The Housing Bubble

It’s Friday desk clearing time for this blogger. “Debbie Cooley-Guy bought the home in a suburb west of Tampa for $637,000 in 2002. Seven years later, after the economy tanked, she sold it for less than she owed on her mortgage to avoid foreclosure. As a mortgage loan originator herself, she should have known the pitfalls, but she said she was caught up in the boom. ‘I used to look at people like me and think, ‘How did you let this happen?’ she said. ‘In hindsight, I had set myself up so well. Just because you can afford things, it doesn’t mean you should buy them.’”

“Just a few years later, she’s back in a new, smaller home, one of America’s growing ranks of ‘boomerang buyers.’ John Councilman, president of the Association of Mortgage Professionals, said a wide swath of people with past credit problems are seeking mortgages, not only foreclosures or short sales. ‘We have a lot of people with issues and many are coming back into the market.’”

“It is sizzling like never before, since the beginning of time — by which I mean since the 2009-2010 Arizona real-estate crash. So is an ‘exceptional’ real-estate market in a state wallowing in a so-so economic recovery a plain, old good thing? Or is it a harbinger, in some ways, of the return of conditions that caused the crash?”

“As reported by Stephen D. Oliner, a former associate director in the Division of Research and Statistics at the Board of Governors of the Federal Reserve System, 40 percent of government-backed mortgage loans go through programs that are not as firm about qualifying as Fannie and Freddie. The median credit score for borrowers going through the Federal Housing Administration, for example was in the lower third of all credit scores in the U.S. Stress tests indicate that in a crash similar to what happened six years ago, 25 percent of those FHA mortgages would go into default.”

“That’s not something to lose sleep over, of course. Not tonight, anyway. But some powerful voices are arguing for a loosening of qualifying standards.”

“The Bay Area’s summer real estate market is shaping up as the busiest in years. In Silicon Valley and the East Bay, however, median prices fell just enough to make some agents and buyers wonder if a seasonal cooling was on hand. Deals can be found if one just looks hard enough, said agent Jennifer Branchini, past president of the East Bay Association of Realtors. This summer she has helped some buyers to ‘negotiate below asking price, which is actually kind of fun for a change.’”

“Her explanation for the change: ‘You’ve got sellers that are overzealous and thinking they can price their house way above, because, hey, some other house sold for some high amount, so why shouldn’t theirs sell for even higher? And by the end of the day, the consumer, the buyer, is saying, ‘No! You’re already at the top of the market,’ so you’re seeing those prices come down a little bit.’”

“It’s a renter’s market in Calgary for mid- to higher-priced properties as demand for rental accommodation drops in a weakened economy. ‘If you want to drop your prices, just go ahead, don’t be scared, having a lower rent is better than no renter,’ said Bany Declair, who rented out her three-bedroom townhouse in Marda Loop for $2,950 per month last year. She’s had to drop the rent $700 and offer an incentive — the first month for free.”

“Landlords will have to lower their prices as supply goes up. ‘Especially the ones that had their prices stretched upward, because they could, because there was very limited supply for the past few years so those prices did increase,’ said Darren Paddock, who runs the website RentFaster. ‘if you look downtown there’s still a lot of cranes in the sky — there’s still a lot of units coming and they will be pushed into the rental market.’”

“Until the beginning of 2014, Dhruv Kumar had a decent real estate brokerage business in Noida, near New Delhi. Suddenly, things started to fall apart. ‘Today, bookings in the Noida market are down 70-80% and my business is in tatters,’ he said. ‘The days when a builder used to sell 500 or 1,000 apartments in a month are gone,’ said Kumar, who even after diversifying into three different businesses today makes only 50% of what he used to earn selling homes.”

“Unsold housing in the top eight cities rose to 1,017 million square feet in the June quarter from 942 million sq. ft. in the previous quarter. Unsold inventory in the NCR rose 7% year-on-year to 325.9 million sq. ft. and may take 68 months to be sold, based on the current pace of buying. Unsold inventory rose 20% in Mumbai to 201.1 million sq. ft. and will take 45 months to sell.”

“A mini debt crisis in northern China is exposing cracks in a financial pillar of the country’s economic revival plan: the $430 billion loan-guarantee industry. ‘We see a lot of these companies in China, and we worry about the underlying fundamentals,’ said Sally Yim, senior credit officer with Moody’s Investors Service in Hong Kong. ‘You are bound to see more of these defaults, or troubles from these type of small guarantee companies.’”

