The Collected Works of Author and Blogger Larry Roberts

Archive for 2009

Nothing in your hand; it is what underwater homedebtors have. They occupy a house -- just like renters do -- but most of them do so at a huge premium to renting. Underwater homedebtors have no equity; what they do have is the dream of equity in the future. They have a position in a financial market that most resembles an option contract that is out-of-the-money. People who are underwater today and paying a premium are still hoping they will get a return on those premium dollars when their house value rises above their mortgage and puts them back in-the-money. Mostly this is based on fantasy or Zillow Zestimates or some other such nonsense, when in reality, their property values…[READ MORE]

Today I briefly want to again Revisit Option ARMs, and I want to address a common misperception about REO; lenders do not have to sell REO due to regulatory pressure. Shareholders may dissuade lenders from becoming real estate investors, but the banking regulators will not. The Option ARM Kingpins: Who Holds the Elusive Option ARMs? $189 Billion Securitized and Outstanding and big Three of Wells Fargo, JP Morgan, and Bank of America Playing with Time. There have been many charts ... and much of the confusion is around a few key points: -1.  Banks have been circumspect given the actual number of option ARMs -2.  Many option ARMs are in California (roughly 60 percent of the market) -3.  Many of…[READ MORE]

The California housing market is volatile, but people only see the ups. Trying to capture appreciation, they "stretch" to get into a property by putting larger and larger percentages of their income toward housing (until the entire system collapses). This stretching is (1) recorded in the aggregate debt-to-income ratio for a particular market and (2) observed in the struggles of individual homeowners.   As you might surmise, the peaks in the DTI ratios correspond to peaks in our three California housing bubbles.   Today, I want to move from the macro down to the micro; the charts above show aggregate numbers and big-picture relationships, but what about the individual? What struggles does all of this mean for you and me?…[READ MORE]

Four Major Variables that Determine Market Price Over the last four days we looked at the four main variables that determine home price: borrower income, allowable debt-to-income ratios, interest rates, and downpayment requirements. Today we are looking at tax implications and opportunity costs because these number will give you a more accurate measure of the impact home ownership will have on the owner's financial life. Taxes Owning real estate has two significant tax benefits: (1) favorable capital gains tax exemptions and (2) income tax benefit through the home mortgage interest deduction (HMID). Be forewarned that this is not an exhaustive treatise on every permutation in the tax code. I am going to look at the general case the most people…[READ MORE]

Four Major Variables that Determine Market Price Over the last three days we looked at the four main variables that determine home price: borrower income, allowable debt-to-income ratios, interest rates, and downpayment requirements. Today we are looking at homeowners associations because this expense (1) reduces your payment to the lender, (2) reduces the amount you can borrow and bid, and thereby (3) reduces the value of real estate. People can persuasively argue that HOAs add more value than they cost, and I believe this is true, but that value is reflected in market comps. When you examine the details of cashflow, HOAs are a cost, nothing more. The following is the words of our guest author OC Progressive. Avoiding the…[READ MORE]

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