After the success of the Las Vegas fund investments, many people have asked me if I see any new opportunities. For the first time in eight years, I do. The fires that destroyed Paradise, California, create an opportunity to rebuild their community and make a healthy profit. Over the next year or two, the value of buildable lots will fall considerably. Many people will take their insurance checks and decide not to rebuild, putting these lots on the market at reduced prices. Also, the short-term increase in direct construction costs will put further pressures on lot prices. We are raising money to buy as many of these lots as we can, hold them for eight to ten years, then resell them when prices rebound. We are currently forming an interest list. Please reply to this email if you are interested in rebuilding Paradise, California. [READ MORE]
Author Archive: Irvine Renter
It takes more than a manic desire to inflate a bubble. The ability to deliver capital to the market is also an essential element.
Repost from OC Housing News 2011-2016Many people who believe in the wisdom of the markets subscribe to the efficient markets theory. It postulates that market participants have equal access to good information and they make rational judgments based on the available data. The theory appeals to vanity as everyone likes to believe they demonstrate above-average financial acumen and make rational decisions. Unfortunately, that isn’t the world we live in. People often fall victim to groupthink, pick and chose what data to believe and what to ignore, and seek the perceived safety of the herd when making financial decisions. The housing bubble was defined by one fallacious belief that overrode all reason: house prices only go up. The mantra of the National[READ MORE]
More than eight years after the government took over mortgage finance, the US taxpayer still insures the bulk of the loans in the housing market.
Repost from OC Housing News 2011-2016Prior to the collapse of the housing bubble, when lenders foolishly loaned money to people operating personal Ponzi schemes, it was theirs to give — and to lose. But when the losses overwhelmed our banking system, the government took conservatorship of the GSEs, and they backstopped the largest banks with our too-big-to-fail guarantees. With those two steps, the government now assumes nearly all risk of loss in the US mortgage market. With taxpayers absorbing future losses through explicit and implicit guarantees, lenders have no reason to fear inflating another housing bubble. Another bubble would generate enormous fee income at origination and interest income through ever-increasing loan balances, and when the bubble bursts,[READ MORE]
Hedge funds profited from banks that failed to execute the same business plan to recover more of their original loan capital.
Repost from OC Housing News 2011-2016If banks had taken the same approach to the bust as hedge funds, they could have recovered much more on their bad bubble-era loans. By 2012 they bankers finally realized they could stop foreclosing and selling the REO for rock-bottom prices and instead wait until prices recovered to execute an equity sale. However, there was another business model they could have used to recover more money quicker.
Special Home Investment TrustBy far the fastest and most efficient way to recover lender capital was to foreclose on their non-performing loans, rent the properties (perhaps even to the former owners), package the properties into a REIT, and sell this REIT for enough to recover all their capital. As banks[READ MORE]
We need policies that help stabilize tenancy and facilitate renters saving for retirement.
Repost from OC Housing News 2011-2016The US government treats renters like second-class citizens. Our current policies make it very difficult for renters to stabilize their housing costs or save for a comfortable retirement. Perhaps in an era where homeownership was attainable for everyone, such policies were tenable, but now with coastal states restricting new construction, significant portions of the population simply can't afford a home. Current government policies irreparably harm these renters. Politicians believe that high rates of homeownership foster social stability because people won't loot and riot if they feel invested in the community. Social engineering aside, there is one particularly strong financial reason politicians favor widespread homeownership: it allows them to maintain a less expensive social safety net for retirees. Imagine a world without homeownership. There would be no[READ MORE]
The homeownership rate is plunging because the housing bust tarnished the American Dream dream, and a new generation chooses to rent instead.
Repost from OC Housing News 2011-2016For nearly 100 years, US government housing policy maximized the homeownership rate and the rate of growth in house prices. Politicians characterized homeownership as the best investment a middle-class family could make, and home ownership equated with the American Dream. During the early 00s, on the surface conditions looked great. House prices appreciated rapidly, mortgage equity withdrawal fueled an economic boom, subprime lending provided home ownership opportunities to everyone, and a record number of Americans realized the American Dream. Government officials touted the success of their policies, and critics of these policies were mocked or widely ignored as the ravings of madmen. Unfortunately, homeownership is not[READ MORE]
Lower house prices due to higher mortgage rates still result in a higher cost of home ownership.
Repost from OC Housing News 2011-2016Everyone shopping for a home wants to see lower prices. For most products, paying less for it means the buyer keeps more money to purchase other goods and services, but with houses, this isn’t necessarily the case. Most people borrow a great deal of money to buy a house, often 80% to 96.5% of the purchase price. In fact, the cost of borrowing money is largely what determines how much someone can borrow and bid to buy a house. (See: Your neighbor’s debt creates your home equity) When mortgage rates go up, the cost of borrowing increases, and unless wages rise considerably, the cost of borrowing will increase faster than wages go[READ MORE]
Low house prices make for lower debt service payments that benefit the economy as money is liberated to circulate and buy goods and services.
Repost from OC Housing News 2011-2016Low house prices benefit everyone because low house prices make for low loan balances and less debt-service. When borrowers carry excessive home debt, the excess comes directly out of disposable income. Since consumer spending is such an important component of the economy, the excess interest payments drain the economy (and enrich lenders). It’s really that simple. Legislators, existing homeowners, and bankers all want rapidly rising home prices. Legislators want to see home equity rise because it provides free money to homeowners reducing government dependency. Bankers like rapidly rising home prices because it reduces their exposure if a loan goes bad. Existing homeowners... well, they get rich, so obviously, they like rapidly rising home prices.[READ MORE]
The conventional wisdom holds that renters favor new construction and homeowners oppose it because renters want more abundant and less expensive housing and homeowners want more valuable housing and less traffic. But is it really that simple? A new study says no.
Repost from OC Housing News 2011-2016Nimbys oppose all development because they believe their neighborhood was perfect when they moved in, but new development removes beautiful natural features, clogs the roads with more traffic, and changes the character of the community they moved into. True Nimbys don’t evaluate the pluses and minuses of new development and form an opinion based on facts. True Nimbys oppose everything, and in doing so, they fail to see the hypocrisy in their attitude and actions. After all, they wouldn’t be a resident in their own neighborhood if previous Nimbys had successfully defeated the project where they live. [READ MORE]
Warning! Don’t read today’s post if you have a weak stomach or a strong affinity for consumer debt. This is your only warning.