The Collected Works of Author and Blogger Larry Roberts

Archive for December, 2013

Real estate news coverage is suspended from December 21 through December 31. Regular real estate related news posts will resume on January 1, 2014. For those who stopped by expecting real estate coverage, I apologize for the inconvenience. Since the end of the year is a time of family and reflection, and since it's not a time many people focus on real estate, I decided to offer something different. Tony Bliss was a close friend of mine who lost his heroic battle with cancer in late 2012. He wrote about his experience in a series of gripping posts that reveal a beautiful and courageous man. I was deeply moved by these posts -- some of which are admittedly difficult to…[READ MORE]

Every loan product has its place. Option ARMs, interest-only, reverse mortgages, adjustable rates, high LTV, subprime, all mortgage products serve some borrower's unique financial circumstances. Contrary to popular belief, exotic loan products were not inventions of the housing bubble. The problem during the housing bubble was the proliferation of these products outside their usual niche caused by the mispricing of risk. If risk were priced properly, these exotic loan products would have been prohibitively expensive, and far fewer borrowers would have used them. Exotic loans become toxic when they escape their specialized niche and spread like a virus among borrowers who lack the qualifications to handle them. The widespread use of exotic loans inflated the housing bubble and catalyzed the…[READ MORE]

Lenders mastered kicking the can. When millions of borrowers stopped paying their debts, rather than foreclose on delinquent borrowers, lenders collectively decided it was in their best interest to cut deals, entice borrowers to make payments, and pray house prices would recover when they could foreclose without losing billions. Can-kicking became the policy of necessity; Politicians encouraged it, some legislatures mandated it, most borrowers asked for it, but lenders required it, which is really why it happened. If lenders had foreclosed on all the delinquent mortgage squatters and liquidated the inventory, house prices would have retreated to Great Depression levels, and our entire banking industry would have gone bankrupt. My fantasy was averted. For the next several years, the housing…[READ MORE]

I strive to educate this blog's many readers and dispel the fallacies surrounding residential real estate. Sometimes, the public impresses me with their wisdom; For example, adjustable-rate mortgage use is very low despite rising rates. However, sometimes I am shocked at how many people become confused by simple concepts. For example, Redfin recently took a poll and showed that 83% of homebuyers thought a 5% interest rate was normal. They were rightfully disturbed by the financial illiteracy of buyers. Mortgage interest rates only recently fell below 5%. The only time in US history interest rates were as low as the last two years was in the aftermath of the Great Depression and World War II. (Chart below shows federal funds…[READ MORE]

[dfads params='groups=165&limit=1']Nothing interesting happens in real estate in December. Few people hunt for houses, inventory usually declines, and both inventory and sales hit a low for the year. This year is similar to others. The differences in the housing market this December arise from the unique circumstances of today's market. Ordinarily, house prices also decline in December because sellers are motivated and reduce their price to sell. This December, we witnessed no decline in price--mostly because cloud inventory sellers can't lower their price--so instead we endured a larger than normal decrease in sales volumes. Housing bulls interpret the steady price as a sign of strength; they ignore the dramatic decline in sales volumes brought about because sellers didn't reduce their…[READ MORE]

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