The Collected Works of Author and Blogger Larry Roberts

Archive for January, 2013

Economists look for correlations to infer causations for macro-economic events. Unfortunately, most macro economists fail to look at the individual incentives, the micro reasons, some events occur. What's even more amazing, or amusing, is how much effort and study they put in to trying to understand these correlations without having the foggiest notion what they're talking about. The biggest misunderstanding in macro economics today centers around the idea of a "wealth effect." Economists noted that people spend more money when asset values rise and less money when they don't. Of course, times of rising asset values also correspond to times of general prosperity, so it's difficult to identify what's really causing people to spend more, the fact that their assets…[READ MORE]

Banks are letting delinquent borrowers squat rather than foreclosing on them and booting them out. At first, it was a self-preservation measure by the banks taken out of desperation when the first wave of foreclosures caused prices to crash. However, now the banks are content to allow squatting, even for years, because squatters do not become MLS supply weighing down prices. The houses occupied by squatters are effectively removed from the market creating an artificial shortage. The lack of MLS homes for sale and high affordability is causing prices to rise, and as prices go up, banks have collateral backing on their bad loans. Rising prices due to rampant delinquent mortgage squatting creates an unusual set of circumstances for lenders.…[READ MORE]

Residential real estate is generally valued by comparable neighborhood sales. When a property sells for a new high price, it doesn't just affect the value of that property, it impacts the value on all similar properties within a mile of the new sale. During the housing bubble, neighbors cheered each new higher comp because it added to their (illusory) net worth. With unrestricted access to equity with no-doc loans and 100% LTV HELOCs, everyone near a new high comp was basically given free money. The late arrivals all eagerly waited a greater fool to come along and buy at an even higher price so they could get their share of the HELOC booty too. Obviously, under such circumstances, the desire…[READ MORE]

Last week I wrote about How the new mortgage rules will impact the housing market. Since then, even more regulations were announced. After thinking about the ramifications of these new regulations over the last week, I am surprisingly relieved by what I see. I think these new regulations really will prevent future housing bubbles. With any regulation, there is fear that it will either be changed or enforcement will be lax. While it's still possible future generations may forget the folly of the last decade, it's unlikely our generation will. These new regulations are here to stay. A far larger concern is the lack of enforcement and oversight. And if the issue were left up to the agencies or the federal…[READ MORE]

The good news in the mainstream media is that delinquency rates are down year-over-year. Of course, they ignore the fact that delinquencies have flatlined since the settlement agreement in February 2012 because that fact doesn't fit with their optimism bias. The delinquency rate is a national average, so it doesn't reflect where the delinquencies have declined and what segments of the loan market are recovering. The assumption most casual observers make is that delinquencies are concentrated in poorer subprime areas and the more affluent prime areas like Coastal California are relatively free from mortgage delinquency problems. Nothing could be further from the truth. Subprime loans became delinquent early in the housing crash because these borrowers were often given the extremely…[READ MORE]

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