The Ownership Society

[dcarrigg]

Re: Patient's Chart Please

Good question. I'm interested in the answer to this.

My guess is that if you look at aggregate numbers, boomers on average are consuming fine.

It's just that most of them aren't.

But "the economy" doesn't need most of us.

One person who blows $250,000,000 on a mansion does as much "consuming" as 1,000 people who buy new middle class homes.

One person who blows $250,000,000 on a yacht does as much consuming as 10,000 people spending $25,000 per year.

It doesn't matter too much if every middle class boomer cuts back, stops spending as much, and slows consumption

There's more money at the top every year.

The middle class is less relevant to "the economy" every year.

GDP can go up fine without it - maybe a little more slowly - but just fine.

And who care's if GDP's only growing 2% per year, when you're on the super-rich side of plutonomy and your wealth is growing 7%?

It's not like I'm just pulling this out of my butt either. It's not just a left-wing American thing. The banks know it too.

Remember this?:

[lektrode]

Re: Patient's Chart Please

My guess is that if you look at aggregate numbers, boomers on average are consuming fine.

It's just that most of them aren't.

last time i checked, aint no such person named 'average' listed in any phonebook (or facebook)

....

It's not like I'm just pulling this out of my butt either. It's not just a left-wing American thing. The banks know it too.

oh no worries, dc - we dont care where you pull yer stuff out of - am gittin to wondren tho, just how long its going to take for the 'right-wing' types to figger this out (too)

my guess is that most of THEM never saw INSIDE JOB nor watch much on PBS...
and the rollin stone?
fuhgetaboutit....

sincerely,
a former kinda-rightwinger, moving more middle-winger
(if not more middle-finger, with each passing day ;)

[flintlock]

Re: Patient's Chart Please

My guess is that if you look at aggregate numbers, boomers on average are consuming fine.

It's just that most of them aren't.

But "the economy" doesn't need most of us.

One person who blows $250,000,000 on a mansion does as much "consuming" as 1,000 people who buy new middle class homes.

One person who blows $250,000,000 on a yacht does as much consuming as 10,000 people spending $25,000 per year.

It doesn't matter too much if every middle class boomer cuts back, stops spending as much, and slows consumption

There's more money at the top every year.

The middle class is less relevant to "the economy" every year.

GDP can go up fine without it - maybe a little more slowly - but just fine.

And who care's if GDP's only growing 2% per year, when you're on the super-rich side of plutonomy and your wealth is growing 7%?

It's not like I'm just pulling this out of my butt either. It's not just a left-wing American thing. The banks know it too.

Remember this?:

I agree with this, but the only factor it ignores is the COST of people NOT being self-sufficient. When the middle class or whatever is not strong enough to stand on their own financially they become a huge burden to the state which can ultimately bury the state in high taxes and debt. Our banking system can cover for this for a while, but ultimately may lead to chaos. The "relevance" of the middle class is on the expense side, not the revenue. If middle class people vanished along with their incomes it wouldn't be a problem. But of course they do not. They still remain, requiring food, shelter, medical, etc. The plutocrats will always get theirs, its the smug and content 2-10% that may find themselves out in the cold some day.

[don]

Re: The Young & Not So Restless

If the American dream means owning a home, many younger Americans are opting out of that dream. Part of the reason may be a generational shift in having smaller families and a growing number of dual income no kid (DINK) households. That is part of it but a bigger reason is many younger Americans are financially in poor shape and unable to buy. Many are now part of a growing renter class. The recent Census data shows no reversal in this trend. Why would it? Many young Americans are also carrying high levels of student debt and in high cost areas like California, 2.3 million young adults are living at home with their parents because of financial challenges. This change has also impacted home builders since there is less of a need for large new homes when the demand is more for affordable rentals. Builders are keen to see this and that is why multi-family building permits are way up. What impact will this trend have on the housing landscape of America?

