The Collected Works of Author and Blogger Larry Roberts

Archive for October, 2014

Historically, properties in this market sell at a 18.5% discount. Today's discount is 21.5%. This market is 3.0% undervalued. Median home price is $290,100 with a rental parity value of $369,500. This market's discount is $79,400. Monthly payment affordability has been improving over the last 3 month(s). Momentum suggests improving affordability. Resale prices on a $/SF basis declined from $166/SF to $166/SF. Resale prices have been falling for 1 month(s). Over the last 12 months, resale prices rose 16.9% indicating a longer term upward price trend. Median rental rates increased $8 last month from $1,688 to $1,696. The current capitalization rate (rent/price) is 5.6%. Rents have been slowly rising for 4 month(s). Price momentum signals slowly rising rents over the…[READ MORE]

Delinquency rates on consumer loans hit a record low as lenders can-kick legacy loans and tighten standards to eliminate Ponzis. The financial media is abuzz with talk about tight credit and how it must be made looser to stimulate lending and the economy. This chatter, plus lenders' natural desire to increase business, combines as pressure at the bottom of the credit cycle to prompt lenders into making bad loans again. But why did credit get this tight? Once credit starts to contract, prices fall, and lending standards tighten until borrowers no longer default. If this were not the case, falling prices would cause large lender losses on the bad loans. Only the most creditworthy borrowers are extended credit, and these…[READ MORE]

Aligning two sets of mortgage rules established for different purposes, regulators provide room for lenders to make bad loans without risk retention. In a complete victory for lending industry lobbyists, the Qualified Residential Mortgage rules match the Qualified Mortgage rules. The Dodd-Frank law was designed to have two levels of defense against lenders underwriting bad mortgages. The broader Qualified Mortgage rules were designed to protect the banking system, and they provide considerable leeway for lenders to make bad loans. The Qualified Residential Mortgage rules were supposed to restrict lending within the QM framework to prevent lenders from making bad loans allowed within QM. By making these two rules match, regulatory agencies failed to comply with the intent of the legislation and set…[READ MORE]

Without affordability products the housing market depends on low mortgage rates for sales to occur at today's high prices. Back in February of 2013 when mortgage rates were near record lows, I wrote that future housing markets would be very interest-rate sensitive, despite assurances to the contrary from most macro-economists. The prevailing economic view is that the housing market would respond positively regardless of what happens with mortgage rates because house prices in the past have correlated poorly with mortgage rates. For example, during the 1970s, interest rates rose significantly, which should have caused house prices to drop, but instead California inflated a housing bubble. During the crash from the bubbles in the 1990s and the 2000s, interest rates declined,…[READ MORE]

Mel Watt announced a number of changes designed to loosen the credit box and stimulate lending. This doesn't mean a return to subprime. Those of us who watched the housing bubble and bust and detailed it's causes are greatly concerned about returning to the disastrous lending practices of the past. Although some degree of credit loosening was inevitable, the last thing any of us should want to see is a return to irresponsible subprime lending, particularly now that the US Taxpayer is liable for all the losses. Yesterday's announcement of loosening standards at the GSEs excited everyone in the housing industry. Lenders, realtors, and homebuilders all rejoice the opportunity to close more deals, but before they celebrate, they should take…[READ MORE]

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