Irvine Housing Blog

I entertain the idea of principal reductions, and like Dean Baker’s work, but you clearly explain why the right-to-rent is not a good idea.  We have a general idea that foreclosures are impossible to deal with for both the community and the former owners.  My in-laws street has a 20% foreclosure rate with probably a couple more in the pipe.  It has not gone down in quality.  What I would have seen as at least as big a problem would have been investors buying homes and letting them sit.

The problem with foreclosures is that banks are not processing them appropriately.  They are dragging their feet in some cases, and going to fast and sloppy in others.  They don’t put a lot into rehab and marketing.  They let them sit empty and unmaintained for long periods.

Is the idea that you’d have to move really keeping people from strategic default?  Would the ability to live a couple years rent-free in a home really not be worth the inconvenience of moving?  Moving costs are what, 1 or 2 monthly payments?  This tenant could end up with 3 years of non-payment, which is about $270k in saved payments.  For anyone with a mortgage, that’s a lot of money.  If you’re willing to strategic default to get that, having to move won’t deter you.

Right-to-rent and principal reductions are both anti-free-market attempts to skew the market, and will only reward bad lending and careless borrowing at the expense of those of us who did not contribute to this debacle.

Let the market work. If we had let the market work instead of deliberately driving bad lending and house inflation by means of easy money and government mortgage guarantees during the housing rampage, it would never have happened and prices would still be back at Y2K levels.

Ha, letting the market work would way too simple for the modern politician. They have to “solve” the RE problem and fix/save the economy before next year’s elections or they’ll have nothing to tout in their glossy campaign mailings. Letting the market work would require a degree of patience they don’t possess (and sadly, many/most Americans seem to lack this quality as well). However, I completely agree with LL here.

Wouldn’t “right to rent” turn mortgages into highly-leveraged, risk free options on the housing market? There needs to be an incentive to not buy when houses are too expensive, otherwise every housing market uptick will turn into a bubble.

They maybe renting out 40 Desert Willow and not squatting.
Either way, it goes back to the bank or gets picked up by 3rd party at auction.
Its neighbors 39 & 32 Desert Willow went that route.

You should have AZDave come up with another JPG for “Hardwood like”.

I like the floor plan for this particular home… no a true 3CGW… but closer than anything TIC is bringing out now.

I see the logic here—> right-to-rent will increase the rates of strategic default and foreclosure, as owners will be given the right to live in their own home, out of the crushing debt burden, likely long enough for their credit to repair itself enough that they may someday buy again.

What I don’t get is the logic that it will cause a crush on house prices.  And the reason I don’t see that is that I fail to see the logic that this will increase inventory.  With right-to-rent, you may have a lot more houses coming up for foreclosure auction, but ONLY to be purchased by cashflow investors or falling right back into the hands of the banks.

Right now a lot of renting potential buyers are waiting on the sidelines to buy their home.  Ensuring right-to-rent will keep them from buying any of these properties.

Essentially this is a way to allow foreclosures to proceed while tying up shadow inventory so it doesn’t find its way to the “real” market.

If these people don’t leave their homes, there’s basically no additional inventory coming on line, so I fail to see how prices would crater.

Can you explain?

IR: It would seem that the “Right to Rent” would turn completly non-performing assets (Squatters Loans) into partially performing assets, in the form of market rents.  It might work if banks were more diligent in the forclosure process, but it would require motivating FBs who currently pay nothing to pay something. I guess some morale hazard is better than a s***load of morale hazard.

SB

IrvineRenter: “to give every loan owner the right to stay on in their foreclosure for five years paying market rents”

The new law should not be applied to any contract signed before the effective date of this law.

IMHO, government is prohibited from passing ex post facto laws by constitution.

Inflation coming in hot… mortgage rates on the rise - from here to eternity.  Just imagine what will happen when the world’s economies actually start to recover…or maybe you believe that the BRIC won’t return to growth at some point and that the US will stop debasing the currency and balance our budget.  Both soooo unlikely.  So higher rates coming soon. 

Does anyone realise that we have a zero fed funds rate and are in the process of printing and buying 600B in treasuries to keep borrowing low???

Rates will easily be 2-5 points higher on a 30 year fixed in the next decade or two…

Yikes….  hope you can stay and pay for 10 years min to only loose a little! 

Housing has serious ‘head winds’ especially in still overinflated markets based on history. 

I go back to IR’s big charts.  Low end at rental parity.  Middle with 10-15% more to go and all things $1M and above ...pobre si! 

Hope those FCBs come in quantity. 

BD

I rent for $2700/month for a very nice place in HB.  To own the same place it would cost me $3600/month in mortgage and another $450/month in HOA. 

What idiot would buy when the gap is at historical highs like this??  And don’t say tax savings.  If you can afford a nice house out of income with a 20% down you make a good living.  And AMT tax takes it all… there are no savings if you make any thing close to what it costs to pay those payments with a 31% DTI. 

The gap between rent and ownership gap will revert.  There will be a reversal to mean.  It ALWAYS happens ALL the time…

So either rents on 1400 square feet condos, houses or apartments are going to 3500/month or prices are coming down.  Take your bet…

The best that prices can do is go sideways for decades… and BTW, rates matter big time!

BD

IR…can you put up a chart that shows interest rates on a 30 year fixed and the prices of housing?  It would be nice to include when the “financial engineering” and other products flooded the market with an arrow or something. 

Prices have risen principally because you can borrow more at a smaller rate.  If this reverses prices will fall b/c nearly everyone is paying maximally what they can afford on a monthly basis.  Of course you throw in intrest only and no document loans and you get a bubble on top of a bubble.  2004 was the end of the first bubble.  Then you throw in all of the “fincancial engineering” and you get a surge higher! 

We will most defintely go back to 2002-3 prices before this is done. 

If rates rise for 10-20-30 years just as they have fallen I would think that prices will fall.  That is, unless you believe that most people even in Irvine don’t borrow money to pay for things they can’t afford out of savings or cashflow. 

Thanks,

BD

What the banks are doing in some cases is allowing owners to squat because of their fear of destruction of the property in the few homes that I have tried to buy short sale. In these cases the owners told us they would just go into bankruptcy which would give them at least another year of squatting. As for keeping up the property that is a farce doing what looks good for the bank inspector who stops by for an occasional look see.
Why would these owners ever rent their home when they can keep living in it for free on top of the bank actually paying the taxes on it? After I learned all this on a house in Laguna I knew I would never be in this home, nor will anyone else.

Another problem with rent to live in for less is taxes. How would you distinguish the tax base and why should we reduce it even further? Everyone getting a reduction would hurt the overall economy greatly and you can’t do for one and not expect the rest of the herd mentality to all follow.