The Collected Works of Author and Blogger Larry Roberts

Archive for March, 2013

Government subsidies are like drugs. Once the market is exposed, the participants quickly become dependent, and like any addict that goes through detox, getting off the subsidies can be very painful. The housing market completely relies on government supports and subsidies with over 95% of the loans underwritten in the United States backed by either the FHA or the GSEs with explicit government backing for any losses. Politicians claim they want to reduce the government's footprint in housing finance, but the various interest groups who make a living from residential real estate transactions (realtors, mortgage brokers, homebuilders) are united in their opposition to any reduction in the level of government support for housing. Much has been made of the recent…[READ MORE]

With inventory being in such short supply, anything put on the market is likely to sell easily. Two years ago when there were far more properties for sale than buyers who wanted them, professional marketing and broad exposure was necessary to attract a buyer's attention. Not so today. This fact is prompting many to try to eliminate at least half the real estate commission and list the properties themselves. Going for-sale-by-owner or FSBO is not without its drawbacks. First, the presentation of FSBO properties on Craigslist or the MLS is often dismal. Go to Redfin and see for yourself. Second, if the seller is unwilling to pay a buy-side commission, buyer's agents often won't show the property, or they will…[READ MORE]

According to Zillow about 30% of mortgage borrowers are underwater. If you factor in sales commissions and transaction costs, the number is closer to 50%. When you reflect on it, what does an underwater borrower really own? They don't have any equity, and since their underwater, even if prices go up, they still won't have any equity. Perhaps they have the hope of equity, but the only tangible thing they own is their loan -- that's why I often refer to them as loanowners. It's probably more accurate to call them money-renters because without an equity stake, they are merely renting money from the bank for the privilege of living in the bank's house. There isn't much difference between a…[READ MORE]

When housing bears made their case back at the peak of the housing bubble, they made assumptions about the application of the rules -- rules that were subsequently changed. By the old rules, which served us for hundreds of years, when borrowers defaulted on their loans, banks were supposed to mark the value of the loans on their books to fair market value and record any losses. Under the old regime, banks would have recognized loan losses, foreclosed on the homes, and subsequently sold the properties to recover their capital and put that capital back to work. When the government suspended mark-to-market accounting in April of 2009, the mechanism that would have put millions of REOs on the market was…[READ MORE]

There are so many subsidies, handouts, and tax deductions that have a powerful affect in the housing economy and it's quite surprising when you list them all.  I wanted to create this list as the media is cheering the "Return of the Housing Market".  However, look at the factors, for example like low mortgages rates it's a type of handout.  The average American should be concern with these policies because it affects them everyday life they just don't know or understand how.  The bottom line is why should citizen A's tax money be used to purchase citizen B's house.   This is not some public assistant program, so if citizen B wants a house they should use their money to purchase…[READ MORE]

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