Homeownership down for the young

The number of households headed by those 18 to 34 is now at a generational low. These figures merely reflect a less affluent young generation of Americans. So it is no surprise that in some markets, prices are being held up on a razor thin margin of sales from outside buyers (i.e., foreign buyers, investors, etc). Yet as we have seen this year, once the group cools down markets go with it. This is not your typical housing market and we are already seeing what happens when investors pullback ever so slightly. Sales seize up and prices stall out. Of course you have your myopic contingency that merely thinks on the next lemming to purchase their home without stepping back and looking at the larger landscape. It is clear that the next generation of home buyers is simply having a tough go at it:



The trend is rather clear in that younger households are simply not buying at a high rate. They are either part of the renting class or living at home with boomer parents. You can see this trend hitting the core group of people that you would expect to be buying in this market based on age:



What is telling is that the homeownership rate only bucked upwards for older Americans in the last decade. Is this a problem? It depends on whether you believe owning a home is a requisite to a healthy economy. In places like San Francisco, arguably the core of tech wealth you have most households renting, including many wealthy tech workers. Los Angeles County, the largest county in California contains a renting majority.

Real estate tends to be a boom for the economy because of high level transactions and heavy construction. Yet that has been lacking:




New home sales are extremely weak. The model of building giant McMansions in an era of cheap energy seems to be pulling back especially when young households are much smaller in size. The era of having three kids or more is simply not in the stars for many and this shift makes the demand for larger homes drop. Plus, many younger households simply do not have the means to buy a newer home since these typically cost more. We had a fairly hot summer here in California and I know some people were paying $300, $400, or more per month simply to cool their larger homes during these months. Owning a home goes beyond the mortgage payment.

Yet people still lust for homes and if we look at the homeownership rate for those 35 and younger, it looks like we hit a peak in 2004:




Toxic mortgages provided the leverage for the young to pursue the American dream even though their wages did not justify them purchasing a home. Leverage cuts both ways and millions of Americans were burned. I’m always surprise how some see real estate as a super safe investment yet scoff at the stock market. In the end, you have many Friskies eating baby boomers living in expensive paid off homes but somehow, the cash flow is not coming in. A home does not throw off an income stream. You have taxes, insurance, and maintenance to keep the thing running.

Today, the young are not moving the trend when it comes to home buying. If this were the case, builders would be out in droves pumping out houses left and right. It looks like the American dream is being redefined when it comes to home buying.

[BK]

Re: The Young & Not So Restless



The younger generations are convinced real estate always goes up and is not correlated with the stock market.

This chart tells a different story or at least I think it does.

[DSpencer]

Re: The Young & Not So Restless

The younger generations are convinced real estate always goes up and is not correlated with the stock market.

Why do you say that? If anything, I consider that line of thinking as more typical of older generations. A 30 year old today has lived through a real estate crash as an adult. The charts from Don also suggest that they aren't buying in a way that suggests an overly optimistic view on real estate although it could be that they simply don't have the funds.

[don]

Re: The Young & Not So Restless

The younger generations are convinced real estate always goes up and is not correlated with the stock market.

A puzzler if not a leap of 'faith'.

[BK]

Re: The Young & Not So Restless

Certain Metro areas with jobs that benefit from the current reflation have seen there real estate values bounce back and have exceeded the previous highs of 2006.
The younger folks seem to believe that they will always be able to pay the mortgage (no matter what crisis hits the economy) because they were able to get a mortgage at such a low rate. They can't imagine a scenario where they have to move for a job or have difficulty finding a job.

Alternatively, when stock market crashes there is a real sense of lost value especially when the average human is more likely to sell his investment that is down 30-40% within months of the value bouncing back. The thirty somethings just want to lock in their dream home at a low mortgage rate.

For many they will be able to pay the mortgage and for others there will be a crisis moment when their industry tanks or a long time employer does major cuts because of an acquisition.

How many will be displaced when HP splits or what if EMC gets acquired or sells of VMware. What happens to the legions of employees at Insurance companies when interest rates start to rise because the last 30 years have been the most lucrative years ever to be an employee for an Insurance company.

