The Collected Works of Author and Blogger Larry Roberts

Archive for May, 2012

I have long contended that rental parity is the fundamental value of houses. Whenever values differ significantly from rental parity, up or down, reversion to the mean is inevitable. Buyers should be aware of rental parity because paying more than rental parity significantly limits a buyers options. First, such a buyer cannot rent the property to cover the bills, so if they had to move, they either must sell the property or endure an indefinite period of negative cashflow. Since paying more than rental parity also means overpaying, there is significant risk to the buyer that they may not be able to sell in the future for enough to break even thus forcing them into a negative cashflow situation or…[READ MORE]

Through a combination of falling prices and low down payment mortgages, many buyers of the bear rally of 2009 find themselves underwater. When you figure in the transaction costs of selling a home, the numbers are really grim. Despite the negative circumstances, few of this buyer cohort will strategically default. Most are only slightly underwater, and since most also have a cost of ownership at or below rental parity, it's more costly for them to rent, so most will stay put and wait out the remaining decline. Insight: Falling home prices drag new buyers under water By Tim Reid Thu Apr 26, 2012 1:12pm EDT (Reuters) - More than 1 million Americans who have taken out mortgages in the past…[READ MORE]

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