May 8, 2017

There’s No Upside For Us To Depress The Market

A report from Loop North News. “Housing advocates nationwide are turning their noses up at President Donald Trump’s proposed tax plan which would double the standard deduction and, in effect, invalidate the tax benefits of owning a home. ‘Real estate now accounts for more than 19 percent of America’s gross domestic product, or more than $3 trillion in investment,’ said William Brown, president of National Association of Realtors (NAR). ‘For roughly 75 million homeowners across the country, their home is more than just a number. A home represents their ambitions, their nest egg, and the place where memories are made with family and friends. Targeted tax incentives are in place to help people get there.’”

“In addition, Brown pointed to the majority share of federal income taxes paid by homeowners, cautioning that they could shoulder even more responsibility if the changes take effect. Without tax incentives for homeownership, those numbers could rise even further, NAR forecasts. ‘As it stands, homeowners already pay between 80 percent and 90 percent of the U.S. federal income tax,’ said Brown.”

From Realtor.com. “HomePath properties and the 2008 housing crisis go hand in hand. Until the housing bubble burst in 2008, the Federal National Mortgage Association, aka Fannie Mae, had one main job: to keep mortgage money flowing to help Americans fulfill their dreams of homeownership.”

“Then the Great Recession happened, and as 4 million homes went into foreclosure, Fannie Mae suddenly (and somewhat reluctantly) became the country’s largest homeowner. To find new owners for those properties, Fannie Mae created HomePath, a program that sells foreclosures to eager buyers. ‘It’s important for us not to give away the farm,’ says Julia Dugger, Fannie Mae’s director of marketing and agent performance, correcting a common misconception that HomePath properties are rock-bottom bargains. ‘There’s no upside for us to depress the market further.’”

From KATU in Oregon. “An abandoned, bank-owned home at the corner of Northeast 90th and Going is being renovated by a local real estate company and will soon be listed for sale. For months, the home was the source of crime, delinquency and frustration. Squatters moved in, drug use increased and trash accumulated. According to public records, Weichert Realtors purchased the home on Northeast 90th and Going for $175,000. A realtor says the new listing price will likely be listed for upwards of $300,000.”

“Neighbors don’t care how much it costs — the problems are gone. ‘It lost all of this plumbing, it lost all of its wiring,’ neighbor Evan Burton said. ‘Somebody came in and fixed it up, and they’re flipping it or they’re doing whatever, but whoever moves into that house is going to love this neighborhood!’”

“Portland police says there are about 1,000 ‘nuisance properties’ citywide.”

The San Bernardino American. “Most economists agree that the Great Recession, sparked by the housing market crash, officially ended in 2009, but the fallout from the crisis will continue to hurt Black families, especially Black homeowners, for decades to come, according to a new report commissioned by the American Civil Liberties Union. The report continued: ‘The fact that blacks hold the bulk of their wealth in home equity likely explains, at least in part, why black wealth, on a percentage basis, declined more than white wealth during the housing bust and subsequent Great Recession.’”

“And while the typical Black family shed another 13 percent of their non-home-equity wealth, from 2009-2011, White families, on average, saw their home-equity wealth losses ’slow to zero.’ ‘Not only were Black homeowners devastated by the housing market collapse, they are now being left behind,’ said Rachel Goodman, a staff attorney with the ACLU’s Racial Justice Program. ‘It is very much a tale of two recoveries.’”

“‘While White home equity began to recover quickly after the housing crisis stabilized, this was not the case for Blacks,’ the report said. ‘This difference likely emerges as a result of Blacks’ disproportionate exposure to predatory loans and other deceptive mortgage schemes.’”

The Tahoe Daily Tribune. “Simply put — this is a great time to purchase a house in beautiful Lake Tahoe! The rising cost of housing is a constant battle here, with rents seeming to rise continually. Competition for housing is so fierce that throughout California the media sites a ‘housing shortage.’ Ideally you could be paying your own mortgage and not your landlord’s, all the while receiving some great tax deductions. Because there are so many loan programs available, it is an optimal time to purchase. I recently closed a house on an FHA (Federal Housing Administration) loan for a local family whom I am happy to say will no longer will have to rent.”

“‘The best thing about being a home owner in Tahoe is that we are investing in our future and in a place where we vacationed previously. The children are elated because there are so many adventures close to home — I highly recommend buying now. The monthly cost associated with a mortgage is very close to rental prices — it only made sense to buy and put our money back into our pockets instead of paying someone else’s mortgage,’ says Bridgit Brockett.”

“Ryan Loeb, a lender for Luxury Mortgage Corp., closed the FHA loan for the Brocketts and has been in business for over 20 years. His advice is to get pre-approved rather than pre-qualified. This is so you definitively know the loan amount for which you will be approved. ‘You will be surprised how many areas in California are eligible for no money down with a USDA loan. This is by far the best home loan product on the market and their site does a great job explaining how the loan works and to address any false information people have heard about the program. My company hired … two of the five people that started this loan program for lenders (called 502 Guaranteed USDA loan) and helped us get this partnership with them,’ commented Loeb.”

