The Collected Works of Author and Blogger Larry Roberts

Archive for 2013

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]

As mortgage rates increase it will put the mortgage interest deduction question back into focus. This has been a rumor that has circulated for several years.  For the extreme high income earners the mortgage interest tax deduction has a phase scale.  It's called the PEP and Pease tax rules that phases out the mortgage interest for couple earn more than $25o,000 per year.  The PEP and Pease is the first successful attempt to reduce the deduction.  There are other several proposals to phase it out, but it will probably a modification of this law that will pass.  If fact, Congress would have to do is just lower the income threshold and increase the phase out calculation to apply the PEP…[READ MORE]

After writing the post Sell now, mortgage interest rates to keep rising, I received an email from John H. Dolan ([email protected]), Independent Market Maker –CME Case Shiller Futures & Options. He pointed out that sellers who are worried about potential declines in house prices don't need to sell their homes. Instead, they can sell futures contracts (short the market) that will rise in value if the Case-Shiller index goes down. Futures Markets From Wikipedia: In finance, a futures contract (more colloquially, futures) is a standardized contract between two parties to buy or sell a specified asset of standardized quantity and quality for a price agreed upon today (the futures price or strike price) with delivery and payment occurring at a…[READ MORE]

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