Author Archive: Irvine Renter

Other necessary costs of ownership consume a quarter to half the amount borrowers could potentially put toward loan payments. When lenders calculate how much they are willing to loan to any particular borrower, they measure the borrowers income from wages and other sources and calculate how much of that monthly income is available to pay the debt. One limitation on borrowing is the front-end ratio, generally 31% of verifiable gross income. Lenders assume that a borrower can afford to spend 31% of their gross income on all housing related expenses and still have enough money left over to pay all other obligations and have a life. This 31% is called PITI, or principal, interest, taxes, and insurance. The lender is primarily…[READ MORE]

Low or falling mortgage interest rates are better for housing costs than high or rising rates. From a consumers point of view, higher interest rates are bad because borrowing money becomes more expensive. All things being equal, higher mortgage interest rates make for a higher cost of ownership and visa versa. When potential homebuyers actively look to purchase a home, shopping around for the lowest rate can save them thousands of dollars over the life of the loan. The Consumer Financial Protection Bureau launched a Rate Checker to help consumers verify if the rate they are quoted is good or not. Since rising mortgage interest rates raises borrowing costs, it's also detrimental to home prices, so nobody in real estate…[READ MORE]


If new mortgage rules will prevent housing bubbles, prudent fence-sitters have no urgency to buy for fear of being priced out of the housing market. Fence-sitters are potential homebuyers who for a variety of reasons are not ready to buy today — they could buy, and they may buy in the not-too-distant future, but for now, they contentedly rent and watch the market. Fence-sitters don’t buy for a number of reasons: they are unsure about their jobs, they want the flexibility to move, they recoil against high house prices, they worry about future resale value, they can’t find the right property, they just aren’t ready. The real estate industry hates homebuying fence-sitters. The goal of most realtor advertising is to…[READ MORE]

By removing the ability of local jurisdictions to deny approvals for conforming developments, nimbys will no longer prevent much-needed new construction. In most parts of the world, anyone who owns an improved lot may build on it. As long as the plans conform to the local building codes and architectural guidelines, nobody can stop the owner from building on their own lot. No government body exercises discretionary approval power over the owners right to build. This is known as "As-of-Right" permission. Essentially, the phrase establishes a legal entitlement that arises when the plans conform to all legal codes. Land development in many parts of the country is subject to as-of-right zoning. In these jurisdictions, a governing body must approve any…[READ MORE]

Both rental rates and the cost of ownership rise faster than incomes in Los Angeles County due to an improving economy and a lack of housing supply. California inflated three housing bubbles over the last 40 years, and perhaps a fourth one inflates now. The collapse of each of the previous housing bubbles coincided with economic recessions, so many analysts incorrectly point to these recessions as the cause of the price collapse. The truth is that each of the previous bubbles inflated because lenders abandoned debt-to-income standards (1970s), experimented with toxic financing and relaxed DTI standards (1990), or completely lost their minds with "innovative" loan products (2000s). The coincidental recessions may have contributed to the problem, but they weren't the…[READ MORE]

Low house prices make for lower debt service payments that benefit the economy as money money is freed up to circulate and buy goods and services. Common sense dictates that spending less money on necessities boosts discretionary spending. When gas prices are low, the average commuter has more money left over to spend on everything else. The same is true for housing payments: the less a homeowner spends paying mortgage debt, the more money that homeowner has available to save, invest, or spend on goods and services in the economy. If low debt service payments are good, why are politicians, lenders, realtors and homeowners obsessed with driving up house prices as high as possible? Doesn't it take more debt and…[READ MORE]

Entry-level housing in California carries a very high cost, and there is little hope this will improve any time soon. In fact, the problem will likely get worse before people get fed up and do something about it. When house prices move up rapidly and significantly as they have in California on numerous occasions, even the highest wage earners can't afford a significant portion of the housing stock with what they can borrow and what they save from their large incomes. Prices get so elevated because previous owners sell their homes and use the equity that accumulated through the appreciation windfall to bid up prices on more desirable properties. As a consequence even the highest wage earners can't start out…[READ MORE]

Our current system of taxing gains on owner-occupied housing discourages long-term ownership of a family home, and it encourages frequent moves, which destabilizes families and neighborhoods. When investors sell an asset for a profit, most of the time they pay capital gains taxes. Outside of a retirement account, there is only one exception: the waiver of capital gains taxes on the sale of a primary residence within certain parameters. If an investor purchases a house and sells it within two years of the date of purchase, the transaction is considered a "flip" and the investor pays taxes on the gains as ordinary income. IMO, this is a good tax because the professionals who work in rehabilitation are businessmen, and flipping…[READ MORE]

The spring house price rally of 2016 shows signs of weakness because buyers can’t afford high house prices despite very low mortgage interest rates. Most housing analysts predicted a robust spring rally with increasing home sales and increasing prices. With low unemployment, an improving economy, and budding wage growth, the signs all pointed to a strong spring market. Unfortunately, now that house prices reached the previous peak in many areas, fewer and fewer buyers can afford them. When house prices go up absent an increase in wages -- which they have over the last four years in California -- affordability declines. In simpler terms, if potential buyers don’t make more money, but prices go up anyway, fewer buyers can afford…[READ MORE]

Monthly Housing Report

In Memoriam: Tony Bliss 1966-2012