The Collected Works of Author and Blogger Larry Roberts

Archive for February, 2013

Earlier this week I detailed why I believe future housing markets will be very interest rate sensitive. The current market environment is completely controlled by interest rate policy at the federal reserve and distressed loan processing policy at the major banks. The combination of demand stimulus and supply control caused the housing market to bottom in 2012. Of course, since these are market manipulations, the future direction of home prices is uncertain. The market has many more headwinds than tailwinds. Shiller’s Bottom Line: Risk Lingers in Housing February 26, 2013, 7:00 AM -- By Nick Timiraos It’s possible that home prices have hit a bottom, but heavy government involvement to stabilize the mortgage market and the broader economy has made…[READ MORE]

The desire for home ownership is stronger than ever. There are many emotional reasons to covet home ownership, and these are valid reasons to buy a house. However, over the last 30 years, the desire to own a home for family and security has been darkened and twisted by the desire to make outsized profits on imagined appreciation. Although would-be buyers who are prudent and conservative were shaken by the collapse of housing prices, the Ponzis benefited greatly from the price volatility, and their desire for real estate has grown. The moral hazard of the housing bust and bailouts has ensured the Ponzis will want another crack at it, and now the FHA is giving loans to Ponzis to reenter…[READ MORE]

Economists who focus on larger trends, the so-called macro-economists, have rightly pointed out that housing markets in the past haven't been very sensitive to fluctuations in interest rates. For example, during the 1970s, interest rates rose significantly, which should have caused house prices to drop, but instead California inflated a housing bubble. During the crash from the bubble in the 1990s, interest rates declined, and so did prices. The same has been true of the Great Housing Bubble. With these significant periods when mortgage interest rates did not impact house prices the way the math would suggest, why would the housing market be more sensitive going forward? The new qualified mortgage rules take away the mechanisms lenders used to inflate…[READ MORE]

The banks are stealing your money... again. The US Government and the federal reserve spent billions bailing out the banking system in 2008 from a financial crisis created by foolish lending. Commercial banks and Wall street securitizers pumped trillions of dollars into dodgy mortgages, much of which was refinance money given to Ponzis, so it wasn't just late purchasers who were in trouble. When the toxicity of the lending products became apparent, a credit crunch ensued, and residential real estate prices plummeted by 30% or more nationwide. With limited collateral backing their bad loans and millions of delinquent borrowers, lenders couldn't foreclose on all the properties to recover their capital. The problem was so large that the banks couldn't absorb…[READ MORE]

The Federal Reserve (US central bank) influences interest rates and by extension mortgages rates.  One of their key tools is the buy or selling of bonds, it adds or subtracts money from the money supply .  Since 2008 and the Federal Reserve has purchased over $1 trillion dollars worth of US residential mortgages in the form of bonds.  The effect of this unprecedented mortgage bond purchasing  pushed mortgage rates down to the lowest levels since the 1940's.  This $1 trillion dollar figure represents 10% of the of the outstanding residential mortgages in the US.  To explain it in another way, if you have a residential mortgage there is a 10% chance that it's owned by the Federal Reserve.  This is…[READ MORE]

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