[don]

Re: The Young & Not So Restless

The younger generations are convinced real estate always goes up and is not correlated with the stock market.

A young person with a well above average paying job - think Silicon Valley - who can qualify for inflated housing, probably will. Generations wide? Hardly.

[ProdigyofZen]

Re: The Young & Not So Restless

A young person with a well above average paying job - think Silicon Valley - who can qualify for inflated housing, probably will. Generations wide? Hardly.

I am a thirty something (barely on the low end) and have never had a desire to own a home in the suburbs.

I might however own a condo within the city limits where I don't have to drive much, depending on what city I live in at the time of a theoretical purchase.

[DSpencer]

Re: The Young & Not So Restless

I am a thirty something (barely on the low end) and have never had a desire to own a home in the suburbs.

I might however own a condo within the city limits where I don't have to drive much, depending on what city I live in at the time of a theoretical purchase.

I own a home and when my thirty something friends tell me they are thinking of buying I gently try to dissuade them.

I have thought a decent amount about home ownership and the costs involved. My big issue is that, for me, the ongoing costs for maintenance are much higher than the typical estimates you can find online. Some of that is because my house is large relative to its price because I live in a low cost area. Some if it is because my standard of acceptable condition may be different than average. Nonetheless, I think that human psychology causes people to ignore these costs in their analysis of the cost/benefit of home ownership.

It reminds me of talking to people about gambling. If I went by what people told me about their wins/losses I would come away with the impression that most people win money gambling. In the same way people are happy to recall selling their house for 30k more than they bought it for. They probably never even did the math to figure out how much they spent maintaining it and almost certainly don't count that as losses against the price appreciation.

[ddn3f]

Re: The Young & Not So Restless

I am 30, have a wife and a 20 month-old kid and am in the process of building a new home. I have managed to hold off on a buying a house for a few years. I understand that the costs of home maintenance are much higher than what people think. But the job is stable...for now and we plan to stay here for a very long time. I live in a very far surburb of Washington DC. All of my wife's female friends around the age of 30 already have a house and they all had kids together within a 3 year timespan. We were the last of her friends to buy a house. Most of her friends bought a home around when they were engaged. That's just a small sample though. From what I see in this area, the high 20s and low thirty-something folks will purchase real estate when they are about to get married if both have decent jobs (household income above 100k).

I understand that everyone in the DC area has it really good and lives in a bubble.

I own a home and when my thirty something friends tell me they are thinking of buying I gently try to dissuade them.

I have thought a decent amount about home ownership and the costs involved. My big issue is that, for me, the ongoing costs for maintenance are much higher than the typical estimates you can find online. Some of that is because my house is large relative to its price because I live in a low cost area. Some if it is because my standard of acceptable condition may be different than average. Nonetheless, I think that human psychology causes people to ignore these costs in their analysis of the cost/benefit of home ownership.

It reminds me of talking to people about gambling. If I went by what people told me about their wins/losses I would come away with the impression that most people win money gambling. In the same way people are happy to recall selling their house for 30k more than they bought it for. They probably never even did the math to figure out how much they spent maintaining it and almost certainly don't count that as losses against the price appreciation.

[don]

Re: The Young & Not So Restless

time for an update . . .

Let the serfs pay their rent: Rental income held steady from 2000 to 2007 but has now risen a whopping 240 percent since the Great Recession hit.

Being a landlord is no easy task. In the long run owning a rental property can be a nice addition to your investment portfolio but there is nothing sexy about it. Many small time landlords only start to see the benefits many years into holding the property. For the most part, this is why Wall Street and large hedge funds have avoided owning single family homes in their portfolios. That of course changed in 2007 when the market went into full on implosion mode and the mantra of the day was “chase yield anywhere you can find it.”