“If lenders suspect local governments will not bail out guarantee companies in times of trouble, the broader economy becomes the loser as businesses are starved of finance. ‘This is unbelievable,’ said an executive of a trust company. ‘Who would dare to believe in the guarantee industry in the future? What’s the point of having this industry?’”

“Between 2002 and 2015, the mortgage books of National Australia Bank, ANZ, Commonwealth Bank and Westpac grew by 388%, 435%, 475% and 554% respectively. Put another way, the big four’s mortgage books escalated from a combined $242bn to a whopping $1.13tn, surging at such a consistent rate it would make Bernie Madoff proud.”

“The next time you’re watching an auction in Sydney or Melbourne, wondering where all these buyers managed to muster up so much cash, chances are they have a domestic retail bank prepared to lend them a colossal sum of debt using new equity in their existing property portfolio as collateral that didn’t exist just 12 months ago.”

“By cutting the cash rate to the lowest point in a long time, the RBA has simply furthered the Ponzi scheme running rampant in Sydney and Melbourne, which dominates Australia’s housing market in terms of size and value. If either of these two major housing markets hits a brick wall, it will burst the national housing bubble. Policymakers and the public, unfortunately, will come to realise there never was a dwelling shortage – rather, a radical oversupply of mortgage debt being the real culprit for abnormally-high housing prices.”

“Bitter former homeowners sometimes leave properties in poor condition and take things such as appliances, pipes and even cabinetry with them when they leave, said Joanne Finochio of Better Homes and Gardens Rand Realty in New City. She recalled a foreclosure in New City where the homeowners had taken the heating system, the appliances, some bushes and even the front door.”

“Finochio predicted the current high rate of foreclosures will last at least another two years. ‘They’re not even counting the people who are behind on their mortgage; when does that hit?’ she said.”

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A report from CNN Money. “Home Depot on Tuesday revealed it experienced a record number of transactions in the last three months. On average, shoppers spent more than at any point since 2006 and sales at stores open for a year or more jumped 6%. All of that suggests Americans are ramping up spending on efforts to spruce up newly-purchased homes or ones they’d like to sell. ‘When consumers believe their home is an investment, not an expense, they spend differently. We are seeing that,’ said Carol Tome, Home Depot’s chief financial officer.”

KIRO TV in Washington. “Renters in King, Snohomish and Pierce counties are spending 31.6 percent of monthly gross income on rent, which is the highest it’s ever been, according to Zillow. The CEO of Realogics Sothebys International, Dean Jones, said many current renters have no idea that they’re prime candidates for home ownership.Jones said the cost of renting is not just the money being turned in to a landlord every month, but the lost opportunity to buy a home before prices potentially soar higher. Jones said the Internal Revenue Service is also allowing each parent of a buyer to pay $14,000 toward the down payment of a child’s house without any tax consequences.”

“Cassie Daughtrey, a broker, was involved in three to four sales in the last month that went to buyers who had previously been renting. Daughtrey said, ‘In Green Lake, a big house can rent for sometimes over $5,000 a month. If that’s what you’re paying in rent, you can buy a house. I know you can.’”

The Times Call in Colorado. “Rising Boulder County home prices are pushing thousands of people out of the running for home ownership, with more than 60 percent of Boulder County residents age 25 and older earning too little to purchase median-priced homes, according to an analysis by the Times-Call. County wide, median home prices have risen 32 percent since 2010, to $469,000 in the first half of 2015, mirroring major gains in the larger Denver metro market. But median income is just $67,959, well below the $90,000-$100,000 needed to purchase a home here.”

“A July report from the Federal Reserve Bank of Kansas City found that Colorado was the least affordable housing market in the Rocky Mountain states. That’s both a blessing and a curse, said Longmont mayor pro tem Brian Bagley. ‘If houses were $120,000, that wouldn’t be good, (because it) would mean the economy was bad and no one would want to live here,’ Bagley said. ‘So it’s a double-edged sword.’”

The Washington Post on Florida. “Jack McCabe watched the last housing bubble rip through South Florida like a hurricane. For 15 years, he has consulted on real estate deals here, advising clients large and small on what to buy and where, and on when to get out. And increasingly, he worries that South Florida is drifting back into bubble territory, in danger of another collapse that could hurt homeowners and investors alike.”

