The Collected Works of Author and Blogger Larry Roberts

Archive for September, 2015

What separates homeowners from people who don’t own homes? The answer is not as simple as you might think. If you go back to antiquity, the person who “owned” a house was generally the strongest warrior who was capable to taking it and holding it against all rivals. Over the last 500 years the development of government and stable laws of land ownership made it possible for ordinary people to have claims to real property stronger than the edge of a sword or the barrel of a gun. One of the first attempts to establish property title was the English Doomsday Book of the 11th century. The King set out to establish who owned what so he could better establish…[READ MORE]

The recent house price rally was financed with stable, fixed-rate mortgages. Stable mortgages make for a stable housing market. Pundits like to call asset bubbles; it attracts attention and helps make a name for the analyst. Most often they are wrong, but every once in a while, someone calls a bubble just before one pops, and they look like a prescient genius — and sometimes they are: Robert Shiller called both the Internet bubble and the housing bubble right at the peak of each, and he won the Nobel Prize for his efforts. The pundit sounding the alarm today is Charles Hugh Smith. I like his writing, and he generally displays a great understanding of financial history and the workings…[READ MORE]

If the FHA insurance fund falls short, the US taxpayer will pay the difference. With the FHA insuring subprime loans, as a taxpayer, your money is at risk. Many mortgage industry observers quipped that FHA is the reincarnation of subprime lending; the facts support this assertion. The FHA has very low standards for qualification (a 580 FICO score), a very low down payment requirement (currently 3.5%). Consequently, FHA insured loans became a necessity for anyone without the credit score or down payment to obtain other financing. Clearly, FHA filled the void created by the collapse of subprime lending. For the subprime business model to work, lenders much charge higher interest rates and fees to offset the losses on the numerous…[READ MORE]

Historically, properties in this market sell at a 25.7% discount. Today's discount is 33.2%. This market is 7.5% undervalued. Median home price is $278,600 with a rental parity value of $416,100. This market's discount is $137,500. Monthly payment affordability has been worsening over the last 3 month(s). Momentum suggests worsening affordability. Resale prices on a $/SF basis increased from $179/SF to $181/SF. Resale prices have been rising for 6 month(s). Over the last 12 months, resale prices rose 6.8% indicating a longer term upward price trend. Median rental rates increased $25 last month from $1,845 to $1,870. The current capitalization rate (rent/price) is 6.4%. Rents have been rising for 12 month(s). Price momentum signals rising rents over the next three…[READ MORE]

Prime borrowers using negative amortization loans were largely responsible for inflating the housing bubble, and their defaults lead to the crash. Most people believe the housing bubble and bust was caused by subprime lending. It was not. The housing debacle was caused by a rapid expansion of credit to prime borrowers, particularly through the proliferation of negative amortizations loans. The housing bubble inflated because too much money was loan to everyone, not just subprime borrowers. Since bubble-era home prices depended on unstable loan products, the collapse was inevitable. 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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