The Collected Works of Author and Blogger Larry Roberts

Archive for March, 2012

One thing most real estate market observers do agree on is that our current market conditions are not normal or healthy. But what is a "normal" market anyway? Real Estate Recovery: Are We There Yet? March 28, 2012 The first few months of 2012 have seen some pretty encouraging stats, but after years of nothing but bad news about the housing market, it can be hard to gauge what "normal" is anymore. According to new measure from real estate website Trulia, we're about a third of the way back to a normal housing market. The bad news? We've got a long way to go. Based on Trulia's calculations, the United States won't see a full housing market recovery until 2015.…[READ MORE]

In the second post I wrote for the IHB back on March 3, 2007, I discussed a basic truth of housing markets: Cashflow Investors have a different agenda; they want to turn a monthly profit from ownership. For them, the cost of ownership must be less than prevailing rent for them to make a return on their equity investment. Cashflow Investors form a durable bottom. If prices drop low enough for this group to get into the market, the influx of investment capital can be extraordinary. In a declining market, a market where by definition there is more must-sell inventory than there are buyers to absorb it, it takes an influx of new buyers to restore balance. Since it is…[READ MORE]

The Federal Reserve did not directly cause the housing bubble. The lowering of interest rates in 2002 did help boost prices and may have served as a precipitating factor contributing to the housing bubble, but monetary policy of the Federal Reserve itself was not the cause. That doesn't mean the Federal Reserve doesn't have significant responsibility for the housing bubble. The primary cause of the housing bubble was the influx of private capital into the mortgage market through mortgage-backed securities. So why did this happen? First, when the Federal Reserve lowered interest rates to 1% under Alan Greenspan, investors sought out higher yields. Mortgages became the vehicle of choice because the relatively low yields were still better than competing investments,…[READ MORE]

The frenzy over the possibility of a bottom in the housing market needs to be tempered by the reality of the current market situation. Despite relative affordability, sales volumes are low and declining, resale prices are still falling, we have a huge overhang of supply in shadow inventory, and as economist Robert Shiller points out, we may be on the Japanese path of decade-long deflation in housing. Any one of these conditions would warrant market pessimism. All at the same time calls into question the viability of any market bottom. From the bullshit artists at the NAr: February Existing-Home Sales Slip But Up Strongly From a Year Ago Washington, March 21, 2012 February existing-home sales declined from an upwardly revised…[READ MORE]

The depth of American's underwater mortgage debts is truly staggering. $3,700,000,000,000 That's not the amount of debt outstanding, that is the amount Americans are underwater. Principal reductions are not going to make America whole again. Nobody, not even the US government can afford to write down amounts that large. The biggest principal reduction programs proposed so far are less than $100 billion. That is less than 1/37th of the problem. In short, principal forgiveness is not going to solve the problem. Lenders would like to see the problem remedied by having prices go back up. As someone accumulating properties in Las Vegas, that idea has a certain appeal, but the existence of the distressed debt is likely to prevent appreciation…[READ MORE]

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