The Collected Works of Author and Blogger Larry Roberts

Archive for August, 2013

For a true recovery in housing, the market needs resurgent demand from first-time homebuyers and move-up buyers. These two groups are typically the largest source of housing demand. The first-time homebuyer is the bedrock of the housing market. Without first-time homebuyers, no move-up market exists. The first-time homebuyer market is driven by job growth and household formation. When the economy is strong and creating good-paying jobs, young people form new households and use their new income to bid for real estate. This displaces existing homeowners who then execute a move-up trade and often buy a nicer home. That's how the market is supposed to work, but the collapse of the housing bubble destroyed the fundamentals underpinning a strong housing market.…[READ MORE]

During the housing bubble there were plenty of private mortgage companies underwriting low down payment loans, but they stopped after the bubble burst. Then after the burst low down payment FHA loans grabbed huge share of the mortgage market.  The FHA standards were lowered and conforming limits increased which allowed a greater number of borrowers to put a very low down payment while purchasing a home.  In addition to FHA, Fannie and Freddie conventional loans after the bubble rarely wrote loans under 20%, however this trend has reversed in the past few months.  So, you have three entities writing low down payment loans.  Now, FHA is instituting new requirements on lenders that will probably restrict lending in the future. FHA…[READ MORE]

In my opinion, the housing market has reached an important inflection point. Through May of this year, thanks to restricted MLS inventory and super low interest rates, sellers were firmly in control of the market. Anything put up for sale sold quickly, often well over asking prices with a plethora of competing bids. As prices pushed higher, many distressed loanowners found comparable sales value reaching the outstanding balance of their loan. This is an opportunity to get out from under the debt on the house they really can't afford, so many of them listed in hopes the rising bids would take them out at the ask. The influx of inventory has been significant. As distressed sellers finally saw the light…[READ MORE]

The banks changed their policies radically in early 2012 and opted for can-kicking loan modifications over foreclosure. Their plan was to dry up the MLS inventory, particularly the distressed properties, and rely on record low interest rates to fuel demand. They were very successful. In fact, they were so successful that price rose nearly 40% in beaten down markets and 20% in stronger markets like those in Coastal California. Everything was going according to plan. Investors competed with owner-occupant buyers to bid up prices for the limited available inventory. Buyers who couldn't afford housing bubble prices at 6.5% interest rates prevalent in 2006 could afford those prices at 3.5% interest rates in 2012, despite the tepid income growth during the…[READ MORE]

Everyone says they want private capital to form the basis of housing finance, but nobody is willing to accept the consequences of attracting this money: higher interest rates. Right now, the US taxpayer is on the hook for over 90% of the residential mortgage market through the FHA and GSEs. These entities are packaging mortgage-backed security pools, guaranteeing them, and selling them to investors. Without this government backing, investors would demand better returns, and the only way returns improve is if mortgage interest rates rise. Of course, rising interest rates is the last thing lenders and housing bulls want to see. Higher interest rates would reduce mortgage balances, make housing even less affordable, and ultimately will either halt appreciation or…[READ MORE]

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