The Collected Works of Author and Blogger Larry Roberts

Archive for February, 2014

In the absence of rising wages, when mortgage interest rates go up, one of two things will happen: either sales will fall, or prices will fall. Since we don't have a free market in housing, sales will fall and remain depressed for a very long time. Assuming a consistent payment, higher mortgage rates decrease the size of the loan and reduce the amount borrowers can bid on real estate. While it is possible the federal reserve may print enough money to spark wage inflation, given the high levels of residual unemployment and a low labor participation rate, wage inflation is a long way off, almost certain to come later than rising mortgage rates. Therefore, if rising mortgage rates results in…[READ MORE]

As Baby Boomers retire, they may want to sell their McMansions and downsize. They may discover finding a buyer is more difficult than they currently imagine. I recently read Ayn Rand's Atlas Shrugged, all 1,167 pages of it. The core idea of the book postulates what would happen if society's productive people went on strike and refused to produce anything of value. Not to spoil the book, but if society's most productive people went on strike, commerce would come to a halt, and society would devolve into barbarism. When I read today's featured story on Baby Boomers, I wondered what would happen if succeeding generations simply decided not to buy their houses. Who will fund the retirements of Baby Boomers?…[READ MORE]

Home sales volumes are down across all market segments. Investors and owner-occupants alike find prices far too high for their liking. Home sales are down despite hopeful predictions from economists and financial reporters that the housing market had finally achieved "escape velocity." The theory was that investors would cause the housing market to bottom, and owner-occupants, seeing less risk in purchasing a home, would step in and purchase homes once prices started rising. In the past, owner-occupant buyers often would purchase even when prices were rising briskly because they believed house prices couldn't go down, so they needed to buy before prices became too high; plus, many wanted to make a fortune on appreciation. The housing bust changed all that.…[READ MORE]

The cost of ownership is rising and will soon outpace rents. Will buyers still want to purchase homes when it costs them more to do so? During the hight of the insanity of the housing bubble, it cost nearly double to own a house than to rent it (assuming a conventionally amortized mortgage, which nobody was using). Despite the huge premium for ownership, people bought houses, several if they could. Being one of those cautious fools who never considered using any of those innovative loan products, I couldn't understand why anyone would pay so much more to own than to rent. It never occurred to me that people paid so much because they believed they would make a return on…[READ MORE]

Reporters in the mainstream media convince beleaguered homeowners and potential homebuyers problems with bad mortgages is past; however, this may not be an accurate depiction. The mainstream financial media, in it's insatiable desire to please and tell people what they want to hear, churns out story after story about a recovering housing market. To be sure, house prices are up, but as I asked in Home sales down, household formation down, purchase applications down: Housing recovery?, if house prices are up yet all fundamentals are weak, can we really call it a housing recovery? I've stated many times my contention that the housing recovery is built on a foundation of market manipulation; distressed inventory dried up because lenders opted to…[READ MORE]

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