The Collected Works of Author and Blogger Larry Roberts

Archive for August, 2014

The Irvine Company wishes to replace the poor-performing Woodbridge Village Center with a condominium development that makes them more money. I recently wrote about the power of opposition groups to stop housing development in California. I was recently contacted by an activist in a community opposition group trying to save the Woodbridge Village Center. Personally, I think the Woodbridge Village Center should be saved. If I lived in Woodbridge, I would prefer to keep this well-designed community amenity rather than see it replaced with private condos. However, if I were the Irvine Company, I would want to replace this poor-performing center with something more valuable; they've determined condos is the best use for the property. If you have an opinion,…[READ MORE]

Both low mortgage interest rates and low house prices reduce ownership costs for financed buyers, but which one is better? Whether low house prices or low interest rates are better is a matter of perspective. From a lender's point of view today, low mortgage rates and high prices are better because they have so many underwater borrowers putting their capital at risk. Historically, lenders would prefer higher rates because interest is income, and they would rather make a higher rate of return by charging a higher interest rate, but the problem with underwater borrowers has shifted their preference. From the perspective of taxing authorities, lower mortgage rates and higher prices are always more desirable. Municipalities get their revenues from property…[READ MORE]

Housing bulls continue incorrectly predicting the return of Millennials and boomerang buyers. It's time to consider what happens if they never come back. As home ownership rates plummeted with waves of foreclosures in the aftermath of the housing bubble, real estate pundits pinned hopes for a real estate recovery on the return of so-called boomerang buyers, people who lost homes to short sale and foreclosure who return to home ownership. It's a compelling fantasy. It envisions hard-working Americans diligently saving for a down payment and paying their bills to improve their credit score as they eagerly await their opportunity to buy a home again. Reality is less supportive of the bullish fantasy. In the largest study ever conducted on boomerang buyers, the federal reserve concluded that less than 10%…[READ MORE]

Persistent shortages of housing in Coastal California inflates both rent and home ownership costs relative to incomes, making housing an economic drain. Despite the rapid home price increases from March 2012 to July 2013, I've consistently maintained we are not in a new bubble -- at least not yet. The housing market reports I publish each month compare the cost of owning real estate to the cost of renting it, and as long as these two alternatives for acquiring homes is in balance, I consider the market affordable. The weakness in this analysis is that it assumes either renting or owning is affordable, but if neither one is affordable relative to incomes, the market can be very unaffordable despite the…[READ MORE]

Headlines of house flipping and increased novice investor participation of signs of a top in the housing market for high-end homes. Contrarian investing is the art of selecting and timing investments by directly opposing the actions and attitudes embraced by the crowd of enthusiastic but ill-informed market participants. The central premise of contrarian investing is that the crowd is usually wrong, and the exuberance or panic of the crowd misprices assets, providing confident investors opportunities they can take advantage of. I have some experience with contrarian investing. I wrote extensively about a crash in the housing market in 2007 and 2008 when the crowd believe house prices could only go up at 10% or more per year forever. I rented…[READ MORE]

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