Archive for August, 2016

While some underwater homeowners were saved by federal reserve policy, the main beneficiaries of this stealth bailout were the banks.

The populace was sold on quantitative easing and mortgage interest rate stimulus as a measure to save "Main Street." It was said this money pumped into the economy would create jobs, and the combination of jobs, increased incomes, and low mortgage rates would cause a boom in housing which would elevate loanowners above water. What was sold as a big benefit to Main Street devolved into another massive bailout of the banking industry with few tangible benefits to the people the programs were ostensibly designed to help out. Proponents of these policies can point to the rapid increase in house prices since 2012 as a sign of success. While it's true that many loanowners have emerged from beneath their[READ MORE]

The housing market sales doldrums we experience today is partly a result of the smaller Generation X hitting their prime homebuying years. Most anticipate a resurgence of housing when Millennials start buying homes in larger numbers.

next_generationBack in 1997 a demographic study shook the homebuilding industry when it said housing demand would crater and house prices would be depressed because Generation X was so much smaller than the Baby Boomers. As it turned out 1997 was the bottom of the market, and both sales and home prices rose dramatically in a 10-year run that ended with the Great Housing Bubble. So much for demographics. With such dramatic and high-profile misses, it's difficult to put too much weight on a demographic study. These studies envision a world where demographics drive all change in the marketplace, and they ignore the fact that people adjust their[READ MORE]

As mortgage rates rise, home sales will decline, and if it goes on long enough, prices will fall.

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[READ MORE]

Home mortgage interest deduction encourages high wage earners to borrow more; capital gains tax exemption encourages wealthy to invest more in personal homes. The combined effect inflates house prices.

home mortgage interest deductionPoliticians promote home ownership through a variety of subsidies and tax loopholes, ostensibly to promote a sense of community and quell civil unrest, the modern bread and circuses. A 2014 Republican tax reform proposal curtails homeownership subsidies, and the proposal was vigorously opposed by realtors, homebuilders, and lenders who benefit from the subsidies. Supporters of the subsidies generally control the perception of their largess through planted stories in the financial media appealing to homeowners who rely on the subsidy to reduce their tax bills; however, those who want to reduce these subsidies occasionally gain press attention of their own, so the public is exposed to the truth about who[READ MORE]

San Bernardino County Housing Market Report: August 2016

OCHN_every_dayHistorically, properties in this market sell at a 25.7% discount. Today's discount is 38.0%. This market is 12.3% undervalued. Median home price is $293,400 with a rental parity value of $480,400. This market's discount is $187,000. Monthly payment affordability has been improving over the last 5 month(s). Momentum suggests improving affordability. Resale prices on a $/SF basis increased from $191/SF to $193/SF. Resale prices have been rising for 6 month(s). Over the last 12 months, resale prices rose 7.7% indicating a longer term upward price trend. Median rental rates increased $13 last month from $2,006 to $2,020. The current capitalization rate (rent/price) is 6.6%. 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"][READ MORE]

By providing more housing units, apartment developers will lower housing costs over time and relieve the pressure on Californian's personal budgets.

propert_ladder_pressureCombating the chronic shortage of available housing in California requires building more places to live. It matters little if these new housing units are small apartments or large mansions. As developers build more, all segments of the housing market will be more affordable to everyone in California.

How to lower housing costs

Imagine what would happen if California legislators found the political will to actually solve the housing crisis in California rather than giving in to the Nimbys. If Governor Brown formed a committee and charged them with crafting a policy to bring housing costs down as quickly as possible without wrecking the economy, what recommendations would that committee make? Many developing and third-world countries face this problem, and the solution most often[READ MORE]

Houses feel expensive because an unusually large percentage of the payment is going toward principal amortization.

For the last few years, my monthly housing market reports rated most communities across Southern California highly, suggesting it's a very good time to buy a house. Yet despite this dispassionate review of the math, most people who actually shop for a house feel like prices are way too high. Why is that? Well, house prices are high. The federal reserve in conjunction with government officials reflated the housing bubble to restore collateral backing to lender’s bad loans. The housing bubble that peaked in 2005/2006 witnessed house prices 20 years ahead of their time. Reflating the housing bubble in 2016 still puts us 10 years ahead of where prices should be, which is one reason prices feel high. OCHN_OC_Housing_Market_Report_2015-9[READ MORE]

As Millennials buy new homes, builders will provide smaller houses Millennials can afford.

cozy houseFor years, academics in planning circles touted the rise of the small, high-density housing alternatives near mass-transit hubs. While this product might be the future of housing, it won’t be due to any preference by Americans for smaller digs. People will substitute down to smaller properties conveniently located near mass transit, but they will do this because the more desirable McMansions in the suburbs will become too expensive. Builders aren’t concerned with what academics think they should build; builders will provide whatever product buyers in the market want. Very few entry-level buyers are active in the market because Generation X is trapped in their starter homes, and the Millennials are not yet in a position financially to complete a sale. Right now, the only group of buyers with the cash and credit who can[READ MORE]

Both the data and the anecdotes demonstrate a noticeable and significant slowdown in home sales. Is it merely seasonal?

panicI am moving out of my current rental and back to Orange County (more on that later). I agreed to allow my landlord to market the property for sale over the last month while I still lived there. I was worried about aggressive buyers peeking in my windows, but that isn't what happened. So far, very few people came to tour the property. I spoke with the agent (my landlord's sister) about what was going on, and she provided a remarkably candid assessment. She said it was like buyer interest fell off a cliff in August. She said there are three model matches available in the neighborhood, and none of them are getting any traction. She also noted there was an overall abundance[READ MORE]

When Nimbys lose their emotional fights to block new development, new families move into the neighborhood and enjoy new houses that otherwise would not have been built.

nimby-homeless Real estate development provides homes, offices, shops, features of the built environment that define the quality of everyday life. Without the changes to the land required by our built environment, we would still be living in caves trying to subsist off the land like our stone-age ancestors. However, too much of a good thing can be as bad as too little of it. When real estate development is done poorly, or when every last trace of the natural environment is eliminated in favor of the built environment, quality of life suffers. There is a middle ground where land development preserves natural features while providing high-quality homes, offices, and retail outlets. Unfortunately, when land developers propose new[READ MORE]

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