There is this odd notion that somehow all the great deals went to other families that timed the market perfectly. The excellent deals of 2008 to 2011 were happening at a time when the economy was in crisis mode. Some of the best deals to be had were done via auctions and you needed to have a cashier’s check to play so many regular people had no access to this. 7 million foreclosures and many of these are now in the hands of investors. The homeownership rate is a clear indication of this. It should also be no surprise that we’ve added 7 million renting households. How big of a change have we seen? Rental income which held steady between 2000 and 2007 at roughly $200 billion per year is now up 240 percent coming in at $640 billion. Since few people actually own rentals, this is money flowing into a concentrated group.

Send those rent checks in

How many people in the US actually own rental property? The figures are hard to get but the number is very low. The Fed does an extensive survey on consumer finances and found that in 2013, roughly 13 percent of families had another property outside of their primary residence compared to nearly 50 percent that have some money in retirement funds. Keep in mind however, that this number includes vacation homes so these are not all rentals.First let us look at the number of households with other real estate besides their own property:

Source: Fed Survey of Consumer Finances

This is interesting that the number has pulled back in recent years for families given the massive number of investor buying. What this tells us is big groups were the large beneficiaries of the recent rental buying boom.

If you think families are owning incredibly expensive second homes think again. Take a look at the median value of those other pieces of real estate:

According to the survey the median value of these other pieces of real estate is close to $120,000. Certainly not your $700,000 crap shack in California. What we can also derive is that much of the recent buying is going to groups that are new to the single family game. Given constrained inventory, any marginal buyer (in this case large investors) easily pushed prices higher.Look at it this way. From 2000 to 2007 we had the largest boom and bust in US real estate that we have ever known. You would think that many would have been diving in to buy investment properties for rents yet somehow, rental income held steady throughout this period. Most were using the easy access to debt to over leverage and buy more home than they could afford and used their homes like ATMs. Many others were aspiring flippers in it for the short game. The figures back this up. What we then see in 2008 is big money and investors that live and eat spreadsheets coming in strictly for rental income. The below chart couldn’t be any clearer:


Source: NAR, BEA

Rental income is up a whopping 240 percent from 2007. And the vast bulk of spoils are going to Wall Street and large investment funds. Rents are now up across the United States while incomes are stagnant. Simply more income is going to housing in either rents or higher mortgage payments. This is also why the homeownership rate has gone this way since the bust happened:



Follow the money carefully. If you do, you will see that big money is pulling back from real estate. The nation is largely becoming one of renters and the big juicy gains are going to recent landlords. This is also a reason why the market has stalled out in 2014 as investors have pulled back since current prices simply do not make sense for investment properties. There is much speculative thought in the market today. The number of people saying that they wished they would have bought smells of 2006 and 2007. If you are in it for the true long run and not some quick turnover property ladder enthusiast, then buying today assuming your income can support it should not be an issue. 30 years of inflation will eat a lot of things away. But is it a good investment? You have to factor in opportunity costs, additional outflows for owning versus renting, and ultimately your lifestyle choices. For many, buying today would seriously put a vice grip on your monthly budget. And what you are able to buy is one step above junk.

The fact that we’ve added so many more renting households is a trend that is not going away. Younger households are largely cash strapped and this has put a dent into the first time home buyer market. The good news though is that more rental income is going to larger landlords. The wonderful benefits of the bailouts, QE policy, circumventing regular accounting standards, and artificially controlling the market.

[bill]

Re: The Young & Not So Restless

http://online.wsj.com/articles/dodgy...ack-1417480386


By
AnnaMaria Andriotis
Dec. 1, 2014 7:35 p.m. ET


Home appraisers are inflating the values of some properties they assess, often at the behest of loan officers and real-estate agents, in what industry executives say is a return to practices seen before the financial crisis.

An estimated one in seven appraisals conducted from 2011 through early 2014 inflated home values by 20% or more, according to data provided to The Wall Street Journal by Digital Risk Analytics, a subsidiary of Digital Risk LLC. The mortgage-analysis and consulting firm based in Maitland, Fla., was hired by some of the 20 largest lenders to review their loan files.

