The Collected Works of Author and Blogger Larry Roberts

Archive for March, 2014

The unemployed consist of both homeowners and renters, but all assistance programs only bail out homeowners because this money is really intended to bail out the banks. Why don't renters get bailed out out like homeowners? It seems fairly obvious that homeowners think renters are degenerates and losers, and even the government robs working renters to subsidize unemployed homedebtors. But does that mean it's acceptable to favor one group over another? What happens when renters lose their jobs? Does anyone step forward to pay their rent or allow them to squat like homeowners? Why not? Renters are no better or worse in the eyes of politicians; both renters and homeowners vote. And even if renters were a degenerate sub-species of…[READ MORE]

The OC Housing News provides detailed ownership cost calculations for every family home for sale on the local MLS. A point-in-time analysis Today is reality; tomorrow is a fantasy. The ownership cost calculation is a snapshot of the cost of ownership at the time of first payment. It makes no projections for future changes such as home price appreciation. This analysis purposely does not project future changes for two reasons: First, the costs at the time of first payment are concrete and knowable. It requires fewer assumptions and no crystal ball. Second, most people who estimate future appreciation wildly overestimate. Very small changes in rates of appreciation make very large differences over 10 or more years. Overestimating appreciation always makes…[READ MORE]

Rental parity is the price of real estate where the monthly cost of ownership equals the cost of rent. It is the best benchmark for establishing residential property value. The importance of rental parity Rental parity represents a crossover point where renting and owning have an equal monthly cost. When prices are above rental parity, it costs more to own than to rent, so owning is often not a wise financial decision. Owning may still be right for people, and many are willing to pay the premium to own to obtain the emotional benefits of ownership; however, on a purely financial basis, paying more than rental parity creates a negative cashflow situation where owners pay more to enjoy a house…[READ MORE]

Home mortgage interest deduction encourages high wage earners to borrow more; capital gains tax exemption encourages wealthy to invest more in personal homes. The combined effect inflates house prices. Politicians promote home ownership through a variety of subsidies and tax loopholes, ostensibly to promote a sense of community and quell civil unrest, the modern bread and circuses. A recent Republican tax reform proposal curtails homeownership subsidies, and the proposal is vigorously opposed by realtors, homebuilders, and lenders who benefit from the subsidies. Supporters of the subsidies generally control the perception of their largess through planted stories in the financial media appealing to homeowners who rely on the subsidy to reduce their tax bills; however, those who want to reduce these subsidies…[READ MORE]

Exempt from qualified mortgage rules, the GSEs and FHA originate 24% of new loans with debt-to-income ratios that exceed the 43% limit. Not long ago, Senators unveiled a Fannie Freddie reform plan. The politicians in Washington recognize that the US taxpayer must not remain responsible for over 80% of home loans, but the parties disagree on how to remove this backing and potentially wind-down the GSEs. The basic dilemma is the cost of money: withdrawing the government backing will increase the cost of money in order to attract private capital. Raising the cost of money is raising mortgage interest rates, and Higher mortgage interest rates lead to lower sales or lower prices, neither alternative is palatable in Washington. A seldom-discussed problem…[READ MORE]

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