The Collected Works of Author and Blogger Larry Roberts

Archive for July, 2012

There is no commonly accepted definition of shadow inventory. This creates a great deal of confusion, and as a result, many casual observers dismiss it as an unreal bogeyman. It's out of sight, so it's out of mind. CoreLogic has the most widely accepted definition of shadow inventory, but it's wrong, and their numbers under report the actual figures. CoreLogic, counts visible bank-owned inventory and borrowers who have been served notice. These properties are visible, and although they may not be on the MLS yet, they are not hiding in the shadows. The real shadow inventory is the total number of delinquent mortgage holders who haven't been served notice. These people aren't picked up on any foreclosure reports because they…[READ MORE]

When I first began writing about the housing bubble in early 2007, I believed prices would crash because the cost of ownership using conventional financing far exceeded people's ability to pay. I predicted prices would fall about 40% as rents and incomes increased and prices went down. I originally predicted a bottom around $425,000 in 2012 (see below). Assuming prices have bottomed, the lowest tick was $470,000 in March of 2012. The nominal price decline was not as bad as I predicted staying about 10% above my predicted number. However, my reasoning was based on the total cost of ownership, and that declined much more than 40%. In fact, in Irvine, the cost of ownership fell from $3,800 in June…[READ MORE]

Economists are correct in their forecasts less often than weathermen. Some of the better ones have learned how to make their predictions vague enough so nobody notices, and the best ones revise history and make people believe they were right all along. Right now, the consensus among economists is that the housing market has bottomed. Perhaps it has, but there is also good reason to believe it has not. First, although delinquency rates are dropping, they are still almost double their historic norms. Delinquency precedes foreclosure, and foreclosure rates are still 10 times historic norms, and these rates are not dropping. In fact, we have not yet turned the corner on foreclosures. The reason foreclosure rates are so high and…[READ MORE]

Prices crashed in 2007 and 2008 down to levels of relative affordability due to shrinking loan balances from the withdrawal of toxic loan products. Each of the loan owners who used unstable loans lost their houses and their creditworthiness. As a result, millions of foreclosures hit the market and there were not enough buyers to support prices at historic levels of affordability, so many markets crashed well below fundamental values. The group who ordinarily take equity from a previous sale to support a move-up market is absent because they have neither the credit nor the equity to complete the sale. The absent move-up buyer is keeping sales volumes relatively low as compared to historic standards. realtors have been touting the…[READ MORE]

The latest false-hope-for-loanowners news story is San Bernardino County's idea of using eminent domain to foreclose on mortgages. The idea is completely untenable, and it will not come to pass, but many loanowners hoping for principal reduction are latching on to this "hail Mary." With as awful as this idea is, there is one bright spot I can embrace. If lenders really thought a local government body could force them to write down underwater mortgages through eminent domain, they would be much more concerned with the prospect of inflating another housing bubble. In the post Strategic default is moral imperative to prevent future housing bubbles, I argued strategic default was necessary to force lenders to recognize their losses and deter…[READ MORE]

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