The Collected Works of Author and Blogger Larry Roberts

Archive for August, 2014

Coastal California housing demand from Chinese nationals surged in recent years; however, Chinese officials abruptly shut down this source of demand. The people who deny a real estate bubble in China are wrong, and the deflating Chinese property bubble could destabilize the world economy, but of greater interest to owners of Coastal California real estate, the deflating Chinese housing bubble could turn local real estate buyers into desperate sellers. Both homebuilders and real estate agents delude themselves with notions about the desirability of Coastal California to convince themselves the influx of Chinese money is based on sustainable fundamental factors. In reality, this is hot money escaping a collapsing market, subject to the policy whims of an unpredictable totalitarian government. Chinese…[READ MORE]

Empowered by State regulations, local development opposition groups prevent construction of much-needed home supply creating shortages that inflate prices. When any commodity is in short supply, prices tend to rise; houses are no exception. Beginning in the 1970s, California produced more high paying jobs than it did houses. As a result, there were not enough houses to go around, so people began substituting down in quality to obtain a place to live. This downward substitution effect lifts house prices at every level of the housing ladder and prices out the lowest tier of the housing market. This phenomenon has been going on for so long, that most Californians resign themselves to the idea of living in lesser quality housing than…[READ MORE]

Loan modifications for underwater borrowers preserves the debt so appreciation that ordinarily supports a move-up housing market instead flows to lenders. Lenders limit financed homebuyers based on borrower income, yet many houses sell at prices prices far above the limits of borrowing power because buyers take profits from a previous sale to increase their down payment and bid up prices far in excess of what most first-time homebuyer can afford. The move-up market functions when equity accumulates; however, unrestrained mortgage equity withdrawal during the housing bubble plus a large number of peak buyers left many homeowners with little or no equity; millions of homeowners are still underwater. Without this accumulated equity, the the move-up market only finds support from the…[READ MORE]

Real estate industry lobbyists foster the false impression mortgage lending standards are tight. They are not. Real estate industry lobbyists appeal to lawmakers for policies the real estate industry believes will promote more transactions at higher prices. Most often this lobbying is short sighted and causes unintended long-term detrimental impacts on the housing market. For example, real estate industry lobbyists continually support relaxed lending standards. In 2004 they watched all of their dreams come true as all mortgage standards were abandoned causing a large boost in transaction volume and much higher home prices. Rather than being the panacea they envisioned, the abandonment of lending standards inflated a massive housing bubble that pulled forward demand, caused a deep house price crash,…[READ MORE]

Dashing hopes for a second-half recovery, existing home sales in Southern California steeply declined in July 2014. Do you remember all the happy talk and wishful thinking that dominated financial reporting over the last few months? Weren't we lead to expect a better second half of 2014? Supposedly the first quarter was weak due to bad weather, then the second quarter... well, economists and reporters really didn't have a plausible excuse for completely missing the ongoing slowdown in the second quarter, and now the much-anticipated second half recovery is turning into an epic disaster. This wasn't difficult to foresee. In the post Bold California housing market predictions for 2014, I said sales volumes would decline from 2013 levels because investors…[READ MORE]

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