Archive for September, 2014

FHA loan originations are plunging because high borrowing costs turn off potential buyers, and risks of put-backs make lenders reluctant.

The biggest barrier to first-time homebuyers is saving for a down payment. As a result, most first-time homebuyers turn to the FHA because the FHA only requires 3.5% down, but as everyone who's gone down that road also quickly learns, FHA financing is expensive; in fact, FHA financing is so expensive, it's like taking out a 12.4% second mortgage! Many have quipped that FHA has become the replacement for subprime. They have very low standards for qualification (a 580 FICO score), a very low down payment requirement (currently 3.5%), and as a result, they stepped into the void left by the collapse of subprime lending. Under direction from politicians to save the housing market, the FHA ignored the real cost of mortgage risk for years as[READ MORE]

Based on the moral hazard from lessons learned from the last housing bust, future housing declines will experience very, very low sales volumes.

What lesson did lenders learn from the painful losses from the housing bust? Did they learn they shouldn't peddle toxic mortgages? Nope. Did they learn they shouldn't give loans to unqualified borrowers? Nope.knife-catcher-award What they learned is that no matter how foolishly irresponsible their lending gets, they will get bailed out by government cash and federal reserve interest-rate policy, and they can avoid mortgage default losses by loan modification can-kicking until prices rebound. As long as they don't foreclose and resell for a loss, they can amend-extend-pretend their way out of any lending disaster. That's really what lenders learned. Do you see the potential moral hazard? Since they refused to learn the lessons they should have, and since they learned they can take[READ MORE]

The best savings and investment plan for a stress-free retirement involves paying off a home mortgage.

retirement_savingsFour years ago when I was raising money for the Las Vegas venture, I gave presentations on why I believed cashflow-positive rental houses were a good investment. One of the primary reasons was to provide for retirement. Most people look at investment as the process of picking which asset will appreciate the most during a holding period. In my opinion, that is speculation. Ultimately, speculative assets need to be converted back to cash in order to provide benefit to the investor. That brings emotion into the decision and timing becomes overly important to performance. When do gold bugs sell their gold? I prefer selecting assets based on their capacity to provide long-term income, and in that regard, rental property is superior to most other investments. Irrespective of what happens[READ MORE]

Rather than exacerbating a problem with homelessness or creating a mass migration, most people who lost homes in foreclosure stayed in their neighborhoods.

lost_in_foreclosure What happens to people who lose their house in foreclosure? Do they end up homeless and destitute? Do they resort to a life of crime or prostitution? Is foreclosure the end of modern civilization as we know it? People who were trying to prevent foreclosures proffered all of these fallacious reasons why we needed to stop foreclosures and give delinquent borrowers principal reductions or free houses. The reality is, most people who lost their homes in foreclosure moved in to a nearby rental -- and many were financially better off with a lower cost of housing in something they could afford.Las_Vegas_foreclosure One of the houses my fund bought at auction in[READ MORE]

Some form of subprime mortgage lending will return. Will subprime 2.0 be a disaster to rival the Great Recession and Housing Bubble?

subprime_steakSubprime lending as an industry barely existed prior to 1994. There were few lenders willing to loan to people with poor credit, and there was no secondary market to purchase these loans if they were originated. The growth of subprime was the direct result of the lowering of lending standards created by the change of incentives brought about by the creation of the secondary mortgage market. Once lenders no longer had responsibility for holding the loans they originated, their incentive was to increase volume; quality meant nothing and quantity meant riches. The easiest way to increase volume was to lower standards, and since lenders didn't have consequences for loans going bad, the race to the bottom was on. The only thing[READ MORE]

The updated OCHN rating system helps buyers evaluate each property on the MLS for its ownership value relative to renting.

rental_parityRental parity is a simple idea, as many of life's most powerful concepts are. Rental Parity is the point where rent is equal to the monthly cost of ownership. When rent and the cost of ownership are imbalanced, it often signals individual properties or entire markets are overvalued or undervalued. I used a basic understanding of rental parity to determine the California housing market was a bubble and avoid buying into it. I used the same concept to identify undervalued properties in Las Vegas and buy when prices were depressed. I put my money where my mouth is, and it served me well. I expanded on the rental parity concept to create detailed housing market reports, and develop the analysis of each for-sale[READ MORE]

A slowly improving economy and tight inventory for both rentals and resale homes drives up rents and prices while harming home sales rates.

dude_you_paid_too_muchThe housing market broke out of it's yearlong flatline condition over the last few months.The spring rally pushed prices higher, driven mostly by rising rents, but resale volume was very low, suggesting the gains do not represent fundamentally strong demand from an improving economy. Housing bears suggest the recent weakness may be a sign of a medium-term market top. Coastal California housing is the least affordable in the US because the chronic shortages of inventory forces buyers to compete and bid prices higher. These higher prices are hurting both resales and new home sales. Further the market may face serious long-term problems with demand, a weakness not caused by tight mortgage standards. But despite[READ MORE]

Raphael’s_The_School_of_IrvineThe market is crazy! Contact us for a free market evaluation of your home. I've seen some neighborhoods appreciate over $200,000 in the past six months while others are down as much as 5%, making it even more important that you have a professional, experienced, real estate agent guiding you. Please contact me at or 949.769.1599 for a free market evaluation of your home. I will pay 1% towards your closing costs, if you purchase one of my active listings--- ask me for details. We have some great opportunities for buyers, please take a look at the virtual tours for some of our current listings. Click on the virtual tour links below or email me any questions that you have about our listings


1) 29 Latitude, Irvine (Portola Springs) , asking $850,000, 4 bedrooms, 2.5 bathrooms, overlooking UCI protected agricultural land[READ MORE]

The political right is revising housing bubble history and fostering a blatant lie to support its own political agenda.

Scales_of_justice2I try not to be political on this blog. My posts have been picked up from both Tea Party blogs and Progressive blogs, so partisans embrace my pillory of both sides foibles. My burning desire is to know and expound the truth, and it angers and offends me when either side spins facts and promotes an inaccurate interpretation of financial history. My latest ire for revisionist history is directed at the political right as they incorrectly blame the policies of the political left for inflating the housing bubble. Interestingly, I support what the political right wants to do, prevent the political left from expanding credit to deadbeats with government backing; however, I can't support the lies they tell in order to bolster their position. Fighting[READ MORE]

Mortgage interest rates are lower than last year, but sales volumes are also lower than last year as low rates fail to entice additional homebuyer demand.

reluctanceI would like to own a Lexus LS 460. It's a beautiful and luxurious automobile; however, I am reluctant to buy one because the price is just too high. They could lower the interest rate to zero, and I would be unlikely to buy a car that costs that much. No matter how much people may want something, if the price is too high, they will be reluctant to buy it. Most Americans want to own a house; study after study shows that. However, Americans aren't willing to overpay for a house and risk losing their equity and submerge beneath their debts, particularly since they know house prices can go down. This buyer reluctance is reducing[READ MORE]

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