Archive for February, 2017

Since the mid 1990s, mortgage interest rates and home sales moved in opposite directions. Dodd-Frank made this inverse correlation even stronger.

Back in February of 2013 when mortgage rates were near record lows, I wrote that future housing markets would be very interest-rate sensitive, despite assurances to the contrary from most macroeconomists. Last year I noted that fewer home sales or lower prices was sure to follow higher mortgage interest rates. Generally, volume precedes price, and as one would expect, the recent spike in mortgage rates is already hurting sales. The prevailing economic view is that the housing market would respond positively regardless of what happens with mortgage rates because house prices in the past have correlated poorly with mortgage rates. For example, during the 1970s, interest rates rose significantly, which should have caused house prices to drop, but[READ MORE]

My first post I am IrvineRenter (Inventory Cholesterol) debuted ten years ago on February 27, 2007.

Over the last 10 years, I posted every weekday without fail. It's been a source of joy and discipline that's shaped my life, my career, and my character. During my ten-year run, I observed many trends come and go, and I learned a great deal about the art of blogging. Today, I want to share some of these observations with you.

Blogging needs a purpose

I started writing ten years ago because I wanted to save people from financial ruin. I firmly believed housing was a financial bubble, and I was right. I didn't do it for money or fame as I wrote completely anonymously and without any compensation. I blogged purely because believed it was the right thing to do. When I published The Great Housing[READ MORE]

Inventories of below-median homes are well below historic norms due to the large numbers of underwater borrowers, leaving first-time homebuyers frustrated.

Back in late 2012, I predicted that Below-median home inventories may not recover for years, which it has. My reasoning was simple. For home inventories to recover, sellers must come back to the market. Since so many homeowners are underwater or lack the equity for a move up, particularly at lower price points, very few organic sales occur on below-median properties. Since lender can-kicking kept the foreclosures off the market, what was once a source of supply actually became a restriction of supply. Given these circumstances, it will be several years before inventories of below-median properties recover and provide opportunities for owner-occupants to enter the market.

Here's the inventory crisis smothering Millennial homebuying

3 factors blocking homeownership
[The three mentioned are not important, and[READ MORE]

Housing fundamentals are strong, but if they get too strong, rising mortgage rates will spoil the fun.

Signs of a strong economy are all around us. U.S. retail sales rise, and inflation posts largest gain in four years. Unemployment is near historic lows, and Trump plans to dump fuel on the fire with a massive infrastructure spending program. The US Housing market is poised for a strong start in 2017. The underlying economy was strong enough for the federal reserve to raise interest rates again in December. Unemployment is low and wage growth is picking up, so more qualified borrowers are likely to become buyers in the days ahead. Further, with mortgage interest rates still very low by historic standards, the demand for housing as expressed in dollars borrowers can put toward a purchase is near record highs. The conditions as described[READ MORE]

Loan modifications always had high failure rates, but modifications since 2014 fared worse than bubble-era loan mods.

Every attempted loan modification delays a foreclosure, keeps an overextended borrower in a state of debt servitude, artificially props up home prices, and keeps much-needed supply off the market. Perhaps it wouldn't be so bad if the attempts to modify loans succeeded at high rates, but the truth is that they don't. Nearly 75% of loans modified fail within two years. The public good served by these loan modifications is not readily apparent. At first, the banks did this just to survive the downturn. Then it became a political necessity as millions of people lost their homes. Now, it only serves the sense of entitlement of overextended borrowers to get a break on their loans so they can spend money on other things. It's time to rethink[READ MORE]

The Federal Reserve's oft-forgotten policy of buying mortgage-backed securities helped keep mortgage rates low over the last several years.

Janet_Yellen_housing_bubbleThe monthly housing market reports I publish each month became bullish in late 2011 due to the relative undervaluation of properties at the time. I was still cautious due to weak demand, excessive shadow inventory, the uncertainty of the duration of the interest rate stimulus, and an overall skepticism of the lending cartel’s ability to manage their liquidations. In 2012, the lending cartel managed to completely shut off the flow of foreclosures on the market, and with ever-declining interest rates, a small uptick in demand coupled with a dramatic reduction in supply caused the housing market to bottom. Even with the bottom in the rear-view mirror, I remained skeptical of the so-called housing recovery because the market[READ MORE]

Donald Trump uses executive orders like land acquisition professionals use letters of intent.

When I first saw the headlines touting Donald Trump's repeal of Dodd-Frank by executive order, I literally laughed out loud. I wondered, who does he think he is, Emperor Trump? Does he really think he can change laws by executive order? Does he fail to understand the separation of powers in the US Constitution? The US Constitution, the document Trump swore to uphold, bestows all lawmaking power on the US Congress. The chief executive, the President, can either sign a Congressional bill, or he can veto it, but the President has no power to make law -- not that Trump's supporters seem to understand that. The more I thought about what Trump actually did, his actions started to make sense. His presidential orders are the opening round of negotiations with[READ MORE]

Home price affordability will be the biggest issue in housing in 2017, particularly if mortgage interest rates rise.

house_I_cant_affordOver 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.[READ MORE]

Californians embraces housing policies that benefit high wage earners and homeowners over the working poor.

House prices in California surpass most of the rest of the United States both in real terms and relative to local income. Residents offer many bogus reasons for high house prices -- everyone wants to live here, incomes are higher, the sunshine tax, foreign safe haven and so on -- but none of these reasons accurately explain why house prices are so high. California housing costs rank among the highest in the nation because we don't build enough housing units, resale or rental, to accommodate population growth and job creation. To make matters worse, the solutions offered to remedy the situation fail to address the root cause and create problems of their own. The worst of these solutions, affordable housing mandates, is the one favored by the political[READ MORE]

A huge new tax on foreign investors coupled with a crackdown on capital outflows is a double whammy discouraging Chinese Nationals from investing in Vancouver.


If governments really want to stop a certain behavior, what must they do to really stop it? Is passing a law good enough? Well, drugs are illegal, and it never did much to discourage drug use. What about changing the financial incentives? Vancouver real estate is extraordinarily expensive relative to the incomes of local residents largely because Chinese investors buy up Vancouver real estate. The provincial government in British Columbia wanted to discourage foreign investors, so they recently passed a 15% tax on them, specifically to discourage them from investing there and driving up prices for local residents. Further, Chinese government officials want to hold back the tide of capital fleeing China for safe havens like the United[READ MORE]

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