The Collected Works of Author and Blogger Larry Roberts

Archive for October, 2013

According to Wikipedia:  The American Dream is a national ethos of the United States, a set of ideals in which freedom includes the opportunity for prosperity and success, and an upward social mobility achieved through hard work. In the definition of the American Dream by James Truslow Adams in 1931, "life should be better and richer and fuller for everyone, with opportunity for each according to ability or achievement" regardless of social class or circumstances of birth. The idea of the American Dream is rooted in the United States Declaration of Independence which proclaims that "all men are created equal" and that they are "endowed by their Creator with certain inalienable Rights" including "Life, Liberty and the pursuit of Happiness.…[READ MORE]

Sometime in late 2011 or early 2012, lenders changed their internal policies regarding foreclosure processing on delinquent borrowers. Prior to that time, most major lenders, and in particular the GSEs, were processing foreclosures to reduce the level of shadow inventory and stop delinquent mortgage squatters from enjoying a free ride. Lenders were still slow at this processing, and the shadow inventory was enormous, but they were processing just the same. Lenders finally came to realize that continued foreclosure processing was providing a steady stream of distressed properties, and these distressed property sales were keeping prices down. They correctly reasoned that if they stopped foreclosure processing, they could greatly reduce the supply of must-sell distressed inventory and alleviate the pressure on…[READ MORE]

It's been called "sticker shock," but perhaps a more apt term would be "price revulsion." The cost of ownership rose so high so fast that buyers simply stopped buying. Between rising prices and rising interest rates, houses have reached the limit of affordability in many markets, and buyers are either unwilling or unable to push them any higher -- and which of those factors it is will determine what happens going forward. Housing bulls postulate buyers are merely adjusting to the new price levels, and probably next spring, they will be out in force to push the market even higher. In other words, they believe it's buyer choice that causing prices to flatten and sales volumes to plummet. Housing bears…[READ MORE]

Actions have consequences -- which is not to say that many bailout advocates want everyone to avoid these consequences -- but in the real world, the decisions we make impact our lives. When rational people make good decisions, they carefully consider the potential consequences of their actions. Bailouts that soften these consequences invariably leads to more high-risk behavior, poor decision making, and an increased sense of entitlement. I was an early advocate of strategic default, and as it turned out borrowers who strategically defaulted early on made the best choice. These early strategic defaulters recognized their shortest path to future home equity was to quit paying, wait the necessary penalty period, then buy again when prices were lower. Those that…[READ MORE]

We haven't inflated a new bubble yet on this cycle, but we have reached a point where we've fully reflated the old one in several markets. Today, I want to take a detailed look at the Irvine, California, housing market. Irvine is a good proxy for other desirable Coastal California markets. What's happening in Irvine is happening elsewhere. In a healthy housing market, the cost of ownership in Irvine exceeds the cost of renting by 15%. Much of Irvine is a move-up market, so people take their equity from a previous sale and bid prices up higher than rental parity. Just one year ago, Irvine was undervalued by nearly 25%. The cost of ownership was lower than the cost of…[READ MORE]

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