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There’s A Fundamental Economic Reason That We’re Seeing This Happen

A report from the Wall Street Journal. “Almost 30% of loans that mortgage giants Fannie Mae and Freddie Mac packaged into bonds last year went to home buyers whose total debt payments amounted to more than 43% of their incomes, according to an analysis by industry research group Inside Mortgage Finance. The share has nearly doubled since 2015.”

“The backing of these loans opens up a debate about the government’s role in the housing market. An obscure half-decade-old rule made these mortgages to buyers with high debt possible. The temporary provision expires at the beginning of 2021, or, should it happen first, when Fannie and Freddie revert to private control, following government sponsorship after the housing crisis.”

“When the Consumer Financial Protection Bureau introduced tighter mortgage-lending standards after the financial crisis, it deployed temporary measures to avoid cutting off some borrowers’ credit access. This exception was nicknamed the ‘qualified mortgage patch’ and allowed Fannie and Freddie to purchase high debt-to-income mortgages. The rule’s phaseout could upend the market, some in the industry warn.”

“Fannie and Freddie have loaded up on loans with debt-to-income ratios above 43%, the typical cutoff for mortgage loans. The Urban Institute, a think tank, estimated that an additional 3.3 million mortgages were originated between 2014 and 2018 because of the patch.”

“Some housing economists believe facilitating loans to borrowers who have a large proportion of debt has had deleterious effects on the broader housing market, such as by increasing demand to such an extent that it is artificially inflating home prices.”

“‘We have a huge shortage of housing,’ said Ed Pinto, co-director of the American Enterprise Institute’s Housing Center. ‘You can’t address that shortage by driving house prices up through leverage, which is what we’ve been doing.'”

From Patch Takoma Park in Maryland. “According to Trulia, the median price of a home in Takoma Park was $350,000. Since May 2014, median sales prices in the area have increased by about $160,000.”

“‘Because money is cheap, people are willing to borrow more,’ Realtor Elliot Barber said, referring to the nearly 10-year stretch of low interest rates.”

From Seattle PI on Washington. “Good news, buyers: The latest real estate report from the Northwest Multiple Listing Service shows that more balance is returning to the local market. NWMLS statistics saw a 28.5% overall increase in active listings compared to April 2018.”

“According to NWMLS, seven counties had double-digit growth in inventory from a year ago, led by King County, which reported a 78.5% growth, and Snohomish County (up nearly 57%). ‘This year’s buyers and sellers are approaching the market with more caution and a focus on an analytical, versus emotional approach that has ruled the last several years,’ said NWMLS director John Deely.”

The Charlotte Observer in North Carolina. “After declining for 11 months, year-over-year home sales were essentially flat in April, according to the Carolina Multiple Listing Services. While it’s not a major shift, especially as the spring buying season is in full swing, it’s an improvement from what was expected to mark a full year of decreased sales.”

“It’s also the latest in a series of reports that show the region’s tight housing market could be changing. One sign that price increases could be slowing is that sellers are overwhelmingly receiving less than what they ask for, data show. In the first quarter of the year, 72% of homes sold below their original list price, an increase of 9% from the previous year, according to a study from Knock.”

“That’s because the news about the tight housing market is causing sellers to overprice their homes, said Trent Corbin, president of the Redbud Group at Keller Williams SouthPark. And many of them have to later bring the price down, he said.”

“‘We could not sustain the rising prices that we’ve had over the last five years,’ said Kim Trouten, a Realtor. ‘We’re going to see an adjustment.'”

“Richard Buttimer, director of the UNCC Center for Real Estate, thinks Charlotte is a long way from California and other states where prices are starting to moderate. ‘I don’t think this is a situation where we’re looking at… a bubble or something like that,’ he said. ‘I think there’s a fundamental economic reason that we’re seeing this happen.'”

From The Real Deal on California. “Big initial public offerings for Lyft, Pinterest and Uber were expected to fuel a surge of home purchases by new millionaires in the San Francisco area. But, midway through spring selling season, evidence to date isn’t backing up the hypothesis. Patrick Carlisle, a market analyst for Compass, told Bloomberg that the San Francisco-area market is ‘bumping up against what prices people are willing to pay, or can pay.'”