“‘We have short memories here in Florida, as I think they do in most places,’ McCabe said in a recent interview. ‘And we’re back at it. Every project is getting approved again. Particularly in the luxury condo sector, there’s going to be a crash in prices in the next few years.’”

The Idaho Mountain Express. “The Wood River Valley is once again seeing the flow of tourists and wealthy home-buyers that it relies on. Prices depend on the number of units for sale in the valley. During the worst of the recession, total listings of Sun Valley Board of Realtors members grew to more than 2,400 properties. Just a few years prior, during the rush, said Board of Realtors President Jed Gray, they typically sat on 1,100 to 1,150 properties.”

“The company ‘chipped away’ at the distressed inventory once the economy began turning around in 2013. By the end of 2014, it got down to only 1,250 properties. However, following a profitable second quarter, the market became flooded with sellers and—after a ‘lackluster’ July—it’s back up to 1,750 units, Gray said. ‘It really takes the pressure off a buyer because they have many more choices than they had before,’ he said. Sue Englemann of Sotheby’s International Realty is showing a multi-million-dollar home in Sun Valley this week—and she says the time is ripe. ‘The selection of high-end properties has never been as strong as it is right now,’ she said.”

NPR on New Jersey. “Michael McCabe still lives in the neighborhood where he grew up, Woodbury Heights, N.J., a middle-class suburb of Philadelphia. He knows which houses are in foreclosure and which have been abandoned. The latest seems to be right behind his own. ‘We don’t know what’s going to happen,’” he says. ‘We’re kind of prepping, because a gentleman who was there, who rented, came and told us, ‘I’m just letting you know: I’m moving. That means the grass isn’t going to get cut by me.’ And the house is in foreclosure.’”

“With the growing backlog of foreclosures, local officials are having a hard time keeping track. Chad Bruner, administrator for Gloucester County, N.J., says individual towns are having trouble getting even the most basic information from banks. This summer, Bruner commissioned an outside company to track all the abandoned foreclosures across the county to help towns make sure these houses don’t become eyesores and hassles for the neighbors.”

“But back in Woodbury Heights, McCabe and his wife, Maureen, are skeptical — after all, one neighbor’s house has been empty for seven years. She says this used to be a beautiful house. Now it’s hard to imagine anyone buying it. One window is boarded up. She says it’s hard to see this house every day and wonder what it means for her neighborhood. ‘I love my home; I love this town,’ she says. ‘I wouldn’t want to sell. If I had to sell, I know I wouldn’t get the value of what it’s really worth.’”

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The Independent reports from the UK. “With its forest of cranes and mushrooming show apartments, Battersea remains outwardly the buzzing epicentre of the property boom that has turned London into Britain’s very own Monaco. But if the rumblings from within a circle of brokers and investors involved in the redevelopment of the south London former power station and the surrounding Nine Elms area are anything to go by, the legions of foreign investors credited - and blamed in equal measure - for driving the capital’s decade-long luxury property boom may finally be getting cold feet. Sime Darby, one of the major stakeholders in the redevelopment acknowledged a ’softening of interest’ in buyers from Malaysia and elsewhere in southeast Asia who had previously been responsible for the spending splurge.”

“With one estate agent recording a 10 per cent drop in the value of luxury homes in Battersea and its environs in the year to June, experts blamed the cooling of ardour for buying up London’s high-end penthouses on the strengthening of the pound in recent months and economic volatility in the home markets of investors. Among those hardest hit are Russian buyers. Online estate agent eMoov said it had recorded a three per cent drop in demand for housing worth £2m or more in a single month in May. Demand has fallen since May in some 60 per cent of ‘prime’ London boroughs, such as Westminster or Kensington and Chelsea.”

“Founder Russell Quirk said: ‘I don’t think that there are many who will shed a tear for the well-heeled, sharp suited Mayfair type property predators. They have long crawled along the golden streets of prime central London, yet it seems that the tide has turned. What comes up must come down and we are now starting to see a rebalancing with other parts of the country.’”

From Shanghai Daily in China. “As Shanghai emerges from a long housing slump, real estate agencies are mushrooming across the city and workers are being sucked into the industry by the prospect of big salaries and commissions. A second-year college student, Hou Yuan, said he is thinking of becoming a real estate agent when he graduates. ‘I won’t say it’s a dream job, but the income is attractive,’ he said. ‘It’s not easy nowadays to find decent work.’”

