The Collected Works of Author and Blogger Larry Roberts

Archive for October, 2012

For the last several years I have written in favor of low prices as the best option for putting the country back of firm economic footing. The argument is simple: Low prices make for a lower cost of ownership which translates to more disposable income for homeowners to use to purchase goods and services to drive the broader economy. Disposable monthly income is a superior economic stimulus because it's sustainable. The savings each month are consistent and reliable. Contrast that to HELOC money that comes in a lump sum and once spent requires larger payments which reduces disposable income. Lower monthly cost of ownership is a sustainable source of disposable income to stimulate an economy. HELOC money is not. So…[READ MORE]

Since the housing bust began in 2007, housing analysts focused on lender activity as the best indicator of future housing supply and the direction of future housing prices. The reasoning for this is simple: lenders control the housing market. Prior to the housing bust, the housing market was a collection of individual homeowners unrestrained by their mortgage obligations. Once prices began to fall, many would-be sellers submerged beneath their debts and required lender approval for a sale. The short sale was born. Many others defaulted on their loans, and lenders foreclosed on the delinquent borrowers until lenders became overwhelmed with REO inventory. Between the REOs that the banks own and the short sales that they must approve, the market changed…[READ MORE]

Each month before I prepare the OCHN market newsletter, I think about ways I can improve it and deliver more value to users. This month, I added a new metric to the report that I believe provides a more intuitive way to look at the current state of the market. I applied the mortgage interest rate to the median home price to backward calculate the monthly cost of ownership for the market. I like this approach because it returns a number immediately comparable to rent. When I first thought about this indicator, I didn't think it would reveal anything of value. It's basically the inverse of the rental parity calculation I already perform. I was wrong. When I plotted out…[READ MORE]

The availability of credit cycles from periods of tight underwriting standards to periods of lax standards. When credit is tight is when credit-fueled markets like real estate are most stable. In a tight credit environment, lenders are very focused on ensuring the borrower can repay the loan and the lender can recover their capital if they don't. It would seem obvious and intuitive that lenders would always be focused on those things, but competition tends to drive standards down as lenders take more risk.  In the early stages of the credit cycle, lenders begin extending credit to less creditworthy borrowers. This adds to the borrower pool, and in the case of real estate, it adds to the buyer pool. This…[READ MORE]

The law concerning foreclosures in California is set to change on January 1, 2012. Many are concerned this will complicate the foreclosure process and grind the foreclosure machinery to a halt. So far the banks have taken little notice. Some speculated there would be a last-minute push to get foreclosures done before the change took effect. That isn't happening. The banks are in no hurry to process their backlog of foreclosures, and if the changes in the law complicate the process for them, they will grin and bear it. Calif. hands trial lawyers 'nuclear weapon' to use against mortgage industry: legal expert By Kerri Ann Panchuk -- October 5, 2012 • 8:42am The Homeowner Bill of Rights launched in California…[READ MORE]

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