Author Archive: Irvine Renter

Americans now confuse renting money from the bank for true home ownership.

founding fathers
“The system of banking we have both equally and ever reprobated. I contemplate it as a blot left in all our Constitutions, which, if not covered, will end in their destruction, which is already hit by the gamblers in corruption, and is sweeping away in its progress the fortunes and morals of our citizens. Funding I consider as limited, rightfully, to a redemption of the debt within the lives of a majority of the generation contracting it; every generation coming equally, by the laws of the Creator of the world, to the free possession of the earth he made for their subsistence, unencumbered by their predecessors, who, like them, were but tenants for life.”
Thomas Jefferson California borrowers created a culture of maximizing and servicing debt that makes them[READ MORE]

If new mortgage rules will prevent housing bubbles, prudent fence-sitters have no urgency to buy for fear of being priced out of the housing market.

eliminate-lending-standardsFence-sitters are potential homebuyers who for a variety of reasons are not ready to buy today — they could buy, and they may buy in the not-too-distant future, but for now, they contentedly rent and watch the market. Fence-sitters don’t buy for a number of reasons:
  1. they are unsure about their jobs,
  2. they want the flexibility to move,
  3. they recoil against high house prices,
  4. they worry about future resale value,
  5. they can’t find the right property,
  6. they just aren’t ready.
The real estate industry hates homebuying fence-sitters. The goal of most realtor advertising is to knock people off the fence and generate urgency to buy homes -- real or imagined. realtors, loan officers, homebuilders earn income only[READ MORE]

By removing the ability of local jurisdictions to deny approvals for conforming developments, nimbys will no longer prevent much-needed new construction.

nimby-partyIn most parts of the world, anyone who owns an improved lot may build on it. As long as the plans conform to the local building codes and architectural guidelines, nobody can stop the owner from building on their own lot. No government body exercises discretionary approval power over the owners right to build. This is known as "As-of-Right" permission. Essentially, the phrase establishes a legal entitlement that arises when the plans conform to all legal codes. Land development in many parts of the country is subject to as-of-right zoning. In these jurisdictions, a governing body must approve any project that conforms to the underlying regulatory standards. Many people are not aware of the fact that California is different. In California,[READ MORE]

Both rental rates and the cost of ownership rise faster than incomes in Los Angeles County due to an improving economy and a lack of housing supply.

housing_black_holeCalifornia inflated three housing bubbles over the last 40 years, and perhaps a fourth one inflates now. The collapse of each of the previous housing bubbles coincided with economic recessions, so many analysts incorrectly point to these recessions as the cause of the price collapse. The truth is that each of the previous bubbles inflated because lenders abandoned debt-to-income standards (1970s), experimented with toxic financing and relaxed DTI standards (1990), or completely lost their minds with "innovative" loan products (2000s). The coincidental recessions may have contributed to the problem, but they weren't the cause, and in the last instance, the recession was an effect. These bubbles inflate in California because the state endures a[READ MORE]

Low house prices make for lower debt service payments that benefit the economy as money money is freed up to circulate and buy goods and services.

few_dollars_moreCommon sense dictates that spending less money on necessities boosts discretionary spending. When gas prices are low, the average commuter has more money left over to spend on everything else. The same is true for housing payments: the less a homeowner spends paying mortgage debt, the more money that homeowner has available to save, invest, or spend on goods and services in the economy. If low debt service payments are good, why are politicians, lenders, realtors and homeowners obsessed with driving up house prices as high as possible? Doesn't it take more debt and more debt service to support sky-high house prices? Isn't that a drain on the economy? Lenders came up with a novel solution: they[READ MORE]

Entry-level housing in California carries a very high cost, and there is little hope this will improve any time soon. In fact, the problem will likely get worse before people get fed up and do something about it.

next_generationWhen house prices move up rapidly and significantly as they have in California on numerous occasions, even the highest wage earners can't afford a significant portion of the housing stock with what they can borrow and what they save from their large incomes. Prices get so elevated because previous owners sell their homes and use the equity that accumulated through the appreciation windfall to bid up prices on more desirable properties. As a consequence even the highest wage earners can't start out in a property as nice as they would like: they must climb the property ladder.

How the property ladder works

In the real[READ MORE]

Our current system of taxing gains on owner-occupied housing discourages long-term ownership of a family home, and it encourages frequent moves, which destabilizes families and neighborhoods.

taxmanWhen investors sell an asset for a profit, most of the time they pay capital gains taxes. Outside of a retirement account, there is only one exception: the waiver of capital gains taxes on the sale of a primary residence within certain parameters. If an investor purchases a house and sells it within two years of the date of purchase, the transaction is considered a "flip" and the investor pays taxes on the gains as ordinary income. IMO, this is a good tax because the professionals who work in rehabilitation are businessmen, and flipping is how they generate income. Further, taxing flips discourages many novices from bidding up prices in the resale market to the detriment[READ MORE]

The spring house price rally of 2016 shows signs of weakness because buyers can’t afford high house prices despite very low mortgage interest rates.

slow-housing-market Most housing analysts predicted a robust spring rally with increasing home sales and increasing prices. With low unemployment, an improving economy, and budding wage growth, the signs all pointed to a strong spring market. Unfortunately, now that house prices reached the previous peak in many areas, fewer and fewer buyers can afford them. When house prices go up absent an increase in wages -- which they have over the last four years in California -- affordability declines. In simpler terms, if potential buyers don’t make more money, but prices go up anyway, fewer buyers can afford to buy, and those that do must substitute down to lower quality housing. This phenomenon prices out marginal buyers, and it[READ MORE]

House prices reached the peak of the previous housing bubble, but was this the inflation of a new bubble or a true and durable recovery?

housing_recovery_Austin_PowersThe house price rally that began in 1997 climaxed in a financial mania in 2006, the Great Housing Bubble. By definition, a financial bubble is an unsustainable increase in asset prices followed by a crash that wipes out most of the previous increase. Since prices at the bubble's peak defy any fundamental valuation, the "recovery" from a bubble is the crash because the crash restores prices to their fundamental values (often with a downside overshoot). After the housing crash, everyone who paid peak values wanted to see a return to the ridiculous and unjustifiable prices that characterized the peak. They felt anchored to peak prices because they incorrectly believed bubble-era prices were fundamentally sound. Rather than[READ MORE]

During the housing mania, every house was desirable, so prices inflated everywhere. Unlike the bubble era, today's buyers only want desirable properties or neighborhoods.

During the housing mania, lending standards were eliminated and toxic loan products with teaser rates and negative amortization flourished. As a result, anyone could borrow any amount they wished to buy a home anywhere they wanted -- and that's only a slight exaggeration. With liar loans, borrowers and complicit lenders rendered income requirements meaningless. Even transparent lies, like the woman on food stamps claiming $150K+ income, were eagerly funded. Further, the borrower's income stretched to ludicrous levels with teaser rates where the borrower only needed to qualify for some low initial rate rather than the payment required to actually pay off the loan. Basically, lenders didn't care how much borrowers made, and even when they did care, it[READ MORE]

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