The firm reviewed more than 200,000 mortgages, parsing the homes’ appraised values and other information, including the properties’ sizes and similar homes sold in the areas at the times. The review was conducted using the firm’s software and staff appraisers.

Bankers, appraisers and federal officials in interviews said inflated appraisals are becoming more widespread as the recovery in the housing market cools. While home prices are increasing generally, their appreciation is slowing, and sales have been weak despite low interest rates. The dollar amount of new mortgages issued this year is expected to be down 39% from last year, at about $1.12 trillion, according to the Mortgage Bankers Association.

That has put increasing pressure on loan officers, who depend on originating new mortgages for their income, as well as real-estate agents, who live on sales commissions. That in turn is raising the heat on appraisers, whose valuations can make or break a sale. Banks generally won’t agree to a mortgage if the purchase price or the refinancing amount is higher than the appraised value.



The practice is garnering broader notice. The Office of the Comptroller of the Currency is reviewing the mortgages banks are doling out, concerned that some of them are based on inflated values, according to Darrin Benhart, a deputy comptroller who focuses on identifying areas of risk in the federal banking system. The OCC oversees national bank and federal savings associations lending practices. Separately, Freddie Mac , the mortgage-finance giant, said it has opened fraud investigations related to appraisals of homes backing mortgages it bought.





Almost 40% of appraisers surveyed from Sept. 15 through Nov. 7 reported experiencing pressure to inflate values, according to Allterra Group LLC, a for-profit appraiser-advocacy firm based in Salisbury, Md. That figure was 37% in the survey for the previous year.

“If you thought what was happening before was an embarrassment, wait until the second time around,” said Joan Trice, Allterra’s chief executive and founder of the Collateral Risk Network, which represents appraisers employed by lenders and other companies and has been meeting with regulators to discuss concerns about appraisers being pressured into inflating values.

To determine a home’s value, appraisers assess a property’s condition, size and location, among other factors. They use similar properties that have been recently sold as one key basis for comparison.

Digital Risk found that some appraised values were off the mark based on discrepancies that appeared unintentional, though, “at other times, the appraiser’s selection of [comparable properties]...is very hard to justify,” said Thomas Showalter, chief analytics officer at Digital Risk. The firm saw cases where values for decades-old homes were determined based on sales prices for newly constructed ones, and homes blocks from shorelines were compared with waterfront properties, he said.

New houses under construction in Golden, Colo., in August. Some in the mortgage industry say inflated home appraisals are increasingly a problem. Reuters .To be sure, inflated appraisals aren’t a problem everywhere. Real-estate agents, for example, say they sometimes encounter appraisals that come in below the agreed-upon purchase price and derail the deal.

Twenty-four percent of real-estate agents surveyed in March 2014 reported that low appraisals resulted in sales contracts being canceled, delayed or negotiated to a lower price, according to the latest data from the National Association of Realtors. But that figure has been declining in recent years: In March 2013, 29% of agents reported such problems, and the figure was 31% in March 2012.

Brandon Boudreau, chief operating officer at Metro-West Appraisal Co. LLC, a national firm based in Detroit, says he and his appraisers often feel pressured by aggressive real-estate agents.

“It’s a daily thing,” Mr. Boudreau says. “They say, ‘Your appraiser is incompetent. They don’t know what they’re doing.’ ” In such instances, Mr. Boudreau says he tells the real-estate agents to contact the loan officer handling the borrower’s application with evidence the appraiser undervalued the home.

Much of the pressure, appraisers say, is being applied by companies hired by banks to assign appraisal work, known as appraisal-management companies, or AMCs. A much larger share of appraisals have been filtered through these companies since the introduction of new financial rules and other requirements that seek to prohibit appraiser coercion.

Banks turned to AMCs to help maintain a distance between loan officers and appraisers. That distance is intended to eliminate pressure on the appraiser to hit a certain price. But some in the industry say AMCs are now applying pressure in a bid to keep the lenders’ business.