“Another great option for a first time home buyer is an FHA loan. The basic eligibility requirements for an FHA loan include: 3.5 percent down payment required with own funds or a gift from a relative. 620 credit scores or above (exceptions can be made down to 550). Debt to income ratios cannot exceed 55 percent.”

“I know it is all a lot to absorb, but locals there are many great options out there to purchase a home and truly become a local and settle down here in Tahoe. If you would like these lenders contact information, please contact me. Also when you are ready to buy I am a local Realtor who would love to guide you through the process and get you your own Tahoe home.”




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109 Comments »

Comment by Ben Jones
2017-05-08 09:49:52

‘Ryan Loeb, a lender for Luxury Mortgage Corp., closed the FHA loan for the Brocketts…‘You will be surprised how many areas in California are eligible for no money down with a USDA loan.’

I’m not surprised Luxury Ryan but you go and get the word out. Here’s another zero down loan example:

https://www.youtube.com/watch?v=U4TMMLkTyzw&t=0s

Comment by SW
2017-05-08 10:14:58

Ben,
Is that casa grande development in the video recent or a carryover from 2008?
Sam

Comment by Ben Jones
2017-05-08 10:19:58

I shot it Friday. I guess you could say both.

Comment by Casa$Loco
2017-05-09 09:10:11

If that’s what Casa Grande looks like I can only imagine what Maricopa City looks like or San Tan. They were built for flippers, never meant for anyone to live in. I left in 2008, lived in Tempe 5 years and 5 years in South Chandler Near the municipal airport. Hated the heat, loved the house 3000 sf brand new pool on a 1/4 acre paid $280k sold for $450k Moved back to CA, hated the politics, now happy in Georgia :-)

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Comment by Donny Trump
2017-05-08 11:54:59

Lol @ that RE shill piece in the Tahoe Tribune. I lived in South Lake Tahoe during the downturn and the area was absolutely decimated. This next downturn is gonna put the nail in the coffin for a lot of businesses up there and it’s gonna be rough.

Comment by PitchforkPurveyor
2017-05-08 12:10:06

There are still businesses up there? That’s kind of surprising. The whole area’s economy turned into nothing but a real estate bubble on steroids.

 
 
 
Comment by Carl Morris
2017-05-08 10:01:19

‘It’s important for us not to give away the farm,’ says Julia Dugger, Fannie Mae’s director of marketing and agent performance, correcting a common misconception that HomePath properties are rock-bottom bargains. ‘There’s no upside for us to depress the market further.’

Keep spraying that foam Julia.

Comment by Race Bannon
2017-05-08 12:47:38

In spite of the fact housing demand is at 20 year lows and falling and that the old trend of walking away from the mortgage is now new again.

 
Comment by Karen
2017-05-08 19:59:36

correcting a common misconception that HomePath properties are rock-bottom bargains. ‘There’s no upside for us to depress the market further

Well we certainly wouldn’t want a government program to help the little people out, or allow the price of housing to go down to something your average person could afford.

Comment by oxide
2017-05-09 09:25:31

Anyone can buy a HomePath property, so usually they are bought by fix-and-flippers. Bu if Fannie limited the properties only to little people, then there would be cries of “government intervention” and “picking winners and losers.”

If houses are going to be bought by flippers anyway, I have no objection to Fannie wringing a few more bucks out them. It’s not like the flipper is going to pass the savings on to the buyer.

Looks like the gov is taking a different tack for the little guy: down-payment assistance and low interest rates. More house (and more appreciation) for the same howmuchamonth. Not sure if it’s gonna work.

Comment by Ben Jones
2017-05-09 09:36:10

‘I have no objection to Fannie wringing a few more bucks out them’

How far we have drifted from purpose. The GSE’s don’t even make loans, but now they are the single largest owners of shacks in the US, wringing bucks out of the market. And they talk about affordable.

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Comment by Karen
2017-05-09 09:57:01

Bu if Fannie limited the properties only to little people, then there would be cries of “government intervention” and “picking winners and losers.”

Who said anything about limiting the sale of properties? You and FNM have the mentality of price fixers, not me.

I just pointed out the fact that they are fixing prices and rigging the markets to keep the price of housing high.

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Comment by Karen
2017-05-09 10:00:43

Looks like the gov is taking a different tack for the little guy: down-payment assistance and low interest rates. More house (and more appreciation) for the same howmuchamonth. Not sure if it’s gonna work.

I can’t figure out it you are dumb or…I don’t know.

You read and comment on this blog every damn day, yet you persist in this notion that down payment assistance and low interest rates help the little guy OR ARE EVEN INTENDED TO HELP THE LITTLE GUY.

These things help keep the price of housing high, and that is the whole point of this public-private partnership which is nothing but a vast crime syndicate.

Jesus.

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Comment by oxide
2017-05-09 11:19:53

Who said anything about picking winners and losers? Well, how else would the gov allow a little guy to buy a HomePath properties while at the same time keeping out an investor? You can’t do it on price alone. Investors have more cash than little guys, and so the investor will (and has) snap up the property before it drops to a price the little guy can afford. One would have to actively shut out investors, which is government intervention.

