The Collected Works of Author and Blogger Larry Roberts

Archive for May, 2015

House prices can only rise if wages go up, interest rates go down, or supply is restricted. Will we finally see rising wages in 2015? Yesterday I wrote about the importance of wages for house prices. Assuming mortgage interest rates are stable (probably a poor assumption), then for house prices to go up, aggregate wages must rise throughout the market. What conditions are required for wages to rise? When unemployment was very high in the aftermath of the 2008 financial crisis, employees were lucky to keep the jobs they had, so very few people left work voluntarily to take new jobs, and employees were in no position to demand higher wages as the employer could simply replace them, often with…[READ MORE]

Borrower income and mortgage rates determines how much buyers can borrow for a home purchase, making borrower income a major component of market prices. Since this is the prime season for real estate sales, many people come to this site for basic information on homebuying and the market. Today, I want to look at one of the biggest components of market pricing, incomes of local buyers. There are four variables that determine the purchase price of a property: borrower income, allowable debt-to-income ratios, interest rates, and down payment requirements. These variables are impacted by some other minor cost inputs, but for the most part, the variables above determine market pricing. Payment is a direct link to borrower gross income. The…[READ MORE]

In the next four years, 250,000 of HELOCs are due to recast in Los Angeles and Orange counties. Lenders mastered kicking the can when millions of borrowers stopped paying their debts. Rather than foreclose on delinquent borrowers, lenders collectively decided it was in their best interest to cut deals, entice borrowers to make payments, and pray house prices would recover when they could foreclose without losing billions. Can-kicking became the policy of necessity; Politicians encouraged it, some legislatures mandated it, most borrowers asked for it, but lenders required it, which is really why it happened. If lenders had foreclosed on all the delinquent mortgage squatters and liquidated the inventory, house prices would have retreated to Great Depression levels, and our…[READ MORE]

Historically, properties in this market sell at a 9.5% discount. Today's discount is 17.7%. This market is 8.1% undervalued. Median home price is $475,100 with a rental parity value of $578,200. This market's discount is $103,100. Monthly payment affordability has been improving over the last 7 month(s). Momentum suggests improving affordability. Resale prices on a $/SF basis increased from $390/SF to $394/SF. Resale prices have been rising for 2 month(s). Over the last 12 months, resale prices rose 9.5% indicating a longer term upward price trend. Median rental rates increased $15 last month from $2,486 to $2,501. 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]

Mark Hanson believes the reflated housing bubble will also pop. I think we won't see any significant price deflation going forward. The housing bears have not completely gone away. Zero Hedge, Keith Jurow, and Mark Hanson remain bearish, and they provide some of the most compelling bearish arguments in the national conversation. Mark Hanson is the Rodney Dangerfield of housing market economists; he doesn’t get much respect. John Burns, the local darling of the MSM, once said, “I give him zero credibility.” Ouch! So when Mark Hanson argues the US is enmeshed in housing bubble 2.0, he’s dismissed as a perma-bear or a headline grabber who gets on TV. Housing pundits who don’t share Mark Hanson’s views find it easy…[READ MORE]

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