The Collected Works of Author and Blogger Larry Roberts

Archive for October, 2013

The housing market and the mortgage market has stalled.   With the elimination of most of affordability products and mortgage rates that can't go too much lower price gains have stopped and lending has greatly decreased, see graph below from Confounded Interest. Now the housing industry is trying to recycle old ideas to stimulate lending activity and home prices.  However with Dodd-Frank most of those affordability products will not qualify as Qualified Mortgages.  This has reduce the ability of banks to inflate home values.  However, there some ways to expand lending by broadening scope of FHA and the GSEs beyond principal residences.  WHY THE FHA SHOULD BE OPENED TO INVESTORS FHA mortgages are supposed to be a vanishing species but the…[READ MORE]

In February I made the case that future housing markets will be very interest rate sensitive. When you look at the mechanisms used to inflate previous bubbles — using teaser rates, allowing excessive DTIs, and abandoning amortization — these were banned by the new residential mortgage rules. Lenders aren’t be able to use these tools to soften the impact of interest rate fluctuations or provide “affordability” when the market reaches its friction point. This is the main reason the market changed so dramatically and so suddenly when mortgage rates surged in June. Today, I want to follow up and show the mounting evidence of the housing markets extreme sensitivity to interest rate fluctuations. We've all been following the headlines over…[READ MORE]

Corelogic is a data company spun off from First American Title a few years ago. Their business is to sell information and analysis; therefore, their credibility is paramount. It's been argued this makes them nearly infallible. Today, I will argue otherwise. Corelogic has established themselves as the authority on shadow inventory. They publish a periodic report that is widely covered by the mainstream media. Their methodology is sound, and their data is accurate. However, as with any study the devil is in the details. There is one small detail that makes their reporting on shadow inventory very misleading. According to DS News, "Properties that are not yet delinquent but may become delinquent in the future are not included in CoreLogic’s…[READ MORE]

Everyone wants to live in Coastal California, so we are running out of land. Prices are supported by fundamentals, and it's different this time. Prices are rising rapidly, so you better buy now, or you will be priced out forever. Does any of that nonsense sound familiar? Each of those made my list of common fallacies that were widely believed during the housing bubble. Except for the brief hiatus caused by a nasty real estate price crash which exposed these myths for the nonsense they are, these wildly popular beliefs are making their way back into the collective consciousness. We can add new fallacies to the list thanks to the housing bubble. How about, "The government will either support house…[READ MORE]

Lower limits on conforming loans guaranteed by the GSEs or the FHA will lower sales volumes and prices in the price ranges no longer financeable with government loans. Everyone who understands the relationship between easy-money financing and aggregate house prices knows this, and those most interested in reflating the housing bubble and maintaining sales volumes (realtors mostly) are doing everything possible to make sure these conforming loan limits stay as high as possible. Of course, this is contrary to the greater good and the stated goals of the Obama administration that wants to reduce the footprint of government in home finance, but realtors aren't concerned with the greater good, they are concerned about commission income. Watching the realtor lobby work…[READ MORE]

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