Archive for October, 2015

With the bulk of new home sales in Irvine, California, selling to Chinese nationals, declining sales there is an indicator of overall Chinese capital flows.

Chinese_freedom_support_California_real_estate1I don't believe we will see another real estate crash caused by American lenders. Since they mastered the art of can-kicking to keep supply off the MLS, they managed to reflate the old housing bubble. It's very likely they would employ this same technique to prevent any future house price collapse caused by loan delinquency. However, despite the huge influence lenders have on the market, they don't control all the supply. If there is any issue that has real potential to drive real estate prices down, it’s the possibility of foreign buyers, particularly the Chinese, reversing the flow of money by liquidating their US holdings to cover financial obligations back home. Cash buyers are typically the most stable[READ MORE]

Baby Boomers need Millennial buyers to purchase overpriced homes to fund the Boomers' retirements.

bring_back_ the_bubbleHave you noticed all the financial media stories about why Millennials aren't buying homes? Who cares whether or not Millennials buy homes? Shouldn't the Millennials themselves be the only ones who care whether they rent or whether they own? Shouldn't the choice be one for them to make in consideration of their own lifestyles, needs, and goals? Who benefits from a concerted effort to cajole Millennials into buying houses? Besides Millennials themselves, only two major groups of people care about Millennial homebuying: real estate industry professionals, and Baby Boomer homeowners. People in the real estate industry that make money on transactions -- homebuilders, lenders, realtors -- they want Millennials to buy homes for obvious, self-serving reasons. The banks needed to reflate the housing bubble to restore collateral[READ MORE]

As mortgage rates rise, home sales will decline, shattering the myth of escape velocity in residential real estate.

home_price_appreciation_fairyIn rocketry, escape velocity is the speed required to propel an object into a stable orbit. In a housing market, escape velocity is a rate of price and sales volume increase necessary to sustain an increase in demand required to push prices higher for the long term. Escape velocity is the elusive dream of real estate pundits, a group who doesn't understand what it was or why it disappeared (probably forever). In previous real estate cycles (pre Dodd-Frank), as prices went up and buyers were priced out of the market, lenders responded by offering affordability products toxic mortgage financing terms. As affordability products proliferated, prices kept rising, and many buyers accelerated their buying plans out of fear of being priced out and out of[READ MORE]

As loan modifications redefault, and as the market can absorb the supply, lenders are finally foreclosing and resolving their bad loan permanently.

mortgage-foreclosure-crisis-2.0A wave of foreclosures flooded the housing market in 2008 and left millions of homeowners underwater. Most people believe the storm surge receded as lenders ran out of delinquent borrowers to foreclose on, but nothing could be further from the truth. In reality, lenders merely delayed processing millions of foreclosures by can-kicking bad loans in hopes that rising prices could bail out both the bankers and the homeowners with an equity sale. For the most part, this policy worked. Distressed properties disappeared from the MLS, and fueled by record low mortgage rates, prices rose briskly once the supply was removed. Bankers designed policies to promote loan modification over foreclosure, specifically to drive down the reported delinquency rates. Further, HUD sold off[READ MORE]

During the housing bust, every effort was made to keep homeowners in their houses. Renters were mercilessly thrown in the street with little or no fanfare.

Our real property system functioned well for centuries with very little change. Prior to the housing bubble, it was widely accepted that people borrowed money to buy houses and if they didn’t pay it back according to the terms of the promissory note, the mortgage agreement allowed the lender to call an auction to get their money back. Housing was an earned reward, not an entitlement. The basic dilemma is simple, most people don’t have the cash to buy a house, and it would take them most of their adult lives to save for one, so lenders designed loan programs to allow people to occupy and “own” a house while they were working and earning to pay[READ MORE]

OCHN_periodical_adHistorically, properties in this market sell at a 25.7% discount. Today's discount is 33.3%. This market is 7.7% undervalued. Median home price is $279,800 with a rental parity value of $423,800. This market's discount is $144,000. Monthly payment affordability has been worsening over the last 4 month(s). Momentum suggests worsening affordability. Resale prices on a $/SF basis increased from $181/SF to $182/SF. Resale prices have been rising for 7 month(s). Over the last 12 months, resale prices rose 6.7% indicating a longer term upward price trend. Median rental rates increased $13 last month from $1,860 to $1,874. The current capitalization rate (rent/price) is 6.4%. Rents have been rising for 12 month(s). Price momentum signals rising rents over the next three months. Market rating = 8 [gview file="" height="800px" width="600px" save="1"] [dfads params='groups=23&limit=1&orderby=random'] [READ MORE]

Debt-to-income lending caps prevent wild swings in house prices based on irrational exuberance, which benefits everyone.

stupid_and_irresponsiblePrudent borrowers generally didn't participate in the housing bubble. Those who refused to borrow and spend waste their equity watched with pleasure as their net worth increased, but they weren't impacted by either the rise or fall of house prices. Those who refused to use toxic mortgage financing didn't buy homes and remained renters. Why did many prudent borrowers sit out the housing bubble? Lenders were underwriting loans with debt-to-income ratios approaching 100%, creating a generation of Ponzis. Prudent borrowers were competing with borrowers who were leveraging many times what they could reasonably afford, so unless they were willing to sacrifice quality dramatically, prudent borrowers resigned themselves to being out-competed by fools making far less money who were borrowing far too much.

The 43% DTI Cap

I expressed the[READ MORE]

The banking bailouts shouldered by the US taxpayer continue through the government loan guarantees keeping mortgage rates low to support bubble-era prices.

humpty-dumpty_bailoutMany homeowners held out hope that if they could just keep current on their mortgage long enough, the government would come to their rescue in the form of a mandated bailout program. Part of this fantasy was not just that people could keep their homes, but that they could keep living their lifestyle as they did during the bubble. What few seemed to realize was any government bailout program would be designed to benefit the lenders by keeping borrowers in a perpetual state of indentured servitude.

The only group politicians really cared about helping were bankers. Do you think I'm being overly dramatic or cynical? Can you name all the bailouts to banks and government sponsored enterprises?

Program Description
Market-to-Market[READ MORE]

If high-paying export industry jobs are eliminated because of the rising dollar, then home sales will suffer due to diminished demand.

Unemployed-Man-PosterThe fundamentals of housing demand are job and wage growth. Lenders and the federal reserve can manipulate borrowing costs to impact prices, and they can manipulate mortgage qualification standards to create more temporary homeowners, but this chicanery does not represent fundamental support. The powers-that-be already manipulated rates as far as they can push them, and the endless pleas from realtors to lower lending standards fall on deaf ears. The props are played out. Endless market props can mask a weak market for a time, but for the housing market to really improve, the economy needs to produce more jobs that pay well enough to buy homes. Eventually, the housing market will need to stand on its own. A durable housing recovery based[READ MORE]

Down payment insurance has the potential to address a serious objection of frightened buyers in the wake of the housing bust.

realtor_sales Homebuilders rely on high-pressure sales tactics to close every potential buyer that walks in a model center. They have a quick answer to every possible buyer objection, and they are second only to used car salesmen for creating false urgency to close deals. Since the housing bust, new home sales faltered, and homebuilders responded by offering incentives ranging from tricked-out interiors to interest-rate buy downs. But ever since the bust, homebuilder salespeople were unable to overcome buyer's fears about losing their down payments in another crash, particularly since builders sell at nosebleed prices. A new program may solve the problem of buyers fearing the loss of their down payment: down payment insurance. I doubt these insurance policies will be widespread in resales because[READ MORE]

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