Unfortunately, HBB seems to have this notion that “letting the market work” is what would drop prices. Would this help the little guy? I’m not so sure. If you let the market work, prices will drop, but not to the level where J6P can afford a mortgage for the house. Since investors have access to the same low interest rates and have more cash, they can afford to buy at a slightly higher price than J6P can. So J6P is generally shut out even in a dropping market.

This is exactly what we saw in 2008-1012. Market forces *did* drop prices to historical levels based on inflation and howmuchamonth. So why weren’t J6P’s buying like mad in 2009 and 2010? Mainly because J6Ps were losing jobs and had no cash or credit. And the ones who did have cash and credit couldn’t get a house. We saw this over and over. Family bids and overbids… and is beat out by an investor with all cash. Happened to a couple co-workers. (Same as what is happening for HomePath now.) Instead, the buyers were flippers, Hedgies for Rent, and Chinese.

And sorry, I’m not being very clear about down payment assistance and low interest rates. Those programs are the government’s idea of helping the little guy. In truth, if the gov really did something to drop the price for the little guys who wanted to buy, that would hurt the little guys who have already bought. If you were a politician, would you help the little guy buyers or the little guy owners? Hint: there are a lot more little guy owners… who vote.

Now, do *I* think these crap programs help the little guy? Absolutely not. I would actually be in favor of limiting those HomePath properties to end-consumers, even if it means complaints that little guys as being picked as winners. About time that somebody picked the little guy as a winner. The little guys have been picked as losers for about 35 years now, and they finally figured it out, just in time to elect Trump.

 
Comment by Ben Jones
2017-05-09 11:23:52

Often these houses and especially HUD has an initial period that excludes investor bids.

 
Comment by Race Bannon
2017-05-09 11:29:31

“Market forces *did* drop prices to historical levels based on inflation and howmuchamonth. So why weren’t J6P’s buying like mad in 2009 and 2010? ”

Incorrect. Housing never bottomed. Not remotely close but I encourage to humor us with numbers. Real numbers

Go!

 
Comment by Carl Morris
2017-05-09 11:33:15

Oxide, what I see differently than you is that I believe the govt is creating the conditions that cause the investors to want real estate in the first place. You are correct that the investors can always outbid J6P when there is money to be made…but why is there money to be made? I would encourage you to question your assumptions in that area.

 
 
 
 
 
Comment by aNYCdj
2017-05-08 10:07:50

I really get tired of everyone associating this with racial overtones. It was about Marks, getting stupid people to sign on the dotted line, no different then getting a $500 NYC rent controlled apartment up to $1500-2000 legally by renting to the dumbest tenants you can find who wont stay long or get arrested, then fix-up and raising the rent a lot each time a new tenant moves in.

—-
‘This difference likely emerges as a result of Blacks’ disproportionate exposure to predatory loans and other deceptive mortgage schemes.’”

Comment by Ben Jones
2017-05-08 10:24:40

‘A home represents their ambitions, their nest egg, and the place where memories are made with family and friends…‘As it stands, homeowners already pay between 80 percent and 90 percent of the U.S. federal income tax’

I am pro ambitions, pro nest egg, pro family and friends. Plus, I support the hard working taxpayers of this country who shoulder the bulk of the burden.

I just so happen to have a house to sell you.

 
Comment by oxide
2017-05-09 09:29:27

DJ, there might actually be racial overtones for this one, hinging on the word “exposure.” It’s not as if banks offered predatory loans to everyone equally and the blacks said yes while the whites said no. Evidently quite a few toxic offers were made only to blacks/Hisoanics and not to whites. If banks had made equal offers the ratio likely would have been different.

 
 
Comment by Ben Jones
2017-05-08 10:09:31

‘Housing advocates nationwide are turning their noses up at President Donald Trump’s proposed tax plan…‘For roughly 75 million homeowners across the country, their home is more than just a number. A home represents their ambitions, their nest egg’

Just what is a housing advocate? And what’s the opposite, a housing denouncer? Are there clothing advocates? Used car advocates?

Comment by Blue Skye
2017-05-08 11:31:29

A “housing advocate” is in a self interest group that promotes more expensive housing. They never seem to admit why.

 
Comment by PitchforkPurveyor
2017-05-08 12:16:37

“Housing advocate” = desperate, moneygrubbing leech who adds no value but collects fees for every real estate transaction.

 
Comment by megamike
2017-05-08 13:18:22

yes they are called lobbyists

Comment by Race Bannon
2017-05-08 13:25:06

Data my good friend….

Simi Valley, CA Housing Demand Craters 18% YOY

http://files.zillowstatic.com/research/public/City/City_Turnover_AllHomes.csv

 
 
Comment by Karen
2017-05-08 20:02:40

A home represents their the real estate and housing crime syndicate’s ambitions, their nest egg

Fixed it

 
Comment by Rentor
2017-05-09 08:31:20

Exactly how will the tax plan impact mortgage deduction?

