Just over a decade following the real estate housing bubble bust across the nation, the market is experiencing another boom, as the folly of Wall Street and Washington never changes, it just shifts in appearance like a chameleon. Case in point is the subprime loan now called a “non-prime,” with soaring demand.

The current run-up in valuations is similar to the previous bubble in many respects, fueled by wayward federal housing policy, regulatory negligence, easy monetary policy, and household debt binging. The real culprit of the Great Recession was the derivatives market. I fear the downside of the current unaffordable run-up will be more profound than the previous, no matter how much of a role the current derivatives market may partake. Consider reading my recent article, “Debt-Slaving U.S.A. Likely to be the Next ‘Big Short’ Opportunity,” for some insight on a potential issue brewing within the securitization of mortgages in the non-banking industry.

Forget About Housing, The Real Cause Of The Crisis Was OTC DerivativesBusiness Insider, May 2010

To be fair, congressional mandates enshrined within the Community Reinvestment Act (CRA) do contribute to the non-bank and TBTF banking industry financialization of unsustainable price moves encouraged by monetary policy, which then accelerate localized volatility when the housing supply is considered constrained for any number of reasons other than fair market value. The CRA is not solely responsible by a long shot because only a small percentage of those loans went bad during the previous bust. The economic turmoil extended across all mortgage types and affected borrowers across all income stratifications, but the mainstream media’s scapegoat for Wall Street’s carelessness and Washington’s blind eyes focused on the word subprime, and the peasantry be damned.

The Community Reinvestment Act “is intended to encourage depository institutions to help meet the credit needs of the communities in which they operate, including low- and moderate-income neighborhoods, consistent with safe and sound operations. It was enacted by the Congress in 1977 (12 U.S.C. 2901) and is implemented by Regulation BB (12 CFR 228). The regulation was substantially revised in May 1995 and updated again in August 2005.” – Federal Reserve

Community Reinvestment Act – Did This 1977 Law Create the 2008 Financial Crisis? The Balance, Jan. 2018

With all of that said, my point is not to get mired into debate details of what happened, is happening, when or why, but rather convey a brief snapshot of current market conditions while keeping in mind how we got to this place. The following collage of data points might help anyone sitting out there in an “overvalued” property who does not care to own a pair of rose-colored glasses and has a desire and the means to take their money and run elsewhere to a more affordable and higher quality of life sooner, rather than later.

The US Cities with the Most Magnificent Housing Bubbles  Atlanta, Boston, Dallas, Denver, NY Condos, Portland, Los Angeles, San Francisco, Seattle Wolf Richter, Jan. 30

National Home Ownership vs. Case Shiller Housing Price Index…


How Much Income You Need to Afford the Average Home in Every State – How Much, Apr. 2


Outgoing Fed Chair Janet Yellen Says Prices High for U.S. Stocks and Real Estate… ’Well, I don’t want to say too high. But I do want to say high,’ Yellen said on CBS’s ‘Sunday Morning’ in an interview recorded Friday as she prepared to leave the central bank. ‘Price-earnings ratios are near the high end of their historical ranges.’ Commercial real estate prices are now ‘quite high relative to rents,’ Yellen said. ‘Now, is that a bubble or is it too high? And there it’s very hard to tell. But it is a source of some concern that asset valuations are so high.’” – Fortune, Feb. 4

Wages Inequality as of Dec. 2017…


Spring Home Sales Could Be the Weakest in Years… “The economy is booming, take-home pay is rising and millennials are getting married and having children. Despite all those home buying catalysts, this could be one of the weakest spring selling seasons in recent years. The culprits: rising mortgage rates, a tax bill that reduces the incentives for homeownership and a growing weariness among first-buyers being priced out of the market—all of which are expected to damp demand for homes this year.” – WSJ, Mar. 7

No-Money-Down Mortgages Are Making a Comeback… “In the aftermath of the Great Recession, no-money-down mortgages got a bad rap, blamed for being part of a toxic brew of bad lending that crashed the real estate market. But in a bid to reach credit-worthy buyers struggling to save up thousands to secure a loan, mortgage lenders are experimenting again with very low down-payment mortgages.” – The Street, Mar. 15

Californians fed up with housing costs and taxes are fleeing state in big numbersCNBC, Mar. 18

Housing bubble or not, the real estate market is in troubleNational Mortgage News, Mar. 28