Within lenders’ ranks, tensions are also rising. While loan officers may be trying to boost the number of home loans they give out, their superiors and risk officers are charged with ensuring the quality of those loans.

“The lender is held accountable—they need the appraisal to be accurate and to defend it years down the road,” said Michael Fratantoni, chief economist at the Mortgage Bankers Association. He cited the agreed-upon purchase price as among the best measures of a home’s value.

Tom Allen, who says he has been an appraiser for 44 years, recalled appraising a house in April for about $450,000 for a loan application with J.P. Morgan Chase & Co. About a week later, Mr. Allen, 68 years old, says he received a request from the appraisal-management company to use two different properties as comparables that had recently sold for around $525,000 and $540,000. Mr. Allen says he refused because the homes were larger, in a more expensive neighborhood and built about 10 years after the property in question. Since then, Mr. Allen says he mostly accepts appraisal requests for homes that have several similar nearby sales.

A J.P. Morgan spokesman declined to comment.

Mr. Allen declined to name the AMC. “If they get negative feedback from an appraiser in a small market they’re in, it’d be easy for them to never give me any more work,” he said.

It isn’t uncommon for the lender or the loan applicant to supply comparable sales if there are legitimate concerns with the appraisal report, said George Demopulos, vice president of the National Association of Appraisal Management Companies, which is based in Providence, R.I. The group represents about a dozen AMCs that receive assignments from large and small lenders and who work with thousands of appraisers across the country.

“Most AMCs abide by best practices,” he said. “Any legitimate AMC would not pressure and should not pressure any appraisers.” Mr. Demopulos acknowledged he has heard of instances similar to the one described by Mr. Allen.

Mr. Benhart, of the Office of the Comptroller of the Currency, first warned of problems with how banks review appraisal reports last year in a speech to mortgage bankers. He says the agency has been spending more time at banks this year scrutinizing the home-valuation paperwork used to help originate mortgages. The OCC found cases in which bank staff didn’t have enough training, Mr. Benhart said. In some cases, for example, they didn’t have experience with the type of property or the area, he said. It also found banks that didn’t thoroughly check reports or provide oversight of AMCs.

“This is rising as a risk,” said Mr. Benhart.

Freddie Mac has found cases of appraisers submitting a suspiciously high number of reports in one day, as well as reports for properties in places where they aren’t certified or licensed to operate, according to a spokesman. It has also received tips from employees at lenders and other insiders warning of inflated valuations, he said.

The firm is looking “into whether or not some of the lines have been crossed from compliance to noncompliance with regard to appraisal independence,” he said. “We are watching it closely and are very aware of the issues.”


renter lease to buy.....
https://homepartners.com/

http://www.bloomberg.com/news/2014-1...ntal-firm.html
11-6-2014

BlackRock Inc. (BLK), the world’s biggest money manager, and private-equity firm KKR & Co. (KKR) have gained a majority stake in Home Partners of America Inc., a single-family rental company backed by Lew Ranieri.

Home Partners raised capital from BlackRock and KKR, reducing Ranieri’s stake, according to two people familiar with the transaction who asked not to be identified because the information is private. The investments were made within the last few months and will be used for an expansion, said the people, who wouldn’t provide financial terms.
Ranieri, 67, said in an interview yesterday that BlackRock and KKR invested in the company, without disclosing details of the transaction. Rising renter demand for the firm’s houses created a need for more financing, which funds managed by New York-based BlackRock and KKR are better able to provide, he said, speaking on the sidelines of a conference in Washington.
Home Partners, formerly called Hyperion Homes Inc., has been buying “in the best neighborhoods and they were buying more and more houses and needed more capital,” Ranieri said.
Tara McDonnell, a spokeswoman for BlackRock; Kristi Huller, a spokeswoman for KKR; and Bill Young, chief executive officer of Home Partners, declined to comment.

[lektrode]

Re: The Young & Not So Restless

thanks for this, bill - it almost made me buy the paper yest.. ;)