Real Estate

     

 

 

An Ominous Jump in Delinquent Mortgages

Black Knight Financial Services used to be LPS.  The name was changed after the sale to Fidelity.

 

arbeitssklaveImage via housingwire.com

 

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Something Needs to be Done – A Glimpse of the Future

In the summer of 2016, US and global economic growth rates are nowhere close to estimates.  In fact, a global recession, or worse, is imminent.  At home, student loan defaults are now close to 100%.  The unemployment rate is climbing, as minimum wage workers finally realize that the financial pain of working or not working is identical.  In Euro-land, as the weather warms up, the never-ending flotillas from Northern Africa resume swamping the Southern shores.

 

NIRPA black hole opens up in the world of centrally planned money

Illustration by Denis Cristo

 

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Rate Hikes and the Fed’s Goals

Finally, a 1/4% increase in Federal Funds rate. The immediate response from the banks was 1/4% hike in the prime rate to 3.5%.  This may have some effect on HELOCs.  Adjustable mortgages facing reset may also see some changes.  These minor adjustments should however have no direct impact on the real estate market.

As for the 30 year mortgage rate, so far the reaction has been nothing more than normal daily fluctuations.  Even if mortgage rates eventually settle at a 1/4% higher level, that is only $30 a month for a $200,000 mortgage, or $60 to $70 a month extra in household income to qualify for the same mortgage. A quarter point should not make much of a difference but what about half a percent or more?

 

ph mansionThis mansion in Pacific Heights, San Francisco was sold for a record price of $31 m. in 2015 – it netted its owners a $4 m. profit in less than two years. Reportedly no improvements were made to the property. SF is one of the regions in which bubble conditions are not merely noticeable, but are better described as “raging”.

Photo credit: Zilov / MLS

 

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Government Handouts Galore

Time flies.  It has been over seven years since the agencies, Freddie and Fannie, were placed under the conservatorship of the Treasury.  Think of it as a bankruptcy filing.   The difference being that there has been no reorganization plan, nor a liquidation plan.  In fact, there has been no plan at all, aside from letting the hole be dug deeper and deeper.

 

FNM HQFannie Mae’s headquarters in Washington – not bad for a technically insolvent company

Photo credit: Picture Alliance / DPA / EPA

 

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Expanding the Regulatory State with the “Anti Airbnb Measure”

The best thing one can say about “Proposition F” is that it will be up to voters to decide on its adoption. However, it actually shouldn’t be up to them, because it concerns an issue that is really none of their business.

Here is what it is about in a nutshell: as noted in this article, if the proposition is adopted, “you will be able to do anything in your bedroom, except rent it” (sic). Meaning, if one has a spare bedroom one occasionally rents out to travelers via Airbnb, one will in future no longer be able to do so – by law.

 

San-Francisco-Wallpaper-lrSan Francisco: a nice place, but housing and rental prices have become unaffordable for many people

Photo credit: Alex Zyuzikov

 

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Something has Changed

Last month, I posed the question “Is it time to short the home builders?”  My conclusion at the time was pretty much a “wait and see”.  Circumstances have changed.  I believe the builders are now short candidates.

 

glencartoon

Beware of politicians trying to fix the housing market (the Johnson-Crapo GSE reform bill actually failed last year)

Cartoon by Glenn Foden

 

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Useless Methodologies

Traditional real estate indicators have not served much purpose as predictors of the real estate market. As an example, here is a recent report by the Mortgage Bankers Association titled Housing Demand: Demographics and the numbers behind the coming multi-million increase in households. Superficially, the report makes a lot of sense, supported by many beautiful charts and figures.  Yet, my gut feel is these methodologies are of little use in the future.

 

banknote-1000-greek-drachma-apollo-19871,000 Greek drachma from 1987, depicting the Olympian god Apollo.

 

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What to Watch

Is it time to go short (or long) the home builders?  No, but as Peter Sellers famously said in “Being There” ………. I like to watch.

First, allow me to lay out some ground work as to what I am watching.

 

home valuesUS home values heat map, via Homeinsurance.com

 

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Housing is a very important component of any economy, and often an indicator of the well-being of a society.  In the US, housing has been deteriorating since the sub-prime crisis.  The changes are not only cyclical but structural.  Past experiences need to yield to an objective analysis of where we are heading.  Here is the way I see it.

 

Defining Recovery

Ten years ago, mortgage financing was a free for all.  Non-existent underwriting guidelines with over 100% LTV, limitless debt to income ratios, no verification, no documentation, no qualification and no income resulted in a manufactured peak for real estate prices.  Home sales and construction were at historical highs with total disregard for underlying demand.  Is this the desired housing market? Should a return to that era be considered a recovery?  Of course not, and yet, that is exactly what the market and policy makers are striving for.

 

unreal_estate_03

 

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Taxpayer-Funded Garbage

The Federal Reserve recently released a research article titled “How Sensitive Is Housing Demand to Down Payment Requirements and Mortgage Rates?

 

ben-bernankeFormerly ruling over rooms full of really smart guys: ex-Fed chairman Ben Bernanke

Photo credit: Karen Bleier / AFP

 

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Gagging on Oil

VANCOUVER, Canada – When we woke up in the morning, the Trans-Canada had already heaved itself over the highest point in the Rockies. Gone were the dense forests of the East. Gone were the wide-open spaces of Saskatchewan and Alberta. We were in British Columbia – rolling downhill, following the gray-green river downstream, through boiling canyons and lazy flats…

Does any country have more bountiful natural resources than Canada? Timber, food, cattle, minerals, water – Canadians have it all. Too bad: When it comes to prosperity, there are few things as dangerous as inheriting money or having abundant natural resources.

 

vancouver-3Vancouver at night time – something different is going on there…but trouble is probably looming anyway.

Photo creidt: silveryhawk

 

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Why Buy a House?

Examining the reasons to buy a house today may give us some idea where the housing market is heading in the future.

There are three reasons to buy a house:

 

Reason 1 – Utility

A house (any dwelling) is a shelter.  It provides enjoyment, a home to raise one’s family, or just a place to watch that big screen TV.  Utility is not quantifiable and it differs from household to household.

Reason 2 – Savings

If financed, a mortgage is a way of saving something every month until the mortgage is paid in full.  If paid for, the savings come in the form of “owners’ equivalent rent”, which is what the census bureau uses to measure inflation in housing.

Reason 3 – Asset appreciation

At 5% appreciation per year, a $100k house today will be worth $412k in 30 years. Even a more modest 3% appreciation would result in better than a double.

 

house, modernHouse, modern.

Photo credit: Fairfax Media

 

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