The Collected Works of Author and Blogger Larry Roberts

Archive for March, 2013

If you have been watching rental rates over the past 5 years you noticed a increasing trend.  After some decreases in 2009 rents bounced back up by 2012 past pre-recession levels in some cases.  As rental rates have increased mortgage rates have dipped to the lowest levels since World War II.   These two trends have switched the cost of ownership making owning more affordable than renting as compared to the early 2000's when owning was twice the cost.  But in the last 12  months the pace of rental increases have slowed (see OCHN March graph below).  Are rental rates now peaking for the foreseeable future? The cost of owning and rental rates play a game.  Sometimes it costs more to…[READ MORE]

Every successful loan modification undertaken by the GSEs or FHA is paid for by the US taxpayer -- paid for by you. The GSEs have already required a $150 billion government bailout, and the FHA is next on the bailout horizon. The losses on these entities that are not recovered are supplemented with tax dollars that you paid. So what's the big deal? We pay for wasteful government programs all the time. The difference is simple. The money these entities lose, particularly those through loan modifications or principal forgiveness has no benefit to you whatsoever, but instead it's a direct transfer of wealth from you to a banker and a borrower -- and neither party deserves the money. The malfeasance…[READ MORE]

This won't come as any surprise to regular readers of this blog, but a new paper confirms the erroneous beliefs about sustainable home price appreciation drove much of the demand from the housing bubble. Many people who believe in the wisdom of the markets subscribe to the efficient markets theory. It postulates that market participants have equal access to good information and they make rational judgements based on the available data. The theory has an appeal to vanity as everyone likes to believe they have above average financial acumen and that they make rational decisions. Unfortunately, that isn't the world we live in. People often fall victim to groupthink, pick and chose what data to believe and what to ignore,…[READ MORE]

I write often about investment and compare that to what I consider speculation. I originally wrote this post on the subject more than five years ago, but since I have picked up many new readers along the way, I felt it was time to revisit this important topic. Speculation or Investment? Real estate is viewed by many people as a good investment. Realtors often use this idea as part of their sales pitch. This view is fallacious and it is one of the beliefs responsible for creating an asset price bubble. To understand why houses are not a good investment, one needs to understand the difference between investment and speculation. An investment is an asset purchased to obtain a predictable…[READ MORE]

There are two main barriers to home ownership: how much a potential buyer can borrow, and how much they have to put down. Today, I want to focus on the impact of down payment requirements. There are many more potential buyers with little or no savings than there are those with hundreds of thousands in cash in the bank. The size of the potential buyer pool rises or falls dramatically with changes in down payment requirements. A high down payment requirement greatly reduces the potential buyer pool whereas a low down payment requirement greatly increases it. This basic fact is why lenders and their lobbyists are working so hard to get down payment requirements lowered or eliminated. Any down payment…[READ MORE]

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