The Collected Works of Author and Blogger Larry Roberts

Archive for March, 2013

With as difficult as it is to predict interest rates, why are people so sure interest rates will go up? Well, the basis of all interest rates is the federal funds rate controlled directly by the federal reserve. This rate is not just at a historic low, it's at zero. It can't go any lower unless the federal reserve starts paying people to borrow money. This strongly suggests that interest rates will go up. The federal funds rate has been at zero for nearly four years now. When short-term rates are very low, investors looking for higher returns are forced to buy bonds with longer maturities. This flattens out the yield curve. At some point, investors start to worry about…[READ MORE]

We just had a small spike in the number of new home starts, Larry Roberts just had a excellent post on the historical size of this increase.  In addition, with banks very successfully stopping cloud inventory from going on the market, builders are wasting no time to build more housing units.  This is not a thriving recovery, it's recovery where patient that has been given CRP and now has a stable pulse.  The mix is different in this construction cycle as multifamily units are  being constructed in a larger portion.  So many multifamily units have hit the market that it has stopped or slow the rental increases.  However, builder confidence has dropped in the beginning of the selling season and…[READ MORE]

Most financial manias share a common belief that the supply of some precious resource is running out. The notion that they're running of of land has sparked several financial manias. California has land booms and busts at various times in its history. Florida had a huge land boom and bust in the 1920s. Given the millions of acres of undeveloped land in California and Florida, particularly 100 years ago, the rationality of these booms and busts is rather suspect. But once people start to believe the shortage is real, the frenzy mentality takes over, and rationality is discarded in favor of greed and stupidity. Sounds like the current attitude toward housing in Coastal California, wouldn't you say? Space is the…[READ MORE]

Bullishness is everywhere in real estate these days. People who follow the new construction market are touting the year-over-year increases with great exuberance. Homebuilding is certainly coming back, and as someone who spent most of my career working in the industry, I think that's a good thing. However, the bullishness could use a little perspective. New home starts just surpassed the lowest low of the forty years prior to the collapse of the housing bubble. Further, the current pace of construction is still well below the stable average of the last five decades. It's hardly a building boom. Also, the demand is entirely predicated on the restriction of MLS inventory and low interest rates -- both market manipulations based on…[READ MORE]

I first began writing about strategic default back in 2008 in the post Should you walk away from home debt?. Many people were facing a cost of ownership greatly exceeding the cost of a comparable rental, and with declining prices, they were sinking underwater and had no realistic hope of future equity. On a purely financial basis, it was wise to strategically default. The shortest path to equity was to walk away from the huge debt, save money, and wait until the credit scores improved enough to repurchase again at lower prices. I gave that advice frequently from 2008 through 2011, and recent stories from boomerang buyers are proving that thesis correct. Calif. couple shows there's life after foreclosure By…[READ MORE]

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