San Fernando Valley home prices shatter all-time record… “A typical Valley residence now runs buyers $700,000—well above the previous median price record of $675,000 set in November 2017. That price is also 16.7 percent higher than a year earlier.” – Curbed Los Angeles, Apr. 2

Manhattan Home Sales Tumble Most Since 2009 as Buyers WalkBloomberg, Apr. 3


Carrington Mortgage Services launches subprime lending program… “Carrington Mortgage Services is launching a mortgage lending program that looks an awful lot like pre-crisis subprime lending, but the company claims that its new ‘non-prime’ loans are much safer than the subprime loans of the mid-2000s.” – HousingWire, Apr. 3

And the fastest growing bank asset in 2017 was… SUBPRIME!… “They say that goldfish have the shortest memory in the Animal Kingdom… something like 3-seconds… Over the last twelve months the subprime volume among US banks doubled, and it’s already on pace to double again this year. Bottom line– financius dumbassus is once again back to its old ways… making risky loans to borrowers with pitiful credit. What could possibly go wrong?” – SovereignMan, Apr. 3

Toronto’s Epic Housing Bubble Turns to Bust… “Prices of detached houses plunge C$207,000 from a year ago as sales collapse.” – Wolf Richter, Apr. 4


San Francisco home prices have gone up $1,222 per day over the 3 months… “Unless you’re a millionaire, it’s difficult to fathom San Francisco’s insanely high home prices.” – SFGate, Apr. 6

Rising Home Prices Push Borrowers Deeper Into Debt… “Tight supply, higher mortgage rates make homeownership out of reach for many, pressuring lenders to ease credit standards.” – WSJ, Apr. 10

The Housing Supply Puzzle: Part 1, Divergent Markets… “Analysts have pointed to a tight housing supply as the key constraint holding back the housing market. How­ever, statistics on housing inventories indicate shortages only for existing homes, while the supply of new homes remains at a relatively healthy level. Existing and new home supplies typically move in sync, which poses an important question: What has changed to prompt this decoupling?” – Federal Reserve Bank of St. Louis, Apr. 10

Mortgage Refis Tumble To Lowest Since The Financial Crisis, Leaving Banks Scrambling… “The Mortgage Bankers Association expects nothing short of a bloodbath: it forecasts overall mortgage-purchase volume to grow about 5% in 2018 but refinancing volume to drop 27%.” – ZeroHedge, Apr. 11


Chicago-based MB Financial Bank shuttering national mortgage origination business… “According to previous SEC filings, MB Financial has 49 mortgage retail offices in 16 states, in addition to its 86 Chicago-area retail banking branches…. The company said that it made the decision after completing an analysis of the current economic environment, as well as the “highly competitive mortgage industry, including recent very low origination margins.” – HousingWire, Apr. 13

We’ve seen a slowdown at the top end of the housing market… “Aaron Terrazas, Zillow senior economist, discusses the shortage of affordable housing as mortgage rates are on the rise.” – CNBC, Apr. 13

Housing affordability is weakening at the fastest pace in 25 years… “It is the perfect storm: Rising home prices, rising mortgage rates and rising demand are colliding with a critical shortage of homes for sale. And all of that is slamming housing affordability, which is causing more of today’s buyers to overstretch their budgets.” – Diana Olick, CNBC, Apr. 13

Home buyers beware: Most expensive housing markets in every stateUSA Today, Apr. 16

London House Prices See Fastest Quarterly Fall Since 2009 CrisisGoldCore, Apr. 17


U.S. Homebuilder Sentiment Declined in April for a Fourth MonthBloomberg, Apr. 17

US housing single-family segment weak… “U.S. homebuilding increased more than expected in March amid a rebound in the construction of multi-family housing units, but weakness in the single-family segment suggested the housing market was slowing.” – Fox Business, Apr. 17

NYC neighborhoods where prices are skyrocketing… “Watch your wallets in these neighborhoods. Real estate data Web site PropertyShark calculated the median prices at which homes sold in 50 New York City neighborhoods during the first quarter of 2018.” – NYPost, Apr. 18

Subprime Mortgages Come Roaring Back… “Only this time around they are sponsored by the U.S. Government and guaranteed explicitly by the Taxpayers. I say ‘explicitly’ because Government agency-issued mortgages are directly guaranteed.” – Investment Research Dynamics, Apr. 18


Here is a prescient quote from Christopher Whalen….

A scene from The Gambler sums up my advice regarding the housing market…

Plan Your Trade, Trade Your Plan

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