One News Now in New Zealand. “International credit rating agency, Standard and Poor’s, has downgraded the stand-alone credit profiles of ANZ, BNZ, ASB and Westpac New Zealand because of what the agency says is the increased risks they and other lending institutions face from Auckland’s hot property market. Labour’s finance spokesman, Grant Robertson, says, ‘the out of control Auckland housing market is now threatening the banking sector, with Standard & Poor’s downgrading the credit rating of our banks out of fear of the bubble bursting. For years, the Government has been warned of a bubble and done nothing. Now, just when our economy is suffering the impact of the collapse in dairy prices, our banking sector takes a hit because of the housing bubble.’”

The Australian Financial Review. “Property prices in mining heartland of the Bowen Basin - which rode the wave of the coal boom - have fallen off a cliff, burning investors who believed China’s thirst for Australian resources would never end. The median value of a home in Morbanah, about 200 kilometres west of Mackay, have fallen 66 per cent in the past three years, from $751,989 to $251,933, according to CoreLogic RP Data. Properties that used to receive rents of $3,000 to $4,000 a week during the boom, are now only getting $220 a week, leaving investors struggling to pay their mortgages. Many have gone under.”

“Moranbah Real Estate owner Bella Exposito, who has been in the real estate game for 28 years, said 99 per cent of the properties she sold in Moranbah were snapped by investors from across Australia, including Sydney and Melbourne, as well as as far away as Hong Kong, Singapore and the United Kingdom. ‘But I haven’t seen one investor since the boom. I think they were being unrealistic thinking the boom was going to last forever,’ she said.”

The Calgary Herald in Canada. “The precipitous decline in oil prices from a year ago has pummelled the housing market in Fort McMurray this year with MLS sales so far in 2015 down nearly 50 per cent from 2014 levels. In comparison, Calgary has seen a 27.3 per cent decline.”

“‘The numbers just released on the Fort McMurray market are 100 per cent reflective of the downturn — not in production in the oilsands, but in the exploration and development of new oilsands projects,’ said Don Campbell, senior analyst with the Real Estate Investment Network. ‘This is also being reflected in the rental market in Fort McMurray, where vacancies have skyrocketed in the last six months. The market– both rental and resale, will begin to feel even more pain in the November to February quarter coming up.’”

Business in Vancouver. “Fears of a housing bubble. The Shanghai stock market crash. Disappointing economic data on exports and plunging auto sales. And now this. A few years ago, China’s move to devalue its currency would likely have been seen as a positive development. ‘The big issue is the signal that it sends about the weak Chinese economy, and that is bad news for Canada in terms of export of commodities and raw materials to China,’ said Michael Devereux, a professor at the University of British Columbia’s Vancouver School of Economics.”

“‘Demand for pretty much everything that’s imported into China is likely to slow,’ said Sherry Cooper, chief economist for Dominion Lending, ‘which is why commodity prices have fallen once again and, most importantly for Canada, oil prices are down.’”

“‘There’s a huge excess of construction in China,’ Devereux said. ‘They have all these empty houses, empty cities, they had this gigantic stock market bubble which has gone into reverse, and they’ve only prevented a complete collapse of the stock market by shutting down trade in a bunch of major listed corporations. With the fall in the local stock market, you’ve had a really big fall in domestic consumption. The only way China can continue to grow long term is if they get their households and private citizens spending more, but now it looks like they’re cutting back dramatically.’”

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CBS DFW reports from Texas. “When Erika Williamson originally moved to Downtown Dallas in the late ’90s, she was a trailblazer. Today, she’s joined poolside on the 9th floor of her Main Street loft building with others walking their dogs or improving tans. ‘This is a neighborhood now,’ proclaimed Shalissa Colwell, downtown resident and marketing director for Downtown Dallas Inc. She points to an estimated 4,000 new housing units on-line and/or planned for the Downtown sector. ‘People from California, Chicago and other locations want this lifestyle. Many are empty nesters who love to walk to the bars and restaurants.’”

“Williamson moved back to downtown last year. ‘I have everything I want here now. A grocery store would be nice, though,’ she said.”

The Register Guard in Oregon. “A flood of sales and new listings since October has pushed median prices to their highest levels since the months before the Great Recession, and the market may now have accelerated into a full-scale boom. ‘I’ve been selling homes for 23 years, and June and July were the best two months I’ve ever seen,’ said Kim Heddinger, co-owner of Golden Realty in Eugene. ‘It’s even better than the mid-2000s.’”

