The Collected Works of Author and Blogger Larry Roberts

Archive for July, 2013

I am perhaps the most widely known renter in Orange County. I've been writing under the moniker Irvine Renter for over six years now. Are renters like me less happy that those who bought homes? First, I want to point out I was not always a renter. Like many others, I bought a house (actually I designed and built it). I know the emotional satisfaction that can come from having a house to call my own. In my opinion and experience, there is an emotional quality to owning a house that is not replicated in a rental. When I owned my house, I spent hours tinkering in the yard with landscaping, and my house plants looked like a greenhouse. Since…[READ MORE]

The federal reserve has been printing money to stimulate the economy off and on for five years now. Prior to the housing bust, the federal reserve had never purchased any security other than a short-term US Treasury. In order to drive down interest rates and stimulate housing, the federal reserve printed $1.2 trillion to buy mortgage-backed securities, and when that proved insufficient, they increased their purchases by $40 billion per month on an ongoing basis. They are still buying. The mere suggestion that the federal reserve might slow down it's purchases caused a wild selloff in the bond market that drove mortgage rates from 3.5% to 4.5% in about one month. Clearly, nobody wants to be the bagholder when the…[READ MORE]

It's widely believed mortgage interest rates will rise in the future, perhaps for a very long time. The mainstream media is littered with articles about how this won't hurt the housing recovery to provide loanowners and prospective buyers assurance that prices will keep rising. To better understand why rising interest rates are such a big issue to housing, it's worth reviewing the impact falling interest rates have had on house prices for the last 25 years. House prices and rental parity The basis of all house prices valuations is rental parity, the price point where the cost of ownership equals the cost of a comparable rental. Rental parity is a tether on house prices because if resale values become detached…[READ MORE]

Whenever a borrower is unable to make current debt-service obligations from current income, they have two choices: either declare bankruptcy, or use more debt to pay their debt service. Once a borrower starts using debt to pay debt, they've gone Ponzi. During the housing bubble, many borrowers went Ponzi. It was characterized as a "sophisticated" method of managing personal finances. Since many homeowners came to view their house as another breadwinner, they believed this additional debt was income, and they treated it as such. Now with the home ATM machine broken, perhaps permanently, many Ponzis are struggling to pay their bills. Many have already defaulted and lost their homes (as evidenced by my daily property profiles). Those that are hanging…[READ MORE]

House prices show a consistent seasonal pattern. Prices generally rise during the spring at their fastest rate. During the fall they slow down, and during the winter, when sellers who missed the spring rally get more motivated to sell, prices generally decline. At the end of each spring selling season, it's possible to make an educated guess as to the direction and magnitude of the price movement in the fall and winter. In 2010, the expiration of the tax credits made a strong pullback a likely and predictable result. In 2011, the complete lack of a spring rally portended severe price declines in the fall and winter. In 2012, the complete lack of inventory and upward price movement made a…[READ MORE]

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