The Collected Works of Author and Blogger Larry Roberts

Archive for September, 2012

A durable recovery begins with increasing demand. More and more people have both stronger desire and more money to spend on housing when a sustained market rally takes hold. Both sales prices and sales volumes rise when demand increases. If you don't have both, the rally is suspect. Right now, overall demand is slightly higher, but this is almost entirely due to an increase in investor activity. Despite record low interest rates, demand from owner-occupants is moribund. The truth is the recent increase in prices is almost entirely due to restricted supply, and durable recoveries are not built on weak demand and restricted supply. Shrinking inventory misleads future sellers… for now By Carrie B. Reyes • Aug 13th, 2012 California’s…[READ MORE]

Our economy depends on Ponzi borrowing to the point that the government actually encourages this behavior despite the fact that millions lost their homes because of it. The ability to freely access and spend home equity creates moral hazard. It encourages over-borrowing and overpaying. It was one of the primary contributors to the housing bubble. The desire for HELOC booty motivated the foolishness. Many people run up $10,000 to $15,000 per year in credit card debt because they are fiscally irresponsible and fail to live within their means. During the bubble, loan owners would go to the housing ATM machine, pull out a year’s worth of irresponsible spending, and pay off their credit card debt. After two or three years…[READ MORE]

Do we really need to give high wage earners a huge tax break as an encouragement to take on excessive debts? That's what the home mortgage interest deduction really does. If the deduction were eliminated, home values in areas like Orange County populated by high wage earners would drop to establish a new equilibrium, but nobody would go without. In fact, the home mortgage interest deduction does little or nothing to increase home ownership rates because the low wage earners at the fringe of affordability don't use the deduction anyway. Studies have show home ownership rates are just as high in countries like Canada that do not have the deduction. So why do we keep it? Apparently, there is a…[READ MORE]

Since the housing bust began, the banks have largely controlled the inventory of homes on the MLS. At first, they flooded the MLS with subprime foreclosures, but with mark-to-fantasy accounting, they were able to slow their foreclosure rates and store delinquent borrowers in shadow inventory. Since early 2009, the number of properties available for sales has been completely controlled by the banks. They determine when to list their standing inventory of REO, and they control the approval on every short sale. Between those two sources, the banks control the market. Banks decided early this year to slow the rate they took back properties at foreclose auctions thus reducing MLS inventory of REO significantly. More recently banks increased foreclosures 30% as…[READ MORE]

To understand the credit crunch, and why we might have another one, I have a visualization exercise for you that I originally posted back in 2007: Imagine a room with 100 people representing the pool of subprime borrowers. These are new entrants to the market. They were previously unable to buy due to bad credit, lack of savings, and other reasons. All of them are told they are going to bid on an asset that never goes down in value, and they will be given the ability to borrow unlimited funds (stated-income “liar loans”) The only caveat is the borrowed money must be paid back when the asset is sold (not that they care, they already have bad credit). Imagine what…[READ MORE]

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