Comment by Rental Watch
2017-05-09 08:43:53

It won’t.

But it will take away the deductibility of property taxes…as long as your standard deduction (which is going to be doubled) doesn’t cover the property taxes.

 
Comment by Race Bannon
2017-05-09 09:26:18

Raising the standard deduction puts a knife in the MID…. the MID numbers don’t work out for most house debtors right now…. Raise the standard deduction in a big way and it makes sense for even fewer people.

Planned obsolescence my friends… Planned obsolescence

Comment by Albuquerquedan
2017-05-09 09:55:43

Yes, I agree but I disagree that it is taking anything away from someone if he or she end up paying less taxes. To me opposing the change if you are a homeowner is just a mean spirited attempt to keep renters from paying less.

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Comment by Carl Morris
2017-05-09 10:03:33

To me opposing the change if you are a homeowner is just a mean spirited attempt to keep renters from paying less.

Not mean spirited, IMO. Fear. Fear that less people will want to buy your house because they won’t have a tax advantage. And therefore the price will go down. And you will be caught holding the bag as the Ponzi scheme collapses instead of the next guy.

 
Comment by Albuquerquedan
2017-05-09 10:11:04

Yes, you convinced me. Logically, I think it will not since for most people it does not save people that much money and it declines every year as you make the mortgage but fear does cause irrational responses.

 
Comment by Carl Morris
2017-05-09 11:36:23

And irrational responses aren’t just a reaction to the current situation. They’ve also helped create the current situation.

Like you said…it hasn’t saved most of them much money. But that doesn’t mean it hasn’t influenced their behavior anyway, just on the perception that it was saving them money and making them a special class of people.

 
Comment by oxide
2017-05-09 11:39:48

But it’s not as if homeowners are losing their MID. It’s just that renters would get it too. I don’t think a buyer will care if the renter gets the tax break as long as he gets the same tax break. So I don’t think it will affect the decision to buy much. The only loser is the NAR, who loses a talking point.

I still maintain that the real loser is going to be the charities. Why bother to give a tax-deductible $2000 to a church if you get the high standard deduction?

 
Comment by Carl Morris
2017-05-09 12:16:34

I don’t think a buyer will care if the renter gets the tax break as long as he gets the same tax break.

I disagree…I think lots of people like the MID precisely because the renters don’t get it. You are assuming a lot of rationality. Humans like to feel better/smarter than “them”.

I see the church tithing deduction as a big deal but for a different reason. I think that people faithful enough to pay it now will probably continue to pay it. But they will get much less reward for being homeowners than they did before and behaviors may change in that area.

 
Comment by Albuquerquedan
2017-05-09 13:01:04

It is only my charitable deductions that makes the MID and the real estate tax deduction worth anything to me. Claiming either one alone just about gets me to standard deduction. Together I get a decent refund above and beyond what the standard deduction would get me. However, doubling the standard deduction would mean the tax reform does not cost me. The corporate reform is more important, like it or not without a lowering of the rate and the ability to bring profits home with a low rate, we are uncompetitive as a country. The MID is important on the coasts not in fly over country.

 
 
 
 
 
Comment by aqius
2017-05-08 10:23:27

COUNT ME IN, RYAN! I’ll have my people Skype your people for a win-win!! In fact, the more GREAT buzzwords & exclamat!on po!nts you use just makes me want to close YESTERDAY!!!

Just one question, Ryan?

Can I actually ride the unicorn in the backyard or only feed it Skittles!??!

Comment by tango_uniform
2017-05-08 14:34:10

You have the unicorn concept backwards. YOU eat the Skittles that IT poops.

Comment by Ol'Bubba
2017-05-08 19:06:10

The term is “candy crapping unicorn”.

 
 
 
Comment by Ben Jones
2017-05-08 10:27:26

‘Another great option for a first time home buyer is an FHA loan. The basic eligibility requirements for an FHA loan include: 3.5 percent down payment required with own funds or a gift from a relative. 620 credit scores or above (exceptions can be made down to 550). Debt to income ratios cannot exceed 55 percent’

55% is good to go. What was the latest thing, get a relative to pay your student loan for a while and it isn’t counted. Oh yeah, this is all so natural.

Comment by taxpayer
2017-05-08 11:37:00

55/550 seems like a great combo

fannie mae and freddie mac are like county clubs-stop by sometime

Comment by Ben Jones
2017-05-08 13:05:44

‘It’s important for us not to give away the farm,’ says Julia Dugger, Fannie Mae’s director of marketing and agent performance, correcting a common misconception that HomePath properties are rock-bottom bargains. ‘There’s no upside for us to depress the market further.’

http://www.fanniemae.com/portal/about-fm/about.html

‘Fannie Mae serves the people who house America. We are a leading source of financing for mortgage lenders, providing access to affordable mortgage financing in all markets at all times. Our financing makes sustainable homeownership and workforce rental housing a reality for millions of Americans.’

‘We listen to our customers and partners to understand their needs, putting them at the center of everything we do. We apply our experience and expertise to deliver innovative, smart solutions to help our customers succeed.’

