California housing enjoys strong fundamentals but faces potential headwinds

Housing fundamentals are strong, but if they get too strong, rising mortgage rates will spoil the fun.


Signs of a strong economy are all around us. U.S. retail sales rise, and inflation posts largest gain in four years. Unemployment is near historic lows, and Trump plans to dump fuel on the ...

California housing enjoys strong fundamentals but faces potential headwinds

Some homeowners wisely take a step down the property ladder

Escaping an onerous mortgage can be the best thing for a family’s financial and mental health.

I feel bad for loanowners (AKA underwater borrowers). When I started blogging in February of 2007, I felt a sense of urgency to convince as many people as I could they shouldn’t buy a house. I k...

Some homeowners wisely take a step down the property ladder

Consumer debt is a deadly parasite

Warning! Don’t read today’s post if you have a weak stomach or a strong affinity for consumer debt.
This is your only warning.

Hang on, Alice, as we bolt through the rabbit hole on an adventure to financial Wonderland. Come with me on a fantastic journey to the Great Lakes to save fish falling p...

Consumer debt is a deadly parasite

Low house prices provide an economic boost

Low house prices make for lower debt service payments that benefit the economy as money is liberated to circulate and buy goods and services.

Low house prices benefit everyone because low house prices make for low loan balances and less debt-service. When borrowers carry excessive home debt,...

Low house prices provide an economic boost

Will rising mortgage rates lead to housing stagflation?

Lower house prices due to higher mortgage rates still result in a higher cost of home ownership.

Everyone shopping for a home wants to see lower prices. For most products, paying less for it means the buyer keeps more money to purchase other goods and services, but with houses, this isn’t n...

Will rising mortgage rates lead to housing stagflation?

Nine percent of US homeowners lost their homes over the last decade

The homeownership rate is plunging because the housing bust tarnished the American Dream dream, and a new generation chooses to rent instead.

For nearly 100 years, US government housing policy maximized the homeownership rate and the rate of growth in house prices. Politicians characterized...

Nine percent of US homeowners lost their homes over the last decade

Government policy should better accommodate renting as a lifestyle choice

We need policies that help stabilize tenancy and facilitate renters saving for retirement.

The US government treats renters like second-class citizens. Our current policies make it very difficult for renters to stabilize their housing costs or save for a comfortable retirement. Perhaps in an...

Government policy should better accommodate renting as a lifestyle choice

Nearly 75% of loan modifications fail within two years

Loan modifications always had high failure rates, but modifications since 2014 fared worse than bubble-era loan mods.

Every attempted loan modification delays a foreclosure, keeps an overextended borrower in a state of debt servitude, artificially props up home prices, and keeps much-needed...

Nearly 75% of loan modifications fail within two years

Mortgage rates will rise when the Federal Reserve stops buying mortgage bonds

The Federal Reserve’s oft-forgotten policy of buying mortgage-backed securities helped keep mortgage rates low over the last several years.

The monthly housing market reports I publish each month became bullish in late 2011 due to the relative undervaluation of properties at the time. I...

Mortgage rates will rise when the Federal Reserve stops buying mortgage bonds

The real estate negotiation technique Trump uses as President

Donald Trump uses executive orders like land acquisition professionals use letters of intent.

When I first saw the headlines touting Donald Trump’s repeal of Dodd-Frank by executive order, I literally laughed out loud. I wondered, who does he think he is, Emperor Trump? Does he really...

The real estate negotiation technique Trump uses as President

Affordability is the major housing market headwind of 2017

Home price affordability will be the biggest issue in housing in 2017, particularly if mortgage interest rates rise.

Over the last 40 years, California inflated three different housing bubbles. Starting in the 1970s with regulations like CEQA, California began to restrict growth. This inhibited...

Affordability is the major housing market headwind of 2017

California"s housing policies hurt the working poor the most

Californians embraces housing policies that benefit high wage earners and homeowners over the working poor.

House prices in California surpass most of the rest of the United States both in real terms and relative to local income. Residents offer many bogus reasons for high house prices —...

