The Collected Works of Author and Blogger Larry Roberts

Archive for June, 2015

Is the crisis in housing due to toxic mortgage products or people refusing to pay their mortgage obligations? Have you noticed that eight years after housing collapsed and three years after housing bottomed, people still refer to housing as being in a crisis? As long as millions of delinquent mortgage squatters refuse to pay their mortgages, and as long as lenders refuse to foreclose on the deadbeats, then housing is still in crisis. 362,000 American delinquent mortgage squatters refuse loan modifications, so obviously we can't modify our way out of the problem. Further, bailouts like loan modifications by their nature create moral hazard by preventing an individual or family from enduring the consequences of their bad decisions. It simply is…[READ MORE]

The "months of supply" indicator has little or no predictive power and often gives a false impression of the strength or weakness of the real estate market. The "months of supply" is a measure of market absorption, providing a reading of how fast homes are selling relative to the supply of inventory currently available. For example, if a market has 50 homes available for sale and sells 10 of them, it would take 5 months to sell the remainder if no additional inventory came to market. The "months of supply" is supposed to be indicative of how aggressive buyers are relative to sellers. In theory, a market with a low months of supply would have greater buyer demand than one…[READ MORE]

Subsidized credit is the process of taking credit from worthy borrowers and providing it to unworthy borrowers. I always find it interesting when writings from many years ago resonate through the ages as if they were written yesterday, like the writings of Frédéric Bastiat, a 19th century French economist. Plato’s Republic has a similar resonance. Plato’s critique of the shortcomings of democracy are still just as valid today as they were 2,500 years ago when he wrote it. Usually, I feature recent news articles less than a few weeks old. Today, I am featuring an essay written more than 160 years ago. The fact that it resonates so well today shows just how farsighted his vision was. Our obscure French…[READ MORE]

Historically, properties in this market sell at a 18.5% discount. Today's discount is 24.1%. This market is 5.6% undervalued. Median home price is $296,600 with a rental parity value of $385,400. This market's discount is $88,800. Monthly payment affordability has been worsening over the last 1 month(s). Momentum suggests unchanging affordability. Resale prices on a $/SF basis increased from $168/SF to $169/SF. Resale prices have been rising for 3 month(s). Over the last 12 months, resale prices rose 3.6% indicating a longer term upward price trend. Median rental rates increased $2 last month from $1,700 to $1,702. The current capitalization rate (rent/price) is 5.5%. Rents have been rising for 12 month(s). Price momentum signals rising rents over the next three…[READ MORE]

Negative cashflow investments are generally a losers game. The only path to success is for rapid appreciation that often fails to materialize. Real estate investors during the housing bubble put their money to work on faith. There is no logical reason to believe house prices only go up. In fact, there have been two prior periods in California’s recent history where house prices did, in fact, go down. However, with kool aid intoxication, otherwise known as faith-based investing, reality is ignored. If you truly believe house prices only go up, no price is too high, and you don’t have to worry about a backup plan if house prices don’t go up. There is only one viable backup plan when a…[READ MORE]

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