The Collected Works of Author and Blogger Larry Roberts

Archive for June, 2013

The last six months seen some incredible housing activity.  In Orange County, the housing market exploded with some segments of the market increasing 20% in value, bidding wars for homes, and a high percentage of cash sales.  Then in May there were indications that the Federal Reserve might scale back it's Quantitative Easing (money creation) program.   This cause mortgage rates to increase and then skyrocket in June.  Simultaneously, home values increased due to low supply and the previously ultra low rates.   These two factors should change the housing market dynamic, and I was looking for some indicators of this change.  Some news articles this week gave some cues on these early indicators.  So let's examine the number of purchase…[READ MORE]

House prices generally rise along with wages. When wages go up, people use their borrowing power to bid up home prices. Of course, this requires three simplifying assumptions. First, interest rates must be steady. Steadily dropping interest rates can increase borrower leverage in the absence of increasing wages. In fact, most of the increase in prices from 1990 to 2012 can be directly attributed to falling interest rates. Homebuyers in 1990 made the same house payments as a buyer in 2012, but prices in 2012 were considerably higher due to the decline in interest rates from 10.5% to 3.5%. It doesn't look likely that interest rates will fall below our recent record lows, certainly not enough to recreate the excess…[READ MORE]

The picture of the housing market painted by the mainstream media is that the housing market is recovering on strong sales and strong home price appreciation. People are going back to work, and using their new incomes to buy homes. Unfortunately, this rosy picture doesn't reflect what's really happening. Sales are up because investors are buying homes. Owner-occupant sales activity is stuck at mid 1990s levels. The rise in prices is not due to surging demand. Instead, it's due to a 50% decline in for-sale inventory causing the few active buyers to compete and bid up prices. There is nothing natural or sustainable about the manipulations of the market driving the current pace of sales and price increases. Seven Takeaways…[READ MORE]

Should everyone really own a house? Are renters so much less a part of their communities that the government must spend billions of dollars subsidizing home ownership? These are important questions. How we answer them will guide how we remake our housing finance system which was destroyed with the collapse of the housing bubble. The current system of government props with the taxpayer insuring more than 90% of the mortgages in the US is not tenable or desirable. Is there a balance between public and private sector appropriate to the housing market? Overzealous Intervention Dooms the Market Edward J. Pinto -- June 20, 2013 Those who want government guarantees for mortgages see them as a path to encourage homeownership and…[READ MORE]

Resale prices of used houses in Orange County are rising rapidly. The weakest city in my monthly report was La Palma that has only risen 3.3% year-over-year. On the other end of the spectrum, Dana Point is up a whopping 19.5%! More than half the cities in Orange County are up more than 10%. When I run my monthly reports, I use the dollars-per-square-foot measure of house prices. It isn't subject to much distortion based on a change in mix like the generic median price is. It's a better measure of how much house buyers are getting for their money. I am not among the alarmists suggesting the recent rapid prices increases are the sign of another housing bubble. Again,…[READ MORE]

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