The Collected Works of Author and Blogger Larry Roberts

Archive for March, 2015

Historically, properties in this market sell at a 9.5% discount. Today's discount is 16.7%. This market is 7.2% undervalued. Median home price is $467,600 with a rental parity value of $563,700. This market's discount is $96,100. Monthly payment affordability has been improving over the last 10 month(s). Momentum suggests improving affordability. Resale prices on a $/SF basis declined from $395/SF to $389/SF. Resale prices have been falling for 1 month(s). Over the last 12 months, resale prices rose 9.0% indicating a longer term upward price trend. Median rental rates increased $4 last month from $2,474 to $2,478. The current capitalization rate (rent/price) is 5.1%. Rents have been rising for 12 month(s). Price momentum signals rising rents over the next three…[READ MORE]

As loan modifications redefault, lenders will either modify the loans repeatedly, or they will finally foreclose and resolve the bad loan permanently. When lenders first embarked on the charade of loan modifications to delay foreclosures, I didn't believe they could effectively use this ruse to stop foreclosures and remove the distressed inventory from the MLS because recurring foreclosures would force them to follow another course. I was wrong. The first round of loan modifications failed miserably, as I thought they would, but rather than change course, lenders increased their bets and went "all in" on loan modifications. By choosing can-kicking over foreclosure no matter the price, lenders managed to gain control of MLS inventory and engineer the bottom in house…[READ MORE]

The more new buyers borrow to buy neighborhood properties, the more home values go up, and the more home equity appears out of the ether. Where does home equity come from? Does it appear by magic, a gift of the appreciation fairy? Does it accumulate by discipline through paying down a mortgage? Both factors are at work, but unless you believe the appreciation fairy listens to your prayers, the only factor that builds home equity you have control over is the amount of debt encumbering the property. So how does the appreciation fairy work? In concept house prices should rise gently over time to match the growth of wages in the area. In practice house prices rise and fall violently…[READ MORE]

Should the federal reserve try to prevent asset bubbles or merely clean up in the aftermath? Financial manias are costly to society because they divert scarce resources away from productive ends toward wasteful enterprises that consume resources without creating any real value. If we could identify asset bubbles and eliminate them before they started, our economy would more efficiently allocate the resources available. Do you remember the dotcom bubble? Thousands of new web companies obtained financing to launch dubious ventures that squandered investor money creating no value. Often the only residual value of these businesses was the salvaged phone systems or office cubicles; the products were worthless. Couldn't that money have been invested in something more productive? There is little…[READ MORE]

The housing bubble was not a subprime problem: it was a middle-class prime borrower problem. Conventional wisdom holds that the housing bubble and bust was caused by loaning money to subprime borrowers who defaulted in large numbers and fell into foreclosure, resulting in a dramatic price crash. Many believe the housing crash would have been avoided if lenders simply hadn't loaned money to subprime borrowers. The conventional wisdom is wrong. The collapse of the housing bubble was inevitable because the loan products upon which pricing depended were unstable. Although the subprime borrowers defaulted first, all borrowers defaulted in large numbers because the loans there were given were toxic; in fact, delinquency rates were many times normal for prime borrowers as…[READ MORE]

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