‘We also help make possible the popular 30-year, fixed-rate mortgage, which provides homeowners with stable, predictable mortgage payments over the life of the loan. Our tools and resources help homebuyers, homeowners, and renters understand their housing options.’

‘At Fannie Mae, our people pour their hearts into everything they do. Because we know it makes a real difference in others’ lives.’

‘We are committed to making our company better. And we are moving forward with our partners to build a stronger, safer, more efficient housing finance system – one that continues to create housing opportunities for homebuyers and renters in all communities across the nation.’

 
 
 
Comment by taxpayer
2017-05-08 11:43:05

FHA shack price limit in my county is $636,000

55% of income- so you can’t own a car or eat
550 credit score, smoke ,drink and write bad checks
tx Smelly Mel Watt

Comment by Blue Skye
2017-05-08 12:01:24

Cars are for bankers and Realtors.

 
 
Comment by PitchforkPurveyor
2017-05-08 12:12:33

“Debt to income ratios cannot exceed 55 percent.”

Wow, it’s up to 55% now? Holy smokes.

Comment by Ben Jones
2017-05-08 12:31:04

There’s all kinds of fun lending facts. Consider this: currently Canada has a subprime lender that’s experiencing a run on its deposits, what are the chances this could happen to FHA, Quicken or New American Funding? Zero. They have no deposits!

You may know that after the big scary period when shack prices fell (boo-hiss), Elisabeth Warren (yaah!) stepped in and wrote laws saying banks had to have higher lending standards. It has to do with FDIC guarantees so taxpayers aren’t on the hook if loans go bad. But here’s what will make you smile: because Quicken doesn’t have deposits, they can go crazy, even though it’s selling government backed loans just like the banks! So much joyousness is going on that non-bank lenders like Quicken now make more loans (refi’s too) than banks.

Comment by Rental Watch
2017-05-08 13:30:36

It’s all about the risk retention rules (or lack thereof).

We got into the first mess because lenders didn’t care about underwriting…they just cared about selling the loans.

Dodd Frank was supposed to require those that underwrote the loans keep a certain percentage of the loans on their books to make sure that they were “eating what they kill”. With such risk-retention rules in place, entities like Quicken Loans would need to have substantial balance sheets in order to keep meaningful shares of all the loans that they made. They would inherently care about the performance of those loans…or they would have massive capital at risk.

HOWEVER, the risk-retention rules were completely neutered. If a loan is backed by Fannie/Freddie…poof, no risk retention needed.

So, companies like Quicken Loans are motivated by one thing only…creating loans and selling such loans ASAP–without any regard to underwriting–as long as the loans meet the GSE’s standards, they are good.

What are the executives at Fannie/Freddie’s motivations? Don’t get fired. And so they should do whatever their government overlords say (ie. the conservatorship). What do their government overlords say? Whatever will get them re-elected/re-appointed by elected officials.

And it’s hard to get votes if you stop the flow of money.

And who the F is buying all this paper? Entities who would rather earn 4% over 30-years from a government backed mortgage than earn 3% over 30-years from a government backed loan (treasury).

So, who exactly in this chain cares about sound underwriting?

You have politicians motivated by votes, controlling executives motivated to keep their jobs, guarantying loans made by private entities and sold to other private entities, neither of which give one sh*t about underwriting.

The answer?

Exactly no one cares about underwriting.

Comment by Blue Skye
2017-05-08 14:42:08

I believe that stupid underwriting was a coincident factor, but it was just a piece of the whole mania pie. The underlying cause for all the irrational behavior was housing mania.

It hasn’t ended.

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Comment by Rental Watch
2017-05-08 15:01:03

But what caused the mania? The underlying cause of the housing mania was a “can’t lose” attitude based on prices rising for a long time unabated.

Stupid underwriting allowed the mania to take hold and flourish.

Proper underwriting would have stripped a meaningful number of buyers from the market…and the result would have been lower prices.

 
Comment by Race Bannon
2017-05-08 15:23:56

Instead it collapsed demand in the end.

Not good.

 
Comment by Neuromance
2017-05-08 15:46:31

Government’s just thrown fuel on the fire. They love their property taxes, while I guess people love investing 2-3 dollars and getting one back (the ratio of [interest + house price] to final house price).

 
Comment by Blue Skye
2017-05-08 16:13:07

Logical analysis never explains a mania. There are always enablers, but they don’t cause the mania. They can only help extend it. If the housing bubble was caused by some laws in the US, it would not have been global.

 
Comment by scdave
2017-05-08 16:36:00

Proper underwriting would have stripped a meaningful number of buyers from the market…and the result would have been lower prices.

Spot on.

 
Comment by Blue Skye
2017-05-08 17:24:58

And the buyers who would not have been screened out by underwriting standards are the first to walk away when the market tanks.

 
Comment by Rental Watch
2017-05-08 17:32:34

“If the housing bubble was caused by some laws in the US, it would not have been global.”

I agree with this statement 100%.

So, if it isn’t US government policy (including MID and the GSEs), what is the driving force to higher prices? What was the driving force to the rebound this time around?

