Author Archive: Irvine Renter

McMansions are no longer affordable or easily financeable in California, so builders will likely build fewer of them.

600x430_mcmansions Urban planners and environmentalists advocate high-density development near transit hubs. They entreat us to screeds outlining the demerits of McMansions, and extoll the virtues of walking in urban cores. Unfortunately, much to their chagrin, the buying public disagrees with them. Builders provide what buyers in the market demand. Visionaries may wish demand were different, and some want to force the market to bend to their wishes, but for most of the last 70 years, the buying public demanded a detached single-family house on a large lot. This may be about to change. Buyers preferences won’t change. Despite the concerted efforts of urban planners and environmentalists to change consumer behavior, people still want what they want: large, detached single-family homes. However, desire is not necessarily demand.[READ MORE]

Lenders wisely stopped from granting loans to nearly 1,000,000 unqualified borrowers over the last 6 years.

done_making_paymentsMany people blame the last housing bubble on lenders and subprime borrowers. Lenders abdicated their responsibility to vet their borrowers' qualifications, and not surprisingly, many unqualified borrowers entered the buyer pool and ultimately defaulted on their mortgages, leading to millions of foreclosures. The disaster was exacerbated by the proliferation of Option ARM loans that both inflated house prices and masked the problems with borrower's ability to repay with teaser rates and negatively amortizing payments. When these loans caused all borrowers (not just subprime) to implode, crashing house prices took down the economy and millions of qualified and unqualified borrowers along with it. When so many borrowers defaulted, lenders lost faith in all borrowers and in all their loan programs. As a result, America endured a massive credit[READ MORE]

Local officials in San Francisco denied a sound building project due to angst over Donald Trump's election and the persuasion of a Bernie Sanders sock puppet.

nimby-without-a-causeNimbys oppose new developments for two reasons. First, they don't want to deal with more people in their neighborhoods and on their streets, and second, they don't want competing housing supply on the market that would prevent the value of their house from inflating further. Since opposing new development carries no cost, and since killing new development brings rewards, the incentive is to oppose -- and nimbys no longer feel shame for this behavior. California NIMBYs don’t love their children. If they did, they would at least support enough new development to accommodate their own children. Nimbys may cloak their greedy and selfish actions with logical arguments, but these rarely hold up to any scrutiny.[READ MORE]

Local Chinese government officials and real estate developers corruptly conspire to take land from peasants without just compensation.

dingzi_hu_1In most countries around the world, a legal process known as eminent domain exists for taking private land for public purposes. Without eminent domain, we wouldn't have roads or other forms of public infrastructure necessary to sustain society. In the United States, and in most of the world, when a government body takes a piece of property through eminent domain, the person surrendering the property receives just compensation. If the parties fail to agree on what constitutes just compensation, they can petition the court to decide for them. In most instances, the courts render a fair and unbiased opinion of the value of real estate taken and award the owner just compensation. The owners don't have the right to refuse the court or hold out[READ MORE]

The conforming loan limit is set to rise by 10,650 in Coastal California, reducing down payment requirements by $8,520 on homes prices above this limit.

During the housing bubble, the conforming limit rose as high as $417,000, but when the housing bubble burst, this limit was raised to $729,750 in markets like Coastal California that needed the most government support to maintain peak prices. In 2011, the conforming limit was lowered from $729,750 to $625,000 ($546,250 in San Diego). na-bx974_loanli_g_20130908180903 The hard cap on FHA and GSE loans forces many borrowers to use a jumbo loan. Lenders who originate jumbo loans have stricter standards than the FHA or the GSEs, and most importantly, they require 20% down. Most potential buyers lack sufficient down payments. Many potential homebuyers earn enough to qualify for loans much larger than the conforming limit; however, most don’t get these[READ MORE]

The mortgage and foreclosure debacle of 2008 was cut short by government intervention. A second round of deferred distressed sales is yet to hit the market.

Is the mortgage and foreclosure crisis resolved or merely delayed? Americans believe the mortgage and foreclosure crisis of 2008 is over, a misperception fostered by a financial media eager to disseminate good news. Most people were lead to believe an improving economy put people back to work, and those hard-working Americans cured their loans of past-due Unfortunately, reality differs from the accepted narrative. While the notion of the noble borrower dutifully recovering from the perils of the Great Recession appeals to Americans, most borrowers were overextended before the recession hit, and lenders cut deals with these borrowers to preserve the bad debts polluting the balance sheets of both bankers and borrowers. These loan modification deals[READ MORE]

Most homeowners ignore the carrying costs during their ownership period when they calculate the gain or loss on a sale.

renting_is_betterIf someone claims they bought a house for $900,000 and sold it for $1,000,000, how much money did they make? $100,000? No, not even close. People tend to forget about the transaction fees and carrying costs when they compute the gains and returns on their real estate purchases. In the example above, when the buyer paid $900,000, the actual costs paid at closing were probably $5,000 to $15,000 higher due to closing costs, appraisals, lender fees, insurance, and other miscellaneous closing costs. The homeowner lost another large chunk when they sold. Most people still pay a 5% to 6% commission to a real estate agent when they sell their house, so the $1,000,000 sale cost them $50,000 to $60,000. Further, if sellers make[READ MORE]

California nimbys prevent the construction of housing needed for the next generation of Californians.

nimby-loveLast month I wrote about how American Dream equates with home ownership, and the California Dream resembles the exclusionary policies of the landed gentry of Elizabethan England. Like the working classes of Elizabethan England, the working class in California is doomed to rent from the landed gentry -- the antithesis of the American Dream of homeownership. Besides the death of the American Dream and the creation of a permanent underclass of transitory renters, the California model of the neo-landed-gentry disturbingly excludes our children from the homeownership club, sentencing many of them to this new renting underclass. It's apparent that the people responsible for this mess, California Nimbys, don't love their own children. Why else would they sentence them to live such unsatisfactory lives?

California's Gentrification

The landed gentry system of Elizabethan England functioned by the principal[READ MORE]

With millions trapped underwater, and with those with equity experiencing weak wage growth, most people choose to remain in their homes rather than moving up.

home_not_so_sweet_homeAmericans love their homes. Over the last decade, they became so enamored with their abodes that many decided not to leave. Prior to the housing bust, homeowners remained in place for a little over four years on average. Over the last decade, that timeline stretched to nearly eight years. Why are people staying in their homes so long? While some people undoubtedly found their dream home years ago, people retain their current home for reasons other than their affinity for it. Nearly 6 million people remain trapped in their entry-level homes they purchased a decade ago. Perhaps they enjoy their gilded cage, but since they may not leave without severe financial consequences, their homes resemble a debtor's prison. People[READ MORE]

At this point in history, the benefits of an overheating economy outweigh the detriments of a little inflation.

some-like-it-hotThe Federal Reserve controls the economy's gas pedal. They can step on the pedal by lowering rates to inject more fuel into the economic engine. They can also let off the gas by raising interest rates. For the last eight years, the federal reserve held the pedal to the metal, but even at top speed, the economy wasn't firing on all cylinders. Finally, the economy appears to be recovering from the 2008 recession. Unemployment is low, growth is stable, and wages are finally starting to rise. With as dismal as the economy has been for the last decade, many probably wonder why the Federal Reserve raises rates at all. Why not just keep applying the gas? If the economic engine runs too hot, the demand for[READ MORE]

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