“The median sale price of a San Francisco home was $1.65 million in March and April, almost unchanged from the same two-month period last year, brokerage firm Compass reported. Compass also reported that home prices just south of San Francisco in San Mateo County fell 5 percent, and listed properties were staying on the market longer before selling.”

The Orange County Register in California. “Homebuying in Santa Ana fell 31% in what was Orange County homebuying’s slowest start to a year since 2009. Santa Ana 92703: $496,500 median, down 14.4% over 12 months. Santa Ana 92704: $444,500 median, down 18.7% over 12 months.”

This Post Has 59 Comments
  1. ‘the median price of a home in Takoma Park was $350,000. Since May 2014, median sales prices in the area have increased by about $160,000’

    Nothing to see here…

    ‘Because money is cheap, people are willing to borrow more’

    ‘Fannie and Freddie have loaded up on loans with debt-to-income ratios above 43%, the typical cutoff for mortgage loans. The Urban Institute, a think tank, estimated that an additional 3.3 million mortgages were originated between 2014 and 2018 because of the patch’

    1. Cheap and easy money and bloated housing prices – completely unrelated
      /s

      The fact that the debt to income is being stretched shows we are closer to the end of this than we are to the beginning

        1. I am always shocked that somebody can actually achieve such weight without dying first, and actually live for a while once they get there. Really, really surprising.

        2. You gotta know that’s a end-stage renal failure patient with a staggering annual medical expense.

          1. Doesn’t seem likely that someone in that condition could shoulder an extra tax burden.

          2. All dialysis patients are in a special cohort of disability within the SSDI system primarily due to the extremely high costs.

    2. “California may be on the verge of eliminating single-family zoning statewide. This is huge. And it’s a sign of how quickly the politics around housing and land use have shifted in just the last year.

      On Wednesday, a key committee signed off on Senate Bill 50 — San Francisco Sen. Scott Wiener’s bill to allow denser, taller housing around transit and in communities with lots of jobs. As part of the negotiations, Wiener agreed to merge his proposal with Senate Bill 4 by Sen. Mike McGuire (D-Healdsburg) and the result includes one very big change: Single-family houses could be converted to four-unit buildings, by right, anywhere in the state.

      That is, a property owner could subdivide or remodel a house to turn it into four apartments. Or a developer could build a fourplex on a vacant single-family lot. The proposal wouldn’t allow people to demolish a house and build a new four-plex on the property, however.”

      https://www.latimes.com/opinion/livable-city/la-ol-sb50-single-family-20190424-story.html

      1. “a property owner could subdivide or remodel a house to turn it into four apartments” – absolutely sickening. All to accommodate the massive influx of illegal aliens, because obviously people are not moving to CA from other states, and native Californians aren’t having children above replacement rate.

        Anyone who has lived in San Francisco can tell you how gross this is. Every beautiful, stately victorian home that was originally built to house a single family, has been chopped up into 4, 8, or even 16 tiny overpriced apartments, cramming people on top of each other and totally eliminating street parking. It is such a terrible and inhuman way to live, and it breeds resentment and despair, especially since you have a constant reminder of how low quality of life has fallen compared to those who lived in these same victorians in the early 1900s on a single blue collar income.

        1. lived in these same victorians in the early 1900s on a single blue collar income

          I don’t think the Victorians were built on ordinary blue collar wages of the day.

          1. “I don’t think the Victorians were built on ordinary blue collar wages of the day.”

            I’m not a housing historian so I honestly don’t know for sure. However, the city is full of victorian and edwardian homes built from high-quality materials with ornate finishes, and they have stood the test of time in a very damp and windy area. I know that SF has always been somewhat prosperous but there is no way that every one of those houses was built for the upper middle class…there’s just too many of them, and they stretch all the way from the bay to the beach, way beyond the areas that would have been considered prime. So I stick to my original premise that many of these victorian and edwardian homes were originally occupied by single families on regular middle class incomes…which would have included a lot of blue collar trades back in those days.

          2. I stick to my original premise

            However, you just changed your premise in several ways.

