The Collected Works of Author and Blogger Larry Roberts

Archive for June, 2012

Everyone is focused on making house prices go up. Banks need higher house prices to recover the capital they put into trillions of dollars of toxic mortgages. Loan owners need house prices to go up to avoid damaged credit from a short sale or foreclosure. Home owners want to see house prices go up to feel rich. And politicians need to see rising house prices to keep everyone happy and get reelected. Economists also play the game by promoting the "wealth effect" of housing. By cloaking what's really going on with a comfortable euphemism, it becomes easy to ignore the fact we are really talking about Ponzi borrowing inevitably leading to bubbles and severe recessions when the Ponzi scheme unravels.…[READ MORE]

You knew the complaints about appraisers was coming, didn't you? The low supply is generating bidding wars on certain properties, resulting in contract prices far in excess of recent comparable sales. When the appraisal doesn't support the contract price, the buyer generally cannot make up the difference and the deal falls apart. Agents don't get commissions. Rather than entertain the notion that the contract price was too high, agents blame the appraisers for killing the deal. One of the most aggravating and ignorant arguments to come from this is that the market should determine the price. Whatever two parties agree to should be what the property is valued at. Well, that's fair enough if the deal is all cash. Whenever…[READ MORE]

Most people assume the relative lack of must-sell inventory at the high-end of the housing market is because fewer borrowers at these price ranges are distressed. Nothing could be further from the truth. So why have we seen so few foreclosures? Amend-extend-pretend. The banks are choosing squatting over foreclosure. With little government support and no political support for a bailout, the neighborhoods with house prices in excess of $800,000 are only maintained by the legions of unforeclosed delinquent mortgage squatters. With no pressure from regulators to mark their loans to market value, and with near zero cost of money, banks plan to wait until demand returns to this segment. With no home equity from the lower rungs of the housing…[READ MORE]

Robert Shiller's book Irrational Exuberance was a watershed work in behavioral economics. When I first read it, the housing bubble suddenly made sense to me. Much of what I believe I know about financial markets, human behavior, and the housing bubble is built upon his work. He is one of my heroes. And he has completely lost his mind. For all his brilliance, Robert Shiller is not noted for coming up with insightful policies based in his understanding of behavioral economics. Irrational Exuberance contained no policy recommendations, and his book, The Subprime Solution, was criticized as fanciful and unrealistic. His latest editorial in the New York Times is so ridiculous, I am shocked he put it in the public view.…[READ MORE]

As anyone watching the housing market in the Southwest in 2012 can attest to, inventory is falling.  At its current rate of decline, there will be literally no houses for sale by the end of the year. We established that banks are cutting standing REO inventories by reducing new acquisitions by 50%. They are reducing their inventory by allowing delinquent borrowers to continue to live payment-free in houses. Of course the perpetual shadow inventory extends housing downturn and creates uncertainty, but lenders believe they can force house prices to bottom by restricting MLS supply. Perhaps they are right. The success or failure of lenders' efforts to force housing prices to bottom hinges on one thing. Will dwindling supply cause prices…[READ MORE]

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