The Collected Works of Author and Blogger Larry Roberts

Archive for July, 2014

Seasonally adjusted home prices fell in may for the first time in over two years. Robert Shiller warns of possible turning point in the housing market. When a housing market reaches a top, it's usually preceded by an unexpected drop in sales during the prime selling season. In June of 2006, sales fell off a cliff, and prices soon followed, and in July of 2010 after expiration of the tax credits, sales again suddenly collapsed, and home prices fell for another 18 months. Here we are in 2014, and sales volumes have been weak all year, and new home sales took a large and unexpected dip. Are we on the cusp of another market downturn? US seasonally adjusted home prices…[READ MORE]

The housing bubble deniers in China use poor reasoning and macroeconomic arguments to ignore their massive Ponzi scheme. Here in America, the bubble deniers — and Never forget the bulls and bubble deniers were completely and totally wrong — the bubble deniers succumb to their optimism bias and comforted themselves with fallacies and wishful thinking, even past the point where denying the obvious was no longer operative. The same is true in China. China's Property Market Is No Bubble A correction is coming, but not a crash. By YUKON HUANG, July 24, 2014 12:44 p.m. ET Will China's property bubble trigger a financial crisis? Concern is high this year thanks to deteriorating sales figures and reports of large price cuts.…[READ MORE]

In apparent recognition that principal reduction is a bad idea, Mel Watt is not forgiving debts on underwater loans owned by the GSEs. Principal reduction is the worst policy option. The economy is weighed down by excessive mortgage debt, causing borrowers to pay money to lenders that would otherwise be spent on goods and services stimulating the economy. The proper macro-economic solution suggests removing this debt would boost economic growth, but how should this be accomplished? There are two options: (1) foreclosure and bankruptcy, and (2) widespread principal forgiveness. Advocates on the political left want to see principal forgiveness. Conservatives, on the other hand, point to the problems of moral hazard, the central issue in the housing bust. Every decision…[READ MORE]

Stymied by high prices amidst weak job and wage growth, new home construction fell dramatically in June. This wasn't supposed to happen. Reflating the housing bubble was supposed to lift distressed loanowners above water, stimulate building (and construction employment), and create "escape velocity" in the housing market. Economists had it all figured out, and they advised policymakers to stimulate housing at all costs. Instead, high house prices made housing unaffordable to marginal buyers, and caused sales volumes to plummet. Since builders can't sell homes, they aren't building them, and they aren't hiring construction related trades, so the sought after economic boost isn't happening. So why did it turn out this way? The new mortgage regulations changed how real estate markets…[READ MORE]

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. I recently wrote that higher mortgage interest rates would either slow sales or cause house prices to drop. Since most real estate analysts still consider declining home prices impossible, when forced to pick between the two potential outcomes, they pick slower home sales. 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,…[READ MORE]

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