Archive for July, 2013

Every homeowner wants to see the resale value of their home go up as rapidly as possible. Since more than half the country owns a house, political pressure mounts to prop up home prices and cause them to appreciate. The result is a plethora of subsidies designed to make houses more expensive. The result of these subsidies and our ever-present desire for rapid home price appreciation is a great deal of house price volatility. Unfortunately, house prices can't appreciate faster than the wages go up to support them. Any time prices are artificially pushed higher, they inevitably crash back down with horrendous consequences. What's worse is that all this volatility can be avoided. If people accepted that house prices can only rise so fast, then perhaps they wouldn't get carried away with kool aid intoxication and overborrow to buy real[READ MORE]

Many housing sub-markets in Coastal California have already reflated to affordability limits, and many are surpassing peak bubble prices. The beaten down housing markets of the Inland Empire (Riverside and San Bernardino Counties) have bounced significantly off the bottom, but they are still extremely undervalued by historic norms between rent and cost of ownership. The rising prices are turning off private-equity funds, but mom and pop investors can still find plenty of good deals with upside potential.

Riverside County

Riverside County, California, is directly east of Orange County. It's population exploded over the last 40 years as Los Angeles and Orange Counties were built out and house prices were pushed up by high wage earners to levels many could not afford. Riverside County offered the chance for a large house at a low price -- and a hellish commute. Despite[READ MORE]

Large private-equity hedge funds will begin tapering their purchases of houses shortly. Prices have simply gotten to high, and with the flood of rentals from their previous purchases, rents are softening in many of the markets where these funds have been most active. Rising costs and declining income doesn't make for a good combination. However, despite the apparent worsening of conditions for this investment class, some housing analysts are worried that investors will remain too active and possibly overheat prices.

Investor Momentum In The Housing Market May Have Swung Too Far

John Burns, John Burns Real Estate Consulting Jul. 25, 2013, 6:51 PM
During the downturn and early stages of recovery, we were huge proponents of investors taking advantage of overcorrected home prices to make great investments while also helping the housing market recover. Mission accomplished.
I laid out the case[READ MORE]

The number of new homes sold in June jumped to a 5 year high of 479,000 annualized purchases, in addition the median new home price was up 7% year over year.  This made headlines in in across the business news sphere as an strong indication that the housing market was coming back even though mortgages rates had their biggest increase since 1987 during the month of June.   These two facts were touted as evidence that rising mortgage rates would not affect home prices or sales.  So, all is well with the housing market...well not so fast.

Almost immediately bloggers and analysts combed through the June data and found some interesting trends that was left off the initial broadcast reports on all the business new channels.  Hours later some of these facts made it into the[READ MORE]

Every aspect of government policy toward housing is geared to benefit banking interests. For need to placate the public, many of these programs have been sold as a benefit to struggling borrowers loanowners. Since some people actually believe the false rhetoric about helping borrowers, politicians and bureaucrats have to feign surprise when these programs serve their banking masters and fail the general public.

New Defaults Trouble a Mortgage Program

By SHAILA DEWAN -- Published: July 24, 2013
Banks and other mortgage servicers have accepted $815 million in taxpayer-funded incentives for helping homeowners who have since redefaulted on their home loans, a watchdog for the Treasury Department’s Troubled Asset Relief Program, or TARP, reported on Wednesday.
The banks found a way to get some income out of these government-backed loans through modifying loans.
More than a third of homeowners who received loan modifications[READ MORE]

The good news is that house listings are up. The bad news is that they are still very, very low. It's still a sellers market. I recently reported that housing inventory is up: Buyers aggressive, not stupid-aggressive. We have passed the extreme of the sellers market, but there are still far too few properties available for sale to believe deals are to be had. Ordinarily, housing inventory peaks during the summer and falls off the rest of the year. I don't foresee that happening this year. First, there are so few houses for sale and the market is so strongly in favor of sellers, that potential sellers won't be dissuaded from listing for fear that they missed the selling season. Further, rising interest rates will cool demand, and many of the WTF listing prices that came on the market over the last 60[READ MORE]

A growing economy and increasing productivity causes aggregate wages to rise. Higher wages provides workers with more income to bid up rents and house prices. But what happens when wages stagnate? Can rents and house prices continue to rise in such an economic environment?

Real Wages Still Below June 2009 Level

By Jonathan House -- July 16, 2013, 9:54 AM
Average hourly wages were unchanged from May to June after adjusting for inflation, the latest sign of households struggling to gain purchasing power in the aftermath of the Great Recession. The flat result stemmed from a 0.4% increase in average hourly earnings being offset by a rise in the consumer price index. Over the last 12 months, inflation-adjusted hourly wages have risen by just 0.4%.
Given that the CPI readings on inflation has been tame, even nominal wages are growing very slowly. There's a reason for that.
Standard economic models hold[READ MORE]

One of the contentious issues between housing bulls and bears is the existence of shadow inventory. Many bulls deny this inventory exists, and those that acknowledge it deny its impact. Many bears claim this inventory is much larger than reported, and some claim it will be unleashed on an unsuspecting public leading to catastrophic price declines. One of the main problems with shadow inventory is defining exactly what it is. There is no commonly accepted definition. Corelogic has the most widely accepted definition which includes the number of distressed properties not currently listed on the MLS that are seriously delinquent, in foreclosure, and REO. Shadow inventory has been declining largely due to the can-kicking loan modifications with their 40% failure rate temporarily lowering the delinquency counts. My definition of shadow inventory is outlined in[READ MORE]

Over the last 40 years, California inflated three different housing bubbles. Starting in the 1970s with regulations like CEQA, California began to restrict growth. This inhibited builders and developers from bringing new product to market to meet demand in many areas. As a result, demand pressures caused prices to rise. Rather than react to rising prices as a deterrent to buying, the sudden upward price movements served as a catalyst for even more buying as homeowners became speculators hoping to cash in on rapid appreciation. As with all financial manias where asset values become detached from fundamentals, the first three housing bubbles all resulted in housing busts with each one being more severe than the last. As a result of the most recent horrendous crash in housing values, government regulators stepped in and put new rules in place designed[READ MORE]

Ever since the May/June mortgage rate increases how did it impact the sizable California cash buyer, if any.  A cash buyer doesn't have to worry about mortgages except when these rates affect the larger housing market.  DataQuick's monthly report has noted the comparison of between the June and May cash purchase sales and there was a 14.5% drop in the cash purchases or in the form of down payments.  That's a pretty significant change in just one month.  Some people say it's seasonal but let's examine the data.

Southland Home Sales Drop; Record Yr/Yr Gain for Median Sale Price

Southern California home sales fell in June amid a still-tight supply of homes for sale, rising mortgage rates and a letup in investor buying. The median sale price rose at a record year-over-year pace to the[READ MORE]

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