The Collected Works of Author and Blogger Larry Roberts

Archive for April, 2014

A housing recovery generally exhibits higher prices and higher sales volumes; however, after the 2012-2013 rally ended, home sales declined precipitously. Shouldn't home sales strengthen? Wouldn't a housing recovery based on strong fundamentals of job and income growth cause both prices and sales volumes to rise? Well, it isn't happening. Why is that? Most economists and housing pundits succumb to their optimism bias and predicted rising home sales in 2014: Trulia: 2013 was the year of the investor, but 2014 will be the year of the repeat home buyer. Investors buy less as prices rise: higher prices mean that the return on investment falls, and there’s less room for future price appreciation. Who will fill the gap? Not first-time buyers:…[READ MORE]

Lenders lower standards to qualify more borrowers and increase business, a precursor to another bubble, but only if risk is again mispriced. The recipe for a housing bubble takes many ingredients, and loose lending standards are one of them; however, it requires a gross mispricing of risk and enormous capital flows into unstable loans before prices get pushed up into bubble territory. Let's assume for a moment all qualification standards were eliminated and anyone who wanted to borrow money could get a loan, similar to what happened in 2004 through 2006. Would this cause a housing bubble? In my opinion, it would not. It would inflate prices, and it would cause a great deal of downward substitution of quality to…[READ MORE]

Rather than react with excitement and increased urgency, potential homebuyers fear rapidly rising home prices signal a new housing bubble. Does it? California endured three large housing bubbles since the early 1970s. Each one was kicked off by a huge house price rally, inflating prices well beyond any reasonable fundamental measure. From early 2012 to mid 2013, the house price rally was just as steep as previous price surges, but not as long in duration. Cautious home shoppers fear this latest rally may signal yet another housing bubble, but rather than purchase for fear of being priced out forever, buyers wait or decide to safely rent instead. I consider this cautious behavior a great sign for housing. In the past,…[READ MORE]

After years of manipulation of buyers and a callous disregard for the truth, the National Association of realtors and many agents have no credibility. When a realtor talks, do you hear "blah, blah, blah"? Why is that? At some level you know that most of what they say is bullshit, statements made without regard to the truth, usually to manipulate behavior for self-serving reasons. realtors want only one thing: to generate the largest commission possible with the least amount of time and effort. Bullshit helps reach their goal because bullshit smooths over all objections by telling people what they want to hear. The Credibility Continuum The credibility of anyone's opinions relies on the history of factual and truthful statements made…[READ MORE]

Federal reserve policy of zero percent interest rates inflates asset values and diverts money from savers to bankers. When the federal reserve buyers Treasury notes or mortgage-backed securities, it merely prints money. Unlike ordinary banks or citizens, the federal reserve doesn't need money in its accounts in order to buy things. The federal reserve doesn't usually print a great deal of money; it usually tries to print enough to match the increase in value of goods and services in the economy. The first policy response of the federal reserve in a downturn is to lower interest rates to stimulate the economy, but when interest rates hit zero, the only tool available is the printing press, and they aren't afraid to…[READ MORE]

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