Another Housing Bubble

What people say these days about increasing house prices is that it is “different this time” because lenders aren’t making bad loans to people who can’t afford them.  Everyone assumes that is what caused the housing crisis last time around.

But recent research says that is not what caused the housing crisis.  Instead, flippers, investors, and people with good credit who kept pulling out cash from their properties as prices went up to buy new properties were the ones that caused the problem.  What they were doing was buying homes as an “investment” or to “flip,” and not to live in.  This artificially made inventory low (because how can you buy a house for your lower middle class family if all the rich or upper class good-credit investors are snatching everything up with their cash?) and made prices go up into outer space.  The investors blew up prices and buried themselves in debt.  Then when things got sour they dumped their investment properties to save their personal homes, creating the crash in the real estate market.

This time around we are seeing the same thing.  You hear the “how to flip houses” ads on the radio.  You hear the non-stop ads about refinancing, pulling out cash, doing anything you can to turn your home equity into cash for you to invest or spend on new toys.   You see the “house flipper” shows featuring the same idiots who have returned to the business after going bankrupt the last time around.  You hear all the reports about the “low inventory” and “high demand” in housing just like we did in 2005.  As interest rates go up, people continue to scramble to buy and lock in the lower rate before it is too late.  Listen to any pod cast about real estate investing and they will tell you they are doing exactly the same thing they did last time: pulling out cash and buying new property, then pulling out cash from that property and buying something else, over and over again.

Meanwhile, the number of refinances are going down because why would any sane person (who is only refinancing to lower their mortgage or maybe get rid of PMI) refinance now at 5% when they could have done it a year ago at 4%?  If you’re an investor though and just need the cash, you would do the refi anyway.  And it turns out that is exactly what is happening.  As the number of refis go down, the share of refinances that are just about cashing out on the equity is going up to the same huge levels it was at before the housing bubble burst in 2008.

As of the fourth quarter of last year, the share of all refinances that were cash-outs rose to the highest since 2008, according to Freddie Mac data. Rates have churned higher since the presidential election in late 2016, though they spent much of 2017 reversing the immediate post-election surge.

If it’s different this time because lenders aren’t making bad loans to poor people, but that isn’t even what caused the bubble in the first place, then how exactly is this bubble different than the last one?  On the other hand, if we assume that the bubble last time was built by investors and people with “good credit” who were pulling cash out of their real estate left and right, they are doing it again this time.  All it will take is a little recession, which has to come sooner or later, to shake things up.


U.S. Housing Prices Continue To Blast Off Into Outer Space

The news today is that housing prices continue to increase rapidly in the United States.  Supply is tight and the public seems to think that the prices will continue to fly into the sky with apparently limitless potential. The optimism, as one report notes, is very similar to what people were feeling in 2005 right before the housing market crashed back down to earth:

The level of optimism is edging closer to the 70% of adults in 2005 who said prices would continue rising. That, of course, was less than one year before the peak of the housing market bubble in early 2006, which was largely fueled by a wave of subprime lending. (Roughly one-quarter of respondents in both 2005 and 2018 said they believed house prices would remain the same.)

Fears of a 2008 housing crash though are tempered with data that screams, “But it’s different this time!”  For example, during the housing crises ten years ago, in Tampa Bay, Florida, 43% of homes were “seriously underwater,” with owners owing at least 25% more than the home’s value on their mortgage.  Today, 9.4% of homes with mortgages fall into the “seriously underwater” category.

On the other hand, in an interview with the Tampa Bay Times, Daren Blomquist, senior vice president of ATTOM Data Solutions, said that “evidence anecdotally is the return of subprime mortgages, which they are now calling ‘non-prime’ mortgages, and I think more companies are doing them.”  Blomquist also said that “On the grapevine, we’re hearing a little more about people interested in mortgage-backed securities. That’s one of the hallmarks that helped inflate the housing bubble last time around.”

Meanwhile, the Dallas, Texas, housing market, that has been burning hotter than the flames of hell in recent years, seems to be “leveling off.” According to Melissa Hailey, President of the Collin County Realtor’s Association, “We’re definitely still seeing buyers and sellers with lots of new listings on the market and lots of homes going under contract, but the prices are definitely holding more steady then they have been.”