            If you now want to include modest houses built in the 1900s (after the “stately victorians”) by the thousands I was mistaken in my comment. I don’t think the three bedroom Edwardians can house 16 families though.

            I owned one of these Victorians (in NY) from the 1800s once. It was almost 4000 ft2. It hadn’t been bought by a house partitioner for rentals because its sweeping staircase made the layout problematic.

      2. Drive around a formerly blue-collar city suburb like Milpitas, CA, and you will see four or five cars per household parked on the street. Then go to Willow Glen in San Jose…you won’t see a Pacheco waxing his lowered pickup on the front lawn with the boombox blaring away.

        1. In my area, houses are already at capacity. Dividing the inside isn’t going to add any more space for people. However, redoing basements and adding second floors is all the rage. That WILL add people and muck up the already crowded streets.

        2. I live around the Great Mall. All the new apartments 2BR starts at $3,100+ and there are tons of them. They are advertising close to new BART Station LOL! I can’t imagine the commute to SF from this place.

          1. Oh the horror! Commute 30-40 miles… that’s a bonus if you compare to the commuters from the valley. Buy milpitas shacks now or be priced out for ever although zildo is now showing Zestimates that are headed in the negative but I’m am pretty sure that’s from a hack on the servers which brings me to IPOs… stawk market was hacked which is why Lyft and Uber went down, soon it will be ONE MILLION monies per share, GUARANTEED, END OF STORY.

          2. “I live around the Great Mall.”

            That McDonald’s on Landess toward Ed Levin has gotta have the fastest service award. Do the mobile app order from their parking lot at 07:30 (busy), and my custom breakfast order is on the counter when I walk in the door!

      3. Another band-aid which addresses the symptom, not the cause. Until bubbles are acknowledged, and the causes rooted out, nothing works.

          1. I like how they claim there will be savings… yea until the utility starts charging “grid connection fees” to make up for the lost revenue. Its like the cord cutters who moved away from cable tv only to find out their Internet bills go up to make up for the loss.

            If there is one thing I”ve learn, the government will always prop up housing and utliities. Its played out before and will continue to play out since the 30 year mortgate creation, the bubble re-inflation, to the CA eventual bailout of SDGE

      4. This is what needs to happen. Plenty of good evidence to back this up. It doesn’t mean that the single family home will be dead, just that there will be more options and varied neighborhoods. This is a positive step in my opinion.

    3. 2014…IIRC, that’ s when prices started to turn, but then the Feds (under you know who) had to turn the spigot back on….

    4. This is what infuriates me. I have been doing everything responsibly – saving for 20% down payment, no credit card debt, living below my means and it is taking forever to be in a position to buy a home RESPONSIBLY. Meanwhile – the masses are loading up on debt, buying way out of their comfort zone, and driving prices through the roof. Apt living is not ideal, but it is not horrible either.

      1. In the meantime, rent a house for half the monthly cost. Buy later after prices crater for 70% less.

      2. As a financially responsible saver, you are part of a minority voter block.

        You don’t expect your betters in high office to cater to minorities, do you?

  2. Another day, more crow piles up for Chris “prices aren’t gonna fall” Thornberg.

    ‘Charlotte is a long way from California and other states where prices are starting to moderate. ‘I don’t think this is a situation where we’re looking at… a bubble or something like that’

  3. there will be a new bail program as in 2021 we will be in the sht
    The temporary provision expires at the beginning of 2021, or, should it happen first, when Fannie and Freddie revert to private control, following government sponsorship after the housing crisis.”

  4. I have said this before, but it bears repeating: Fannie and Freddie are hiding their delinquencies by auctioning them off for cheap to the top 0.1% at taxpayer expense. The unnecessary losses they take on these loans come right out of the profits that otherwise would go back to the taxpayers, whore are the owners and risk-takers.

    Background: FNM and FMCC have since about 2015 been regularly auctioning off huge bundles of delinquent/defaulted loans at big discounts, purportedly to protect taxpayers from losses. But in reality I think it is a giveaway to the Kushner-class. I think there is not nearly enough awareness of this topic. Indeed, one should ask whether F/F will also *finance* such delinquent-loan purchases!!??