“The city has granted final approval since Jan. 1 for 15 new subdivisions totaling 515 single-family home lots, a review of land use records show. In the previous five years, 22 subdivisions with a total of 331 lots received city approval. The supply of residential land in Eugene and Springfield ‘is extremely low, and what’s on the market for sale right now is grossly overpriced,’ said builder Rick Sorric.”

The Star Tribune in Minnesota. “North Minneapolis residents still reeling from the Great Recession offered a surprising reaction when developers unveiled plans to build homes that would sell for up to $300,000. They won’t sell, members of a neighborhood board said. There’s no one in the area with that kind of income. The houses will sit empty. ‘I don’t know how you expect people to go spend $300,000 even for a kick-ass house,’ one unidentified community member said.”

“When neighborhood association chairwoman Ann Moe hears of people looking for $300,000 homes, her response is, ‘Why would they want to live in my neighborhood?’”

Vegas Inc. in Nevada. “Coyote Springs, launched by former powerhouse lobbyist and current prison inmate Harvey Whittemore, has a golf course and little else. But it was supposed to be a 43,000-acre community, a city built from scratch in the middle of nowhere during Southern Nevada’s go-go years. But now, years after the massive project fell by the wayside, Coyote Springs’ developers are trying to revive it. The group has approvals to build as many as 159,600 homes and more than 10,000 acres of commercial property.”

“There are no homes — dozens of empty housing pads line the golf course — and when asked whether roads have been built, general counsel Emilia Cargill said that’s ‘kind of a trick question.’ Most haven’t been paved yet. The golf shop and players’ lounge are in temporary trailers, and north of the golf course, an abandoned, partially built community center sits off U.S. 93. ‘Why would you want to live out here?’ said Manjinder Lalh, visiting from Edmonton, Alberta. ‘You’re so far from everything.’”

The Tampa Bay Times in Florida. “The chief economist of Fannie Mae, the national mortgage giant, came to town this week with a mixed bag of news about the housing market. ‘Demographics drive housing,’ Doug Duncan said. ‘What turns renters into buyers is employment and income. We’ve seen employment pick up but not yet income. This is the weakest recovery of the last eight recessions. In no previous recession until this one did people expect their incomes to fall. In this one, they expected them to fall a lot. Is that a good environment to buy a house? No.’”

“Asked if the ’shadow inventory’ of foreclosed houses could affect prices, Duncan said bank-owned homes are ‘moving through the system so slowly’ that they won’t have much of an impact.”

The New York Post. “Foreclosure cases that drag on for years without resolution, however, have become a quiet crisis in New York, particularly for homeowners who have dared to fight back against dubious foreclosure claims by banks and investors. New Yorker Ron D., who declined to give his full name out of concern for his family’s privacy, has been struggling for more than five years to sort out who owns the loan on his metro-area home. He and his wife now live with their adult child, and don’t know when they will be able to sell their former dream house and pay their debts. ‘This thing has become an itch that won’t go away,’ he said.”

“Cynthia Carssow Franklin has been battling Wells Fargo since filing for bankruptcy protection in White Plains in 2010 to avoid foreclosure on her Texas home after an unrelated investment went bad. The fight has held up Franklin’s discharge from bankruptcy, and limited her access to credit and ability to rent an apartment. She lives with her boyfriend, devoting six to 10 hours a week to her case. ‘We’re trapped,’ she told The Post.”

The Baltimore Sun in Maryland. “The four-bedroom, 2.5-bath home on Cromwell Bridge Road in Towson listed in June for $324,900. And lingered. June Piper-Brandon, a real estate agent with Century 21 New Millennium, and the seller, David Walcher, recently reduced the price by about $25,000. Even so, no one showed up at an open house this weekend. ‘We keep dropping the price and hoping,’ Piper-Brandon said.”

“So far this year, the median price has fallen about 1.6 percent and remains about 10 percent off the 2007 peak. The disconnect between local and national prices coupled with the increased demand may be causing pricing confusion in the Baltimore market. Piper-Brandon said some homeowners have gotten encouraged to sell as more emerge from being underwater. But many prospective buyers are still backing away and opting to rent. ‘We’re certainly seeing people going back to work, but they’re not making as much money as they used to make,’ she said.”

