The Collected Works of Author and Blogger Larry Roberts

Archive for October, 2014

Lenders didn't collect on bad debts during the recession when borrowers were broke, but now that personal finances are improving, lenders want their money. Most borrowers who defaulted on debts during the recession waited anxiously for their lenders to come after them for the bad debt. When lenders didn't pursue collection on bad debts at the time, most borrowers blithely assumed they no longer owed this money, but most often that isn't the case. Lenders were merely waiting until the borrowers became solvent before pursing them; after all, they can't get blood from a stone, and they can't get money from borrowers who are broke -- but lenders can get money from delinquent borrowers who now have stable income and…[READ MORE]

Historically, properties in this market sell at a 9.5% discount. Today's discount is 11.7%. This market is 2.1% undervalued. Median home price is $475,200 with a rental parity value of $536,800. This market's discount is $61,600. Monthly payment affordability has been improving over the last 5 month(s). Momentum suggests improving affordability. Resale prices on a $/SF basis increased from $382/SF to $386/SF. Resale prices have been rising for 7 month(s). Over the last 12 months, resale prices rose 18.3% indicating a longer term upward price trend. Median rental rates increased $25 last month from $2,440 to $2,465. The current capitalization rate (rent/price) is 5.0%. Rents have been rising for 12 month(s). Price momentum signals rising rents over the next three…[READ MORE]

The California Association of realtors housing market sales forecasts for 2013 and 2014 were way off. How bad will their 2015 miss be? Past performance is not always the best indicator of the skill of forecasters. For example, if meteorologists issue a standard forecast for weather in Southern California of morning clouds, afternoon sun, and highs in the upper 60s or low 70s, they would be correct over 80% of the time, but what have they forecast? Nothing. They merely predicted the average condition, and the average condition happened. The art of forecasting is to predict deviations from normal. It's a process of examining current conditions and running them forward with a deep understanding of how variables will interact and produce unusual outcomes. On…[READ MORE]

Will continuing population growth and shortages of housing and farmland make real estate the asset class to invest in during this century? Where is the best place to put your money today? At the bottom of the credit cycle, super-low interest rates inflate the value of all assets because investors are forced to take on more risk in a futile quest for yield. These flows of money inflate bubbles in most asset classes, and it sets up circumstances where money will flee risky asset classes as interest rates rise, causing yields to rise at the expense of asset values. Bill Gross recently left Pimco and expressed very bearish opinions on future interest rates and the value of bonds. The stock…[READ MORE]

The fundamental driver of home price appreciation is wage growth, and the housing market is stalling due to slow wage growth and weakness of the US economy. Financed buyers complete most home sales, so the borrowing power of financed buyers generally sets the prevailing price levels in most real estate markets. The ability of financed buyers to raise their bids and push prices higher depends on the amount of savings they have, their verifiable wage income, allowable debt-to-income ratios, and mortgage interest rates. Because wages are central to the lending equation, growth of wages is the strongest determinant of long-term housing market prices. For the housing market to really improve, the fundamentals underpinning the market must improve because manipulating inventory and interest rates can only carry…[READ MORE]

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