Meanwhile in Laguna Beach, California, long-time locals seem to be growing disgruntled at how local housing prices have sky-rocketed into outer space.  Advertisers, who forget that some long-term residents bought before all the homes in the area became multi-million dollar cribs, send out ads that some residents are finding annoying.

One ad summed up the housing situation in Laguna Beach to a “T”.

“Original Greenwich Village artist loft for sale: 20-foot ceilings, north facing windows with a large entertainment area. $5,295,000.” Just like the situation in Laguna; there aren’t a lot of artist’s left, only expensive artistic housing selling at inflated prices based on a branding concept that no longer has any basis in reality.

The market on the lower end (“entry level”) continues to suffer from supply shortages and too many potential buyers.  On the luxury end of the market, things are very different.  In fact, New York’s most expensive listing (an $85 million penthouse) has been sitting on the market for five years.  The motivated seller has tried to sweeten the deal with three luxury cars and a yacht, but no dice.  Now the seller is throwing something else in: a free trip to outer space

“Someone not from New York can [move here and] have a New Yorker’s lifestyle and point of view,” Neiditch told the Post. “In a way, I’m offering my lifestyle.”

But local real estate professionals aren’t buying it, “People only pile up giveaways when they won’t reduce the price. It has never made a lot of sense to me,” an unnamed Manhattan broker said.  The Real Estate price boom appears to be the free trip to outer space people in all economic classes can experience.  Enjoy the ride.




Housing Prices Continue To Blow Sky High

The LA/Orange County real estate market continues to burn white hot, and in fact nation-wide housing prices are continuing to rise at break-neck, and wallet-breaking, speeds:

Case-Shiller’s report showed house prices up 6.3 percent nationally in February and up 6.8 percent in its 20-city composite index.

Seattle, Las Vegas, and San Francisco lead the 20-city index with double-digit price gains. Prices were up 10.1 percent in San Francisco and 7.6 percent in San Diego. The Inland Empire isn’t included in the 20-city report.

Home prices continue to go up, up, up,” Chief Economist Danielle Hale said in a statement issued in response to the Case-Shiller data.

Meanwhile, as traditional mortgage rates rise, people are turning back to those nasty adjustable rate mortgages:

But according to the most recent Origination Insight Report from Ellie Mae, it seems that may be changing. This March, ARMs accounted for 6.3% of all mortgage loan originations—their highest share since October 2014.

Rising interest rates on fixed loans are the biggest reason ARM originations are rising. Because ARMs typically offer a lower initial rate up front than fixed-rate mortgages (FRMs), they’re able to save buyers hundreds or even thousands of dollars on their purchase.

Meanwhile over in Canada, which is dealing with the beginnings of a housing bubble, the alarm bells are going off as people who pulled cash out of their home are getting squished by rising interest rates:

A recent Globe and Mail story on the dangers of credit lines said that clients of the Big Six banks had borrowed a record $207-billion using HELOCs as of Oct. 31. TD was the dominant bank in the group – its HELOC balance at Oct. 31 was $73.4-billion.

HELOCs are the smartest way to borrow for expenses you need a little time to pay off. But low interest rates have drawn some people into a dependence on HELOC borrowing to sustain their lifestyle or buy extras they can’t otherwise afford. There’s growing concern about how people will manage all their debts, HELOCs included, as interest rates move higher.

It seems like the big difference this time around is that mortgage lenders are only lending to people who can really afford what they are buying.  But with the price of housing completely outpacing income, where exactly are all these customers who can “afford” these extremely high priced homes coming from?

Police Handguns Disappear from City Vault

BL_Scan-56This morning I wrote about a Pasadena city cop who decided to sell illegal firearms on the internet as well as two Gardena police officers who also got busted for illegally selling firearms on the internet.

Now we have a case of 31 handguns disappearing from Sheriff’s Department custody in Los Angeles, California.  On September 16, 2000, the Compton police department was disbanded by the city and the Los Angeles County Sheriff’s Office took on a contract to provide police services to the city.  At the time, the city decided to place its guns into a city vault for safekeeping.  And there they sat for 17 years.