California"s housing policies hurt the working poor the most

Will Chinese investors shun the Vancouver real estate market?

A huge new tax on foreign investors coupled with a crackdown on capital outflows is a double whammy discouraging Chinese Nationals from investing in Vancouver.

If governments really want to stop a certain behavior, what must they do to really stop it? Is passing a law good enough? Well, drugs...

Will Chinese investors shun the Vancouver real estate market?

Hedge funds made billions at the expense of the banks

Hedge funds profited from banks that failed to execute the same business plan to recover more of their original loan capital.

If banks had taken the same approach to the bust as hedge funds, they could have recovered much more on their bad bubble-era loans. By 2012 they bankers finally realized...

Hedge funds made billions at the expense of the banks

Dodd-Frank overhaul is a battle Trump would lose

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

Why should we keep Dodd-Frank? Does it really inhibit economic growth, or does it merely inhibit Wall Street’s...

Dodd-Frank overhaul is a battle Trump would lose

Rising mortgage interest rates will slow home price appreciation

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

Many would-be homeowners rush to the market to lock in low mortgage rates out of fear of being priced out forever. Nervous b...

Rising mortgage interest rates will slow home price appreciation

Chinese government decree prohibits investment in foreign real estate

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


It’s really happening. The outflow of capital from China prompted the decree to stop Chinese Nationals from i...

Chinese government decree prohibits investment in foreign real estate

Top ten ways to protect taxpayers against future mortgage bailouts

More than eight years after the government took over mortgage finance, the US taxpayer still insures the bulk of the loans in the housing market.

Prior to the collapse of the housing bubble, when lenders foolishly loaned money to people operating personal Ponzi schemes, it was theirs to give — a...

Top ten ways to protect taxpayers against future mortgage bailouts

Expect low for-sale house inventory for many more years

For the missing MLS inventory to return to the market, borrowers need debt forgiveness, and house prices need to move even higher.

I advise buyers to be sure they plan to live in the same place for at least two or three years for prices to rise high enough for them to sell and cover the sales...

Expect low for-sale house inventory for many more years

Raising California"s minimum wage won"t help workers much

Competition for limited housing stock will prompt low-income workers to allocate any pay raises to securing better housing, enriching landlords.

Advocates for raising the minimum wage aspire to help. Many working-class Americans barely subsist earning minimum wage — and some only survive living ...

Raising California"s minimum wage won"t help workers much

Did Trump raise the FHA insurance premium to screw California?

Higher FHA mortgage fees hurt real estate markets most in areas that did not vote for Donald Trump.


In one of his first acts as President of the United States, Donald Trump suspended the lowing of FHA mortgage insurance premiums scheduled by outgoing president Obama. If Trump had done nothing,...

Did Trump raise the FHA insurance premium to screw California?

Rising mortgage interest rates repel first-time homebuyers

Rising mortgage interest rates caused an alarming 10% decline in potential first-time homebuyers.

Over the last several years, most pundits predicted mortgage interest rates would rise. With the exception of the taper tantrum, a 1% rise in mortgage rates during a six-week period in mid-2013, ...

Rising mortgage interest rates repel first-time homebuyers

Federal Reserve"s Dudley predicts return of HELOC abuse

The Federal Reserve’s Dudley believes people will forget the lessons of the housing mania and return to profligate home equity spending.

When people lose money (or foolishly waste it), they often behave differently after the incident. Wise people actually take action to prevent a ...

Federal Reserve"s Dudley predicts return of HELOC abuse

The weak case for occupancy after foreclosure

Some progressives want people to occupy houses they don’t own and don’t pay for.

It’s sad when someone is forcibly evicted from their family home. People develop strong emotional attachments to real property, so many people feel compassion and empathy for those enduring such a d...

The weak case for occupancy after foreclosure

Yesterday"s Baby Boomers were better off than today"s Millennials

Millennials are worse off than Baby Boomers were at this stage in their life cycle.

Growing up in the Midwest, I remember the relative prosperity of ordinary families in the 1960s and 1970s. Working-class families supported themselves on union labor contracts granting them a high quality of...

Yesterday"s Baby Boomers were better off than today"s Millennials

Can unrealistic beliefs about appreciation cause a housing bubble?

It takes more than a manic desire to inflate a bubble. The ability to deliver capital to the market is also an essential element.

Many people who believe in the wisdom of the markets subscribe to the efficient markets theory. It postulates that market participants have equal access to good ...

Can unrealistic beliefs about appreciation cause a housing bubble?

The final frontier for land speculators: the moon

We running out of land! Buy now or be priced out forever! We’re even running out of land on the moon!

Most participants in financial manias share a common belief in the scarcity some precious resource. The notion that we’re “running out of land” sparked several financial man...

The final frontier for land speculators: the moon

How renters should prepare for homeownership.

Rent a property using 23% or less of your gross income and save 8%. This prepares you for a 31% debt-to-income payment and provides a quality of rental you could later buy.

I never embraced the innovations in real estate finance that inflated the housing bubble. I never considered any financing...

How renters should prepare for homeownership.

Home sales likely to fall in 2017

High house prices and rising mortgage rates will hurt affordability and offset any gains from wage growth and an improving economy.


Have you looked for a home to buy lately? They’re expensive, and although 4% mortgage rates enable buyers to finance those prices, mortgage rates only ...

Home sales likely to fall in 2017

Bold California housing market predictions for 2017

The housing market will flourish or flounder depending on mortgage interest rates.

For each of the last three years, I made a series of bold predictions for the upcoming year. You can judge for yourself how I did:
Bold California housing market predictions for 2014
Bold California housing...

Bold California housing market predictions for 2017

Would you surrender future equity gains for a lower house payment?

Investors will supplement down payments in exchange for a share of future profits. Would you make a deal like that?

Are there any circumstances under which homebuyers would be willing to share in the upside of home price appreciation? Would you sell an option worth 35% of the upside in exchange...

Would you surrender future equity gains for a lower house payment?

How rising mortgage rates erode homeowner equity

One man’s mortgage debt is an entire neighborhood’s equity. Higher mortgage rates put pressure on the size of mortgage balances, potentially eroding homeowner equity.

When a buyer purchases a house, their purchase sets a standard by which the value of other houses is inferred. When a house sel...

How rising mortgage rates erode homeowner equity

Should free shelter be a basic entitlement?

During the housing bust, every effort was made to keep homeowners in their houses. Renters were mercilessly thrown in the street with little or no fanfare.

Our real property system functioned well for centuries with very little change. Prior to the housing bubble, it was widely accepted that...

Should free shelter be a basic entitlement?

Are bad housing solutions better than no solution at all?

Any legislation or policy that promotes housing production is better than producing no housing at all.

In the post, Will building more roads and houses merely increase demand?, I lamented that nimbys managed to turn the solution into part of the problem. They embrace the idea of “induced ...

Are bad housing solutions better than no solution at all?

Don’t worry about rising home prices and rising rates

Dodd-Frank should prevent house prices from rising so high that only fools and millionaires can afford them.

When house prices rise rapidly and mortgage rates go up, the cost of ownership rises even more rapidly, and realtors stoke fears with “buy now or be priced out forever.” Under these cir...

Don’t worry about rising home prices and rising rates

Will building more roads and houses merely increase demand?

Social scientists contend providing more roads and houses leads to “induced demand” and fails to alleviate shortages.

The recent presidential election illuminated the problem of confirmation bias, particularly when emotional, political issues are involved. We all want to believe we...

Will building more roads and houses merely increase demand?

43% Debt-to-income cap strongly favors borrowers with no consumer debt

With no rigid cap on front-end DTIs, those with no consumer debt could borrow more to finance a home purchase.

It’s no secret that I don’t think consumer debt is a good idea (See: Think you want consumer debt? Think again…) With the ongoing war on savers waged by the federal reserve, it’s been a...

43% Debt-to-income cap strongly favors borrowers with no consumer debt