 
Comment by Neuromance
2017-05-08 19:02:31

Rental Watch: So, if it isn’t US government policy (including MID and the GSEs), what is the driving force to higher prices? What was the driving force to the rebound this time around?

Keynesian groupthink among central bankers and politicians?

 
Comment by Blue Skye
2017-05-08 19:07:28

What is a mania?

 
Comment by Neuromance
2017-05-08 19:15:44

Rental Watch: So, if it isn’t US government policy (including MID and the GSEs), what is the driving force to higher prices? What was the driving force to the rebound this time around?

Also, the “financialization” of mortgages, with the advent of the MBS, created by Lew Ranieri back in 1977, and its derivatives.

A perfect storm of factors: Financialization and policy groupthink.

I would want to say something like “population” too, but Mongolia, among the most sparsely populated countries on the planet, also had a housing bubble, and the country was bailed out by the IMF, and its central bank was specifically prohibited from buying MBS: “The strings attached to the IMF’s loan are more conventional. They include keeping the central bank out of “quasi-fiscal” activities: it had bought cheap-rate mortgages worth 1.95trn togrog ($787m), helping to support a housing bubble in a country known for nomadism. “

 
Comment by Neuromance
2017-05-08 19:22:12

Oh, and let me add one more big thing to that:

• Financialization of housing debt
• Policy groupthink
Consolidation of the financial sector.

Consolidation breeds fragility in the financial sector. First banks couldn’t cross state lines, and they couldn’t be involved with mortgages, then those rules dissolved, then investment companies were allowed to combine with banks. All this risks consumer deposits, and creates opaque counterparty risks which no one really understands.

Net result - it’s a house of cards. Damage the gambling unit of one financial conglomerate can threaten to bring down the entire house of cards, wiping out consumer deposits and stopping short term corporate debt from funding corporate activities.

Consolidation of the financial sector is a huge issue. It’s the thing that allows the FIRE sector to take the economy hostage and gives cover for bailouts.

If only losses could be realized by the companies which cause them, that would stop all this nonsense in its tracks, returning housing to being primarily shelter to be consumed, not a speculative asset.

 
Comment by Neuromance
2017-05-08 19:33:24

And even though governments insure the whole thing across the world, and if it implodes, and the government + central bank pull out the play book and apply “stimulus”, as they have in the US, Europe and China, realize this: stimulus is merely redistributive.

It’s extracting or borrowing wealth from one group and firehosing it to the FIRE sector. It’s not like government ramps up its widget or regulation production to increase wealth in society. It borrows and/or prints.

It’s a subtle wealth extraction, but it’s done with abandon and it’s real. Le Pen took younger voters, 18-34, by a 40% to 20% margin in France. I never saw the voter breakdown by age for Trump, as the polls were so badly wrong overall. It wouldn’t surprise me if young people also supported Trump in larger numbers than is commonly speculated.

 
Comment by Neuromance
2017-05-09 04:18:05

Blue Skye: What is a mania?

A mania appears when a “magic asset” materializes; an asset that has no credible risk of declining in value, and only reliably increases in value at a strong, continuous rate.

 
Comment by Rental Watch
2017-05-09 08:55:12

So Neuro, part of what you are saying is that the mania was created by easy and cheap money (effectively)?

If a source of this cheap and easy money was RMBS, I would note that the advent of RMBS in the 70’s didn’t create a mania overnight. There were several cycles that were in the realm of sanity before the bubble in 2005-2007.

I don’t buy into the view that this was all one bubble brewing for 40 years.

I see the problem as being much less about the mechanics of RMBS (which I think is a reasonably good way to diversify risk, if done well), and more about the separation of underwriting risk, and taking risk.

Lending became more about experienced people convincing someone less experienced to take risk, as opposed to those same experienced people being willing to take the risk with their own money.

And that’s a major problem.

Ultimately it causes underwriting problems in every cycle…meaning that too much money goes to too many people at too low a rate, and too high leverage.

 
Comment by oxide
2017-05-09 09:48:23

people love investing 2-3 dollars and getting one back

Because rent is free, in your head, of course. :roll: Yo, when you buy, you invest 2-3 dollars and get one back. When you rent, you invest 2-3 dollars and get zero back.

Comment by Senior Housing Analyst
2017-05-09 09:55:12

Yet you could rent for half the monthly cost of buying a depreciating asset.

[Yeah yeah, we know.]

Comment by Senior Housing Analyst
2017-05-09 10:26:12

Hey donk.

[Hi hon.]

Comment by Senior Housing Analyst
2017-05-09 10:26:12

Housing, donk, housing.

Gadsen, AL Craters 0.3% MOM

https://files.zillowstatic.com/research/public/realestate/ZHVI.Gadsden.394620.pdf

 
Comment by Race Bannon
2017-05-09 10:17:37

“when you buy, you invest 2-3 dollars and get one back. When you rent, you invest 2-3 dollars and get zero back. $1 and save $2.”

Fixt for you Donk.

