U.S. housing – Extremely tight lending standards and lack of new supply dispel collapse talk

Very tight lending standards and lack of new supply

The shortage is being aggravated by low unemployment, which is making it hard to hire workers. Not-in-my-backyard zoning rules are exacerbating the issue of an already small pool of construction-ready lots, and developers claim regulation is driving up costs. In March the National Association of Home Builders told Congress that edicts involving lead paint, endangered species, and worker safety go too far.

America Isn’t Building Enough New Housing – Bloomberg Businessweek – February 11th

Pedaling fear can be very profitable and is easier than taking the risk with investing

You can listen to the highly monetized X22 Report or the SGT Report channels for gloom and doom confirmation, or you can listen to reality. These charlatans make enough money off their sites and YouTube channels to survive financially. While house prices in Sidney and Melbourne, Australia are falling fast, simple math would have easily determined that we stay away from those areas. Simple math would have determined that we rent and not buy. It’s the math I use everyday.

But in most areas of the United States, we have a different story. I can tell you first hand about my latest investment experiences in the Washington D.C. area. I have plenty of anecdotal evidence pointing to a stable U.S. market, in aggregate, and that we will avoid the catastrophes of last decade. Anyone who disagrees can pass the time by tuning into X22 and SGT or reading the click bait on ZeroHedge.

Rather than heading for another bust, we’re still feeling the effects of the last one. Aggressive home builders were wiped out, and the survivors are cautious about working on spec. Smaller builders that rely on borrowing can’t supercharge construction, even if they want to, because their bankers are afraid of making loans. Even after a gradual rebound from its nadir in early 2009, the rate of starts on erecting single-family residences remains below the level of the early 1960s, when the U.S. population was less than 60 percent of what it is today.

Tighter regulation has ended dangerous practices, such as no-documentation loans, which got people into houses they couldn’t afford. Down payment requirements are mostly higher. These changes have made it harder for people to buy a house, which isn’t necessarily a bad thing. When Fannie Mae, the government-controlled mortgage-buying giant, surveyed housing lenders recently, only 1 percent blamed tight standards for credit and underwriting for the weakness in sales. Forty-eight percent cited an “insufficient supply.”

America Isn’t Building Enough New Housing – Bloomberg Businessweek – February 11th

The sad part is that when mortgage rates moved higher, less people wanted to sell.

I know personally that lending standards are much more restrictive than last decade. While the mortgage rates are heavily subsidized via Fannie Mae and Freddie Mac, getting the money is entirely a different matter.

I listed one of my single family rental houses a couple days ago for rent. Indeed, the rent is about $120 below market, but I get better quality tenants and get lower turnover. I have received at least 50 inquiries since I listed it Saturday night. Moreover, I received about 4-5 calls from investors asking me if I would sell. There is absolutely no inventory, even in the total rehab jobs.

I also have a portfolio of condos with about $1 mm in equity and I cannot get any loans for equity extraction. I mean it; I cannot get any lender to lend on that equity at any rate. Credit scores do not matter. Moreover, the condos generate enough income to live, but lenders do not care. Unless the properties are fee simple or have unblemished condo association numbers, money is impossible to get. Moreover, I can only get hard money lenders for my fee simple properties as the banks will not lend to me unless I have ample W-2 or 1099 income. Most investors have been shut out of this market. I timed the market correctly early in the decade and bought as much as I could with my cash. Today, I could only get about 50% of what I bought back then, and yet the people and renters are more desperate.

Despite the rising prices, my rents have continued to escalate. Thus, the numbers still make sense for new comers, which is why I am getting traction from investors. Tune out the gloomers; they make a lot of money sitting on their asses with their computers, scaring the crap out of their followers.

Rising mortgage rates also depressed the market in 2018. While strong economic growth gives more people the wherewithal to buy, it leads the Federal Reserve to raise interest rates, which makes mortgages pricier. Tendayi Kapfidze, chief economist for LendingTree Inc., says higher rates also shrink the inventory of homes for sale: People are less willing to move if their next purchase will have a costlier mortgage. On Jan. 30 the Federal Open Market Committee signaled it will be patient about raising rates further. In 2019, that will just have to count as optimism.

America Isn’t Building Enough New Housing – Bloomberg Businessweek – February 11th

One more thought; contemplate a dovish Fed scenario and a regime of falling mortgage rates. This is a probable outcome.


I am not saying that real estate is a bargain; far from it. But for those looking for a bust, they will be waiting a long time. If I am getting that many renter requests for one of my personal listings we have room to move higher.