The Collected Works of Author and Blogger Larry Roberts

Archive for September, 2012

Ever since the housing bust began, banks have been caught between a rock and a hard place. On one side, if they foreclose and liquidate their inventory, prices plummet which prompts underwater borrowers to strategically default. The downward spiral of strategic default is in clear evidence in Nevada. On the other side, if banks don't foreclose, borrowers know they can quit paying and live payment-free indefinitely. This method has the advantage for banks of providing an illusion of collateral value backing their loans, but recent data shows banks build an even larger shadow inventory that must eventually be liquidated. Those liquidations will most likely cause still-elevated house prices to drop. New Jersey Housing Suffers as Defaults Exceed Nevada: Mortgages By…[READ MORE]

Recently I wrote that a durable recovery would be demand driven, not supported by restricted supply. Reductions in supply may temporarily force house prices higher, but a sustained recovery requires higher prices and higher sales volumes. In other words, a durable recovery requires a resurgence of demand. Reduced supply threatens to choke off the recovery as buyers lose interest in a market where little is available for sale, and the prices being asked are too high. In a high demand market, buyers don't wait on the sidelines. In a supply restricted market, they do. And wisely so because educated buyers know the supply will come to the market eventually, and there is no need to overpay today for a product…[READ MORE]

I have posted the chart on the lack of owner-occupant demand dozens of times to remind everyone that current demand is far weaker than what's widely reported. But that's not to say demand will remain weak forever. There is latent demand from two large groups that currently can't buy homes: the credit impaired and the unemployed. The millions of former owners who have damaged credit from either a short sale or foreclosure represent a large reservoir of future demand. When these people save for a down payment, wait out any mandatory waiting periods, and regain their credit scores, most of them will chose to buy again despite their previous bad experience with home ownership. For this group, it's only a…[READ MORE]

I love football. I have enjoyed watching NFL football since I was a child. I was born in Wisconsin just after the famed "Ice Bowl." I grew up a Packer fan, but I've come to enjoy watching the sport whenever it's played well regardless of the teams involved. Perhaps as a Packer fan, I am more upset than most about the travesty which occurred on Monday night. A series of bad calls changed the outcome of the game and gave the Seattle Seahawks a victory they did not earn on the field. The officials are not supposed to determine who wins; the players are. As a fan watching the game, let me give you my experience of the comedy of…[READ MORE]

The federal reserve controls short-term interest rates through buying and selling Treasury notes. These rates determine how much interest people earn in savings accounts, the asset class favored by senior citizens. The federal reserve lowered interest rates to zero to force money out of savings accounts in hopes this money would seek out riskier asset classes and stimulate the economy. Since seniors are risk adverse, most have left their savings in place, and those that need those savings to survive -- which is most seniors -- are depleting their savings accounts to make ends meet. When many seniors planned their retirement, they counted on a certain amount of interest income to survive. The federal reserve has instead diverted this money…[READ MORE]

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