 
 
Comment by Bradford99
2017-05-08 17:13:31

This is very well written, rental watch

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Comment by Blue Skye
2017-05-08 17:27:03

Yes, he is well spoken.

And missing the boat about this being the biggest housing bubble in history.

 
Comment by Rental Watch
2017-05-08 17:36:34

I agree that 2004-2007 was the biggest bubble in history.

I do not agree that we are in the same bubble today.

I agree that prices are way higher than they should be today (akin to a peak in a traditional housing cycle).

I believe the primary reasons today are:

1. Interest rates being low;
2. Supply (as measured by housing starts) being too low.

On a real basis, we have a ways to go before we reach the levels hit in 2007.

 
Comment by Blue Skye
2017-05-08 19:02:08

“On a real basis”

Well that’s kind of tricky isn’t it. Food prices up because farmland prices up and oil prices up because construction is up like crazy all over the world, and perceived equivalent rent is up because house prices are up, and the cost of living index goes up so “real” prices aren’t actually up at all!

Sorry I don’t live in that “real” world much. Me an my peers are earning about the same as a decade ago, those who still have jobs. I made some big bonus bucks on a few bubble projects, but aside from that the salary is flat.

I must say that people paying 55% of their gross on a mortgage is a frickin bubble. That’s pretty close to more than their takehome. It is far from the normal business cycle.

 
Comment by Rental Watch
2017-05-09 09:28:06

I must say that people paying 55% of their gross on a mortgage is a frickin bubble. That’s pretty close to more than their takehome. It is far from the normal business cycle.

55% is not indicative of broad borrowing trends. The financial obligation ratio, and household debt service ratios are not indicative of overleveraged households. The mortgage debt service ratio specifically (as percentage of disposable income) is the lowest that it has been in over 35 years.

https://www.federalreserve.gov/releases/housedebt/

Additionally, despite anecdotes, the data shows:

1. That cash out refinance activity, while increasing is still a fraction of what it was during the bubble;
2. People are still refinancing into 15-year loans at a relatively high rate (opting to pay off debt rather than stretch it out); and
3. Overall amounts of mortgage debt in the market are not rising very fast (per the NY Fed, up 2.4% Q4 2015 to Q4 2016, vs. up over 12% year on year from Q4 2004 to Q4 2005).

What’s happening now as it relates to mortgage debt, underwriting and home prices is distinctly different than what happened in 2004-2007.

HOWEVER, I fail to see how the current non-bank system provides an incentive for anyone to do proper underwriting…and that is a potential major problem.

 
Comment by Blue Skye
2017-05-09 11:18:06

“Proper Underwriting” is impossible when house prices are inflated by 100% or more.

 
 
 
 
 
Comment by taxpayer
2017-05-08 12:37:18

likely emerges as a result of Blacks’ disproportionate exposure to predatory loans and other deceptive mortgage schemes.’

I miss when the black caucus interogged Greenspan in co0ngressional hearing

wud he say?

 
Comment by Senior Housing Analyst
2017-05-08 12:39:28
 
Comment by Raymond K Hessel
 
Comment by Raymond K Hessel
 
Comment by Neuromance
2017-05-08 17:31:04

“If they can get you asking the wrong questions, they don’t have to worry about the answers.” -Thomas Pynchon

 
Comment by phony scandals
2017-05-08 17:36:33

Been what, 12 years?

 
Comment by Raymond K Hessel
2017-05-08 17:46:58

The difference between a human being with a divine spark, and the great zombie herd of sheeple.

https://www.youtube.com/watch?v=gqnD_165Ow4

 
Comment by Raymond K Hessel
 
 
Comment by Raymond K Hessel
2017-05-09 05:24:59

Looks like other Canadian banks are stepping in to try to prevent any contagion from Home Capital.

http://www.theglobeandmail.com/report-on-business/home-capital-sells-15-billion-in-mortgages/article34929147/

 
Comment by Raymond K Hessel
2017-05-09 06:09:49

Oh dear. Property transactions in China are plunging as authorities try to rein in reckless mortgage lending.

http://www.scmp.com/property/article/2093653/homelink-chinas-biggest-property-agent-closes-87-branches-beijing-buying

 
Comment by Professor Bear
2017-05-09 06:13:14

‘The fact that blacks hold the bulk of their wealth in home equity likely explains, at least in part, why black wealth, on a percentage basis, declined more than white wealth during the housing bust and subsequent Great Recession.’

For this they have the Democrats to thank, with their Community Reinvestment Act, Affordable Housing programs, and GSE-funded efforts to encourage blacks to buy homes at inflated prices.

Comment by Blue Skye
2017-05-09 06:44:23

The writer is trying to say that more of the same type of government help is needed to fix what the previous government help caused.

Comment by Young Deezy
2017-05-09 07:47:29

We need mo money fo dem programs!