“The region’s stagnant prices also reflect a continued churn of distressed properties, which drag down prices while feeding supply. Foreclosures and short sales increased 43.5 percent year-over-year in July, to 673, or 18.5 percent of all transactions. Many of the distressed properties date to delinquencies that started in the recession, and are just now appearing as the market adjusts to regulatory changes. ‘It’s that lingering overhang,’ said Frank Nothaft, chief economist for CoreLogic. ‘The serious delinquency rate has come down a great deal in the Baltimore market. It’s still really high.’”

“After dropping the price on his home, Walche said his family is in no rush — they just found a bigger home with a pool they liked more. They bought the property from a bank after a foreclosure, so there’s some wiggle room. ‘I think this may be an opportunity for somebody to take advantage of the situation we’re in and get a good deal that might not be available at other times,’ said Walcher, an insurance agent. ‘If it doesn’t sell, OK, I had planned to live here for 20 years anyway.”

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A weekend topic on lending. “RealtyTrac released its Q2 2015 U.S. Residential Loan Origination Report, which shows that 1,950,267 loans were originated on single family homes and condos in the second quarter, up 22 percent from the previous quarter and up 23 percent from a year ago to the highest level since the third quarter of 2013. ‘The rise in loan originations particularly the sharp rise in FHA purchase originations indicates the FHA premium reduction at the end of January really is having a big impact, pushing people off the fence to purchase,’ said Daren Blomquist, VP at RealtyTrac. ‘The average loan amount for FHA purchase loans increased from $187,718 in the first quarter of 2011 to $197,315 in the second quarter of 2015 (a 16 quarter high), as the lower FHA premium gave those buyers more buying power.’”

“There were a total of 326,143 Federal Housing Administration (FHA) loan originations – typically low down payment loans utilized by first time homebuyers in the second quarter. FHA loan originations increased 50 percent from the previous quarter and were up 46 percent from a year ago. There were a total of 118,807 Veterans Administration (VA) loans originated in the second quarter, representing 6.1 percent of all loan originations. VA loan originations in the second quarter were up 12 percent from the previous quarter and up 39 percent from a year ago.”

“There were a total of 118,807 Home Equity Lines of Credit (HELOC) originated in the second quarter, representing 14.4 percent of all loan originations. HELOC purchase originations were up 21 percent from the previous quarter and up 78 percent from a year ago while HELOC refinance originations were up 20 percent from the previous quarter and up 20 percent from a year ago.”

The Friday Flyer in California. “More of the Same. If you remember last month (and who doesn’t), the region celebrated a month of sales and price appreciation not seen for nearly a decade. Indeed the whole country seemed to experience the same boosted level of housing market happiness in June, leaving housing prognosticators salivating over the prospect that the housing market has finally hit it’s stride. That may be. After all we’re coming up on the fourth straight year of year-over-year price appreciation and that’s good news.”

“Of course, having recently heard radio commercials advising homeowners to borrow against their ‘future equity,’ I do appreciate the necessity of keeping some degree of oversight on the banking industry. But the banking industry can always hire pricier attorneys and they’re usually still at least a step ahead of the government boys.”

The Santa Cruz Sentinel in California. “Buying a home is a longtime commitment, it takes a lot of money both up front as well as monthly and owning a home requires maintenance and financial responsibility. While it is considered a long term investment, it is certainly not liquid. That is, when it comes time to sell it, it is not so easy to cash in on your investment like, say, stocks would be. On the other hand, if you don’t own a home, you are making the mortgage payments for your landlord; you could be forced to move out at the whim of the landlord and you are more than likely to experience rent increases.”

“Even in the wake of the mortgage crisis that we all experienced some years ago, the mortgage industry has stepped up to make buying a home as easy as financially possible. The mortgage industry allows borrowers to buy a home with just 3 percent down and to spend up to 45 percent to 50 percent of their monthly income on their principal, interest, taxes, insurance or PITI.”

“Perhaps this fear of buying lies in the fact that paying 45 to 50 percent of your monthly gross income cuts into the family budget too much. The other consideration is how much will your home increase in value through the years. A $500,000 home that is purchased with $50,000 down and appreciates 5 percent per year will grow in value $25,000 per year which is not bad for the $50,000 investment.”

“Buying a home is clearly not right for everyone. In fact only 60 to 65 percent of Americans own their own home and nationwide, according to Wikipedia, of these homes, owners have about 50 percent equity. In other words, the average mortgage held by these homeowners is about 50 percent of the value of the home, which probably sounds pretty good to the first-time homebuyers who must borrow more than 80 percent of the value of their homes.”

