The Collected Works of Author and Blogger Larry Roberts

Archive for May, 2013

Historically, in housing markets that displayed robust price increases, the rally was driven by increasing employment and rising wages. This has long been considered a fundamental of all housing price movements. The logic behind this is simple. New jobs need to new household formation which puts greater demands on the available housing stock. Further, rising wages allows these new buyers to bid more for the supply available pushing prices higher. But what happens to a market where home ownership rates are declining? Is it really possible to have a sustained rally in house prices when the traditional fundamentals are absent? Housing Headlines Mask Unsettling Trends by Jann Swanson -- May 13 2013, 10:35AM In its April Housing Data Wrap-Up Wells…[READ MORE]

Lenders created a kinder, gentler euphemism for their stupid bubble-era loans; legacy loans. The word legacy has a regal connotation conjuring up images of revered ancestors and royal traditions. In reality, label is being applied to some of the most unconscionably stupid and irresponsible loans ever underwritten. What lenders call legacy loans should be called cancer loans because they are a malignant tumor on the balance sheets of lenders everywhere. Since the credit crunch of August 2007, lenders clamped down on their foolish underwriting standards. The stopped making all sorts of loans nobody would ever repay. Unfortunately, that also meant prices would need to come down significantly, so even though their underwriting improved immeasurably, the loans from late 2007, 2008,…[READ MORE]

Thanks to record low mortgage interest rates, monthly payment affordability is very high. In fact, it costs the same on a monthly payment basis to own a house in Orange County as it did in 1989 (see chart below). This allows buyers to raise their bids on the limited inventory available. This is highly desirable for the banks who want to recover as much as they can on their bubble-era legacy loans. Existing homeowners are not complaining. There is a limit to how much buyers can raise their bids. Gone are the days of liar loans, so now borrowers much qualify based on their verifiable income. Also gone are the affordability products including interest-only and negative amortization loans with teaser…[READ MORE]

House prices are rising rapidly, and the conditions creating this rally will persist for the foreseeable future. Prices will continue to rise until affordability becomes a limitation, or cloud inventory makes its way to the market, and even then prices will continue to rise, just less rapidly than they are today. As long as prices are financeable and supply is limited, buyers will bid up prices on the available housing inventory and prices will keep going up. This sounds like the ideal set of circumstances for continued price appreciation, so why are the housing bears still roaring? Because its a completely artificial market price manipulation masking weak underlying fundamentals. The bearish case for another leg down in housing points out…[READ MORE]

realtors, homebuilders and others who profit on real estate transactions hold the false belief that lenders are holding back the market with tight lending standards. It's an easy position to hold for those who have no risk of loss when loans go bad. The reality is that lenders are not willing to make bad loans anymore because if the do, they will lose money -- which is how it should be. Lenders are supposed to be the adults looking over real estate transactions. After all, it's mostly their money being used to fund the purchase. During the housing bubble lenders abandoned lending standards entirely because they weren't held accountable when loans went bad. Now, with buy-back provisions in most securitzation…[READ MORE]

Page 4 of 6123456