The Collected Works of Author and Blogger Larry Roberts

Archive for December, 2014

Historically, properties in this market sell at a 0.6% premium. Today's discount is 2.3%. This market is 3.0% undervalued. Median home price is $565,800 with a rental parity value of $584,600. This market's discount is $18,800. Monthly payment affordability has been improving over the last 5 month(s). Momentum suggests improving affordability. Resale prices on a $/SF basis increased from $374/SF to $374/SF. Resale prices have been rising for 1 month(s). Over the last 12 months, resale prices rose 6.1% indicating a longer term upward price trend. Median rental rates declined $16 last month from $2,650 to $2,633. The current capitalization rate (rent/price) is 4.5%. Rents have been rising for 12 month(s). Price momentum signals rising rents over the next three…[READ MORE]

Lenders argue reducing principal balances in bankruptcy proceedings would increase borrowing costs. The federal reserve disagrees. Ever since the Great Housing Bubble began to deflate, everyone incorrectly identified foreclosure as a problem because foreclosure pushes people out of the house the bank bought for them. The real problem is not foreclosure; the real problem is that borrowers have excessive debts due to the huge loans lenders underwrote that inflated the housing bubble. Foreclosure is not the problem, it is the cure. Principal reductions are the worst possible solution to the problem of excess debt left over from the Great Housing Bubble. Principal reductions merely gives foolish borrowers a pass. If the borrowers go through foreclosure, they have consequences that minimize moral hazard:…[READ MORE]

There are four fundamentals that determine resale value: borrower income, allowable debt-to-income ratios, interest rates, and down payment requirements. When economists think about the fundamentals of housing, they usually talk about job and wage growth, both of which impact the broader market trends of prices and sales, but job and wage growth doesn't provide a conceptual framework for establishing the equilibrium price level the market establishes. On a more basic microeconomic level, job and wage growth are only important in that they impact a borrower's income, which is a true fundamental. Fluctuations in supply and demand are not fundamentals. Restricted inventory caused by loan modifications and denying short sales -- the tactic lenders used to reflate the housing bubble --…[READ MORE]

The emotional reasons for buying a house are real and valid, and even the most ardent renter should acknowledge them. The need for shelter is basic, often closely followed by the desire for community. In the United States, this often translates into a desire to take on a very large mortgage to buy real estate. These basic human emotions drive much of the activity in real estate markets. Most people buy because it is the right time for them; their career, age, family circumstances push people toward ownership at different times. Some are fortunate and buy at the bottom of the real estate cycle; some are not so fortunate and buy at the peak. The primary reasons to buy a…[READ MORE]

The exciting era of increasing financial freedom through household deleveraging recently came to an end. Why should we celebrate when debt increases? Does anyone like debt? Does anyone want more debt? Debt is not income, despite what some people may think. In a lender’s ideal world, borrowers would turn to lenders the moment a borrower gets a raise to turn that slow trickle of income into a torrent of debt spending. In that way, lenders can suck that income out of the borrower with interest payments leaving the borrower no better off than before, other than perhaps the brief spender's high from the new credit line. In the Great Recession lenders and the federal reserve instituted policies designed to preserve…[READ MORE]

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