Comment by rms
2017-05-09 17:19:59

Haha… racis. :)

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Comment by aNYCdj
2017-05-09 06:21:39

Much of the value could be realized in the property’s location, since the 7,500-square-foot lot rests in prime Palo Alto territory, an easy walk to Peer Park and a few blocks from easy access to downtown as well as the Silicon Valley,

http://blog.sfgate.com/ontheblock/2017/05/04/980-square-foot-cottage-in-palo-alto-sells-for-623k-over-asking/

Comment by Andrew
2017-05-09 08:05:23

If you earn a princely salary, but need to spend 2.5M to buy that relatively run down piece of cr@p (again, in Ohiopyle PA that would be slightly better than average of a place!)….are you really “getting ahead”?
Or are you just able to afford living a high stress life that costs you a fortune?
I mean, people do all sorts of things, that’s evident. I personally don’t see the point.

 
Comment by In Colorado
2017-05-09 09:05:57

So much for the Bay Area “cratering” at this point.

Comment by Race Bannon
2017-05-09 09:23:48

The problem is there is no buyer at that price.

Remember….. I can ask $50k for my run down 10 year old Chevy pickup but where is the buyer at that price?

So it is with all depreciating assets like houses.

San Francisco, CA Housing Demand Craters 24% YoY

http://files.zillowstatic.com/research/public/City/City_Turnover_AllHomes.csv

Comment by In Colorado
2017-05-09 13:24:12

The problem is there is no buyer at that price.

It just sold for that price.

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Comment by Race Bannon
2017-05-09 13:50:49

From the article it looks like the bank owns it and someone is renting it from the bank.

 
Comment by In Colorado
2017-05-09 17:23:16

If you’re saying that the banks help enable the bubble, then I fully agree. But if you’re saying that there are no takers at that price (using your fallacious pickup truck analogy), then you’re wrong. There was a bidding war that drove that price up 600K over the asking price. And at that price, I suspect that the buyer possibly cashed out of an IPO or a corporate buyout and paid cash.

The bubble hasn’t burst yet. It will burst, but not yet.

 
Comment by Race Bannon
2017-05-09 18:56:28

You suspect but you don’t know. It was borrowed money. Guess who owns it? A bank.

The reality of record low organic housing demand lives on irrespective of your characterization of it. The fact remains, there are few buyers at current prices….. no different than asking $50k for a run down Chevy pickup.

Do you see a difference between two depreciating assets like a house and a pickup? There isn’t one. They’re a distinction without a difference.

 
 
 
 
 
Comment by Puggs
2017-05-09 08:57:19

If there’s a better way to live than with an account full of cash and no debt then someone tell me!

Comment by In Colorado
2017-05-09 09:04:26

How about being healthy?

Comment by Albuquerquedan
2017-05-09 09:43:41

Healthy with a lot of real friends and a good family.

Comment by Race Bannon
2017-05-09 10:24:29

Healthy with a lot of real friends and a good family, no debt, a pile of cash and falling prices to dramatically lower and more affordable levels accelerating the economy like only falling prices can.

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Comment by Race Bannon
2017-05-09 10:52:35

….. and a dozen Krispy Kremes, a bag of Cheetos, a carton of Marlboro, a pot of coffee and an ashtray.

 
Comment by Blue Skye
2017-05-09 11:15:19

Passion for life, an affectionate redhead and a bottle of single malt help to round things out.

 
 
Comment by In Colorado
2017-05-09 13:26:05

and a dozen Krispy Kremes, a bag of Cheetos, a carton of Marlboro, a pot of coffee and an ashtray

I guess being healthy just flew out the window.

 
Comment by Race Bannon
2017-05-09 13:49:17

I have no health issues at all. Never have.

 
Comment by Karen
2017-05-09 15:14:41

and a dozen Krispy Kremes, a bag of Cheetos, a carton of Marlboro, a pot of coffee and an ashtray

I guess being healthy just flew out the window.

Never trust the healthcare mafia to tell you what’s healthy. They’re no more trustworthy than real estate shills.

 
Comment by rms
2017-05-09 17:25:47

“I have no health issues at all. Never have.”

However your health insurance premiums will be adjusted high to pay for your neighbor’s health problems and buy his vote.

 
 
 
Comment by Puggs
2017-05-09 10:51:23

BINGO. I’ll add that!

 
 
 
Comment by Albuquerquedan
2017-05-09 09:48:48

Funny this was virtually never talked about during the Obama years, eight years nothing done on it despite the Bowles/Simpson commission:

http://www.msn.com/en-us/money/retirement/can-medicare-social-security-survive-10000-new-boomers-a-day/ar-BBAVoC9?li=BBnbfcN

I think it will have a real impact on housing prices going forward. Many of these boomers have mortgages on their primary residences and their second homes. Cut their social security and one of those homes will be sold just to generate more income.

Comment by Puggs
2017-05-09 10:53:35

If I were a Millennial I would sit tight and wait for a vacation property with stairs that a Boomer has to unload (er, give away).

 
 
Comment by Senior Housing Analyst
2017-05-09 10:12:24

Atherton, CA Housing Prices Crater 11% YOY

http://www.movoto.com/ca/94027/market-trends/

 
Comment by Oscar Goldman
2017-05-10 18:25:31

Oscar Goldman

 
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