    Reference to the non-performing loan sales, which Fannie call by the euphemism “Whole Loan Sales”:

    http://www.fanniemae.com/portal/funding-the-market/npl/index.html

    1. It’s a rigged system.

      “It’s a big club, and you ain’t in it.’

      ~George Carlin

  5. the Urban Institute,(welfare warriors) a think tank, estimated that an additional 3.3 million mortgages were originated between 2014 and 2018 because of the patch.”

      1. Reduce price to account for no pool, reduce further for cost of emptying and backfilling pool.

        1. Not worth the trouble. Besides, it’s on a street corner, which is another deal breaker.

  6. DegenerateGamblers clicking on sell button all day but orders are backed up as losses grow by the second.

    Day 1 of a good old fashioned schlonging.

  7. “According to NWMLS, seven counties had double-digit growth in inventory from a year ago, led by King County, which reported a 78.5% growth, and Snohomish County (up nearly 57%). ‘This year’s buyers and sellers are approaching the market with more caution and a focus on an analytical, versus emotional approach that has ruled the last several years,’ said NWMLS director John Deely.”

    Read: We are running out of greater fools!

    What is this “emotional approach”?

    https://www.oregonlive.com/front-porch/2016/04/looking_for_a_home_in_the_red-.html

    1. We’re now in the great inventory build stage. With all of the bad news everywhere, whether it’s softening real estate, trade wars, the retail apocalypse, broke people, etc., it’s a wonder things have held up as well as they have. Once job losses begin, it’s curtains, as strong employment is the band-aid on the gunshot wound.

      1. If you are currently shopping for a house, there is no way you read or follow any news. How many of these type are left? The high end is getting crushed and the low end is 100% the “how much a mo” crowd. Tariffs can cause crazy inflation…. stay tuned. I am only buying oil services.

      2. “…it’s a wonder things have held up as well as they have.”

        Indeed. However, if those in power let the social safety-net fail the former plebs will burn the cities to the ground.

  8. “There’s A Fundamental Economic Reason” that when you live in a city with a $1+ million median used house price, and you like heroin more than you like having a job, you’re gonna end up living in a tent on a sidewalk covered in human sh*t.

  9. Movoto is showing Coastal Orange County, Laguna Niguel with 123% increase in listings YOY. Condos and Twnhm list prices have fallen 17% and price per square foot -5%. I checked out neighboring cities in county and found Irvine +155% Huntington Beach +114% Santa Ana +150% and Mission Viejo + 99%. Newport Beach is +55%. After seeing these numbers and went to National Association of Realtors to see what they had for listings and for the county they had it only up in listings in March +36% YOY. Either they’re in for a shock with April/May numbers or their stats are a joke. Perhaps both?

    1. “…Coastal Orange County, Laguna Niguel…”

      Great sunsets out there if you can afford it.

  10. Who’d’ve thunk that the Fed’s protracted period of ultra-low rates would culminate in a gargantuan buildup of debt in every variety known to mankind?

    The disturbing reasons behind the ‘meteoric rise’ in Americans’ debt
    By Catey Hill
    Published: May 11, 2019 9:47 a.m. ET
    ‘Do we Americans ever learn?’ one financial adviser lamented to MarketWatch

    Debt is rising.

    A blog post from financial site Wolf Street caught our eye the other day. It explores how deep in consumer debt — talking about credit cards, student loans, auto loans and personal loans — Americans really are. Boy, are the numbers striking.

    Record-breaking striking, in fact: Data from credit reporting agency Experian that looked at debt as of the end of 2018 notes that credit card debt reached an all-time high of $834 billion.

    Student loan debt — which “has grown at a meteoric rate,” says Caleb Eplett, the VP of Product Management at research firm YCharts — hit a record of $1.37 trillion. Auto loan debt also hit an all-time high (of $1.27 trillion), and personal loans became the fastest-growing type of consumer debt in the past year totalling $291 billion, the agency said.

    And delinquency rates — at least for student loans — are nothing to sniff at either, having increased by about 50% since 2006,” says Eplett. (Though it’s important to point out that credit card and auto loan delinquencies didn’t follow suit.)

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