Author Archive: Irvine Renter

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]

Trump wants to cut government regulations, but Dodd-Frank is too well defended, and gutting it will look like a green light for Wall Street thieves to pillage Main Street USA.

Why should we keep Dodd-Frank? Does it really inhibit economic growth, or does it merely inhibit Wall Street's ability to steal from Main Street? The fact is that Dodd-Frank works well, so financial elites hate it. Despite rumors to the contrary, Dodd-Frank vastly improves the mortgage lending market. Dodd-Frank does nothing to prevent sound lending, but it does crack down on the kind of stupid lending that was very profitable for Wall Street during the housing mania. The success of Dodd-Frank is also the source of the political pushback from lenders chaffing against the restrictions on business the law imposes. Like any other special interest, lenders will fight even the most common[READ MORE]

Higher mortgage interest rates will reduce future loan balances; thus today’s homeowners will not experience the home price appreciation enjoyed by previous generations.

Many would-be homeowners rush to the market to lock in low mortgage rates out of fear of being priced out forever. Nervous buyers fear that if they wait, they will fail to get a place of their own. Due to our chronic shortage of homes, there is some basis for this fear, but potential buyers considered the ramifications of that occurrence, the fear would evaporate. If today’s homebuyer were to be priced out tomorrow, they probably wouldn’t be alone in that predicament. In fact, if a great many people are priced out by rising mortgage rates, by definition, demand declines. Less demand means less home price appreciation or even price drops. Does that mean that people shouldn't buy today and wait[READ MORE]

State Administration of Foreign Exchange requires all buyers of foreign exchange to sign a pledge that they won’t use their $50,000 quotas for offshore property investment.

great-wall-irvine It's really happening. The outflow of capital from China prompted the decree to stop Chinese Nationals from investing money in offshore real estate. In several posts I describe the twin threats to the US housing market: rising rates, and reversal of flow of foreign capital. Rising mortgage interest rates will affect the entire housing market, but a reversal of flow of foreign capital will most strongly impact coastal housing markets. In particular, if the influx of Chinese capital were to stop coming in and actually reverse, Coastal California, and especially Irvine, would be most at risk. In 2014 in Chinese government policy change kills Coastal California housing[READ MORE]

Never Miss A Post


Past Housing News

Search

tghb_ochn