The Collected Works of Author and Blogger Larry Roberts

Archive for August, 2015

Resting on a foundation of stable loan products and backed by can-kicking loss mitigation practices, the risk of future real estate declines is low. Real estate prices do not always go up. Prior to the housing bubble, and despite two previous bubbles in California where house prices went down, most buyers clung to the belief that real estate prices only go up. The housing bust ended this delusion forever, and in the process created a latent fear of future price declines. The fear of falling prices is rational. Without this fear, buyers become foolish and pay any price even when it's way, way too much. The lack of fear of falling prices contributed to the housing bubble. But is this…[READ MORE]

Historically, properties in this market sell at a 25.7% discount. Today's discount is 33.8%. This market is 8.1% undervalued. Median home price is $273,500 with a rental parity value of $408,600. This market's discount is $135,100. Monthly payment affordability has been worsening over the last 2 month(s). Momentum suggests worsening affordability. Resale prices on a $/SF basis increased from $176/SF to $178/SF. Resale prices have been rising for 5 month(s). Over the last 12 months, resale prices rose 5.9% indicating a longer term upward price trend. Median rental rates increased $23 last month from $1,828 to $1,851. The current capitalization rate (rent/price) is 6.5%. Rents have been rising for 12 month(s). Price momentum signals rising rents over the next three…[READ MORE]

realtors lobby for the same foolish policies that caused the housing bubble and ended with millions of families losing their homes. realtors care primarily about obtaining a large check from escrow after closing. What happens after that is not their concern. I assume most of them wish their commissions clients well, and if they think about these people for a nano-second after closing, they imagine them living happily ever after in their newly acquired properties. However, in the real world, if those buyers face challenges because the buyers believed the realtor's sales pitch, well... that's not as important to the realtor as closing the deal and getting paid. The evidence of a realtor's lack of concern for buyers was clear…[READ MORE]

The flow of money into the US from China slowed recently. Is this an alarming new trend, or a temporary setback? Stories about foreign buyers circulate periodically in the mainstream media. The plot is always the same: foreign buyers loaded with cash are buying houses as an investment. The nationality changes from time to time, but the narrative is always the same, and the implied urgency to buy before a foreigner buys your dream home is always present as well. Foreign homebuying has been part of the landscape in California since the gold rush, comprising a steady 5% to 7% of the housing market. These news stories imply the number of foreign buyers is large and growing, but the reality…[READ MORE]

If increasing the federal funds rate causes inflation expectations to drop, mortgage rates may actually fall, causing further rises in home prices. Mortgage interest rates are the single-most important factor determining the borrowing power of a potential house buyer. When rates are very low, a borrower can service a large amount of debt with a relatively small payment, and when interest rates are very high, a borrower can service a small amount of debt with a relatively large payment. Mortgage interest rates are determined by market forces where investors in mortgages and mortgage-backed securities bid for these assets. The rate of return demanded by these investors determines the interest rate the originating lender will have to charge in order to sell the…[READ MORE]

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