Mortgage Professional America. “Future growth and profitability in the real estate industry are looking good according to a survey by the National Association of Realtors. Its annual report shows that 95 per cent of real estate firms expect profits to increase or remain the same in the next year. Concerns about the ability of homebuyers to make a purchase include 54 per cent who fear that millennials will be unable to afford to buy in the next two years due to stagnant wage growth, slow jobs market and debt-to-income ratios.”

“Mortgage credit was easier to obtain in July according to the Mortgage Bankers’ Association. Its index based on analysis of Ellie Mae data showed a 2.9 per cent rise in the month with conventional mortgages loosening restrictions the most followed by jumbo, government and conforming. ‘Credit availability increased in July, mainly driven by higher-balance loan programs,’ said Mike Fratantoni, MBA’s Chief Economist. ‘Many investors are fine tuning their cash-out refinance requirements to meet increasing borrower demand for home equity financing. Some investors increased the availability of low down payment loans.’”

The American Banker. “Studies showing the economic and societal benefits of homeownership have not changed in the years since they left office. Yet throughout the presidency of Barack Obama, the homeownership rate has fallen steadily and now stands at its lowest point since 1967. More troubling still, a recent report from the Urban Institute predicts that this trend will continue for another 15 years and that the decline will be experienced disproportionately by African American families. As more and more Americans write rent checks instead of gradually paying off their mortgages, the wealth gap will continue to widen.”

“How did the hard-fought gains in homeownership slip away? Ironically, much of the blame can be laid on many of the policies meant to protect borrowers in the aftermath of the housing crisis. These policies were intended to prevent Americans from getting loans they can’t afford to repay and to rein in lenders who were too aggressive in extending credit. But policymakers failed to anticipate harmful consequences of these regulations.”

“The changes implemented under the Dodd-Frank Act include the creation of the Consumer Financial Protection Bureau and the introduction of “qualified mortgages” and complicated formulas that lenders must use to determine borrowers’ ability to repay. The Department of Housing and Urban Development’s inspector general has teamed up with the Justice Department to use a 150-year-old statute called the False Claims Act, never before applied to mortgage lenders, to extract billions of dollars in settlements from those who make loans insured by the Federal Housing Administration. Many large lenders have backed away from FHA-insured loans, which are targeted at first-time homeowners and lower-income borrowers. FHA lending on single family homes has plummeted since 2009.”

“The result is a ‘zero-defect’ lending environment, wherein lenders agonize over each loan and appear willing to make only the safest loans to borrowers who have pristine credit histories. In our zeal to protect consumers, we have deprived many of them of one of their best chances to climb the economic ladder.”

“But there are alternatives. Recent events suggest that private capital stands ready to take on credit risk in the mortgage markets. For instance, new entrants into the mortgage insurance industry have been able to raise significant amounts of capital. In addition, according to the U.S. Mortgage Insurers Association, established players in the private mortgage insurance industry have raised about $9 billion in new capital since 2007.”

“Just as telling is the robust demand for credit risk recently packaged and sold by the government-sponsored enterprises. For the past several years, Fannie and Freddie have been required by the Federal Housing Finance Agency to sell to private capital sources significant slices of the credit risk associated with their mortgage portfolios. Each has now created new forms of securities that tie the bond’s return to the actual credit losses incurred on specific pools of underlying residential mortgages. Recent offerings of these securities have been oversubscribed, and, as a result, the prices bid on the securities have risen.”

“What is the conclusion to be drawn from all of these transactions? Private capital hasn’t given up on the mortgage markets. It just needs to find ways to earn reasonable returns for assuming the risks. The next administration should make a fresh assessment of the utility of the new regulatory framework. The data suggest that those who have fallen behind on their mortgages may have realized some advantage from new CFPB rules that prolong the foreclosure process and provide layers of protection to delinquent borrowers. However, new borrowers are paying higher rates for a more limited range of mortgages after undergoing a dramatically longer and more difficult lending process. The net result: fewer homeowners.”

“Most importantly, candidates in the next presidential race should support building a system that will give any family that has a reasonable chance of sustaining homeownership a chance to pursue that course. By definition, such a system will result in some defaults. But if the losses are predominantly sustained by private capital and if the lender is able to price the loan according to the risk it assumes, more loans will be made. The net result will be a rise in homeownership levels. The nation will be the better for it.”

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