In 2009, the city explored reestablishing a police department.  The idea never gained any support and fell through in 2011, but the city continues to toy with the idea of starting up its own police force once again.  As a consequence, it decided to hold the police department’s stash of guns until city leaders decided what to do with them.

In March 2017, however, the city decided it was time to do something with the firearms, and had the Sheriff’s Department come in to inventory the weapons.  In August 2017, the Sheriff took the firearms and put them in its own vault for safe keeping.

After the Sheriff took the firearms, however, someone realized that 31 handguns disappeared sometime between March 2017, when the Sheriff first inventoried the guns, and August 2017, when the Sheriff transferred the guns to its own vault.

According to Compton City Manager Cecil Rhambo (himself a retired high-ranking official of the Los Angeles Sheriff’s Department), there is a hodgepodge of missing guns:

“There were some police department weapons . . . There were some weapons with no owner on file, some weapons registered to other people, some evidence weapons there.”

As to who may have taken them, Rhambo said:
“There were several people at the time who were working who had the combination . . . I had access to the combination. But over the years I have no idea the number over 17 years who still had access to that combination.”

It seems as though cops are having a hard time following gun laws lately.

The Other Minnesota Twins

Imagine if you had a twin and you were separated at birth.  And 39 years later you meet and start talking to each other about your lives.  What would you learn?  Well two twin brothers did just that, and here’s what they found out about each other:

In her book Entwined Lives, Nancy Segal lists the following shared characteristics:

  • As youngsters, each Jim had a dog named “Toy.”
  • Each Jim had been married two times — the first wives were both called “Linda” and the second wives were both called “Betty.”
  • One Jim had named his son “James Allan” and the other Jim had named his son “James Alan.”
  • Each twin had driven his light-blue Chevrolet to Pas Grille beach in Florida for family vacations.
  • Both Jims smoked Salem cigarettes and drank Miller Lite beer.
  • Both Jims had at one time held part-time posts as sheriffs.
  • Both were fingernail biters and suffered from migraine headaches.
  • Each Jim enjoyed leaving love notes to his wife throughout the house.

Blood runs deep.


Illegal Firearms Sold by Cops

Last week we learned that a Pasadena city police officer was purchasing guns that otherwise could not be purchased in California (but he for some reason has special privileges because “cop”), and then turning around and selling them online to the highest bidder:

The Bureau of Alcohol, Tobacco, Firearms and Explosives raided Gourdikian’s Sierra Madre home in February 2016 and seized dozens of firearms. Between 2013 and 2017, Gourdikian listed more than 70 firearms for sale through an account on, public records showed. Federal authorities say they’ve traced the sales of at least 107 firearms back to him.

The Pasadena police chief either knew this was going on or thinks there is more scandal, because he immediately announced his retirement when his officer was caught running guns like a gang thug.  This followed another controversy where two other Pasadena police officers were caught beating an unarmed black motorist with their batons:

Videos captured by the police and a bystander show one officer repeatedly striking the unarmed motorist with a baton during the Nov. 9 incident.

Another officer screams at the man to give up his hands and punches him at least five times before slamming his face into the asphalt. Eventually, the officers manage to handcuff the man behind his back.

This week, we learn that two other Los Angeles area police officers have also been arrested for illegally selling guns:

The 25-page indictment alleges that from 2015 to September 2017, the two officers exploited their positions to deal 101 firearms to people barred from owning or selling such weapons unless they are in law enforcement or the military. It marks the latest move by the Bureau of Alcohol, Tobacco, Firearms and Explosives to curtail the abuse of special privileges afforded police officers in purchasing firearms.

Maybe it’s time for the “special privileges” to end.



Saudi Arabia Missile Attack – Video

In case you missed it, Houthi rebels in Yemen fired scud missiles into Riyad (the capital of Saudi Arabia).  The missiles were shot down by American-made PATRIOT missile defense batteries.

Some of the scraps from a shot down scud landed on a house, went through the roof and killed a man while he slept.  Some of the video has been released on social media.  It appears to show that at least one of the American PATRIOT missiles malfunctioning and coming crashing to the ground.

You can watch video from CNN (showing the scud being shot down) here.

Others captured the malfunctioning PATRIOT missile are below:

Different angle:

A video of a PATRIOT in action: