't there yet.[READ MORE]