The Collected Works of Author and Blogger Larry Roberts

Archive for October, 2015

Overall housing inventory is not low, but the inventory available at prices buyers can afford is artificially low. Starting in late 2008, lenders began deferring foreclosures to stem the tide of REO flooding the housing market during a time when buyers were few and far between. This slowed the rate of decline in home prices, but it didn't reverse the downward momentum. Starting in 2011, lenders made significant changes to their loss mitigation procedures. They dramatically slowed the processing of foreclosures, aggressively modified delinquent mortgages, and they stopped approving short sales, particularly if the borrower had assets. As a direct result of these policies MLS inventory plummeted, and remaining homes for sale weren't the must-sell inventory that plagued the market…[READ MORE]

Historically, properties in this market sell at a 18.5% discount. Today's discount is 22.9%. This market is 4.3% undervalued. Median home price is $307,600 with a rental parity value of $405,100. This market's discount is $97,500. Monthly payment affordability has been worsening over the last 5 month(s). Momentum suggests worsening affordability. Resale prices on a $/SF basis increased from $172/SF to $172/SF. Resale prices have been rising for 7 month(s). Over the last 12 months, resale prices rose 3.8% indicating a longer term upward price trend. Median rental rates increased $16 last month from $1,775 to $1,791. The current capitalization rate (rent/price) is 5.6%. Rents have been rising for 12 month(s). Price momentum signals rising rents over the next three…[READ MORE]

Low house prices make for lower debt service payments that benefit the economy as money money is freed up to circulate and buy goods and services. Low house prices are good for the economy because low house prices make for low loan balances and less debt-service. When borrowers have excessive home debt, the excess comes directly out of disposable income. Since consumer spending is such an important component of the economy, the excess interest payments are a direct financial drain. As long as the debt on real estate is excessive and capital is tied up in non-performing assets, the economy will suffer. It’s really that simple. The solution is equally simple: foreclose on delinquent borrowers, wipe out the debt, and…[READ MORE]

Renters forced to pay higher rents don't have the income left over to save for a down payment; thus housing suffers. When bankers examined the common characteristics of borrowers who defaulted on their loans during the housing bust, they noticed that down payment was strongly correlated to default rates. In fact, as the down payment approached zero, default rates rose exponentially. The highest default rates were among homebuilders who depended on zero down buyers often getting a down payment from a charity funded by the homebuilder. This prompted the FHA and the GSEs to ban down payment assistance from third parties other than immediate family. Lenders, homebuilders, and realtors lobbied to eliminate a down payment requirement from the qualified mortgage…[READ MORE]

Contrarian investing requires a good analysis and the faith to act on it. I avoided buying a house during the housing bubble because my analysis of the monthly cashflow showed it was more advantageous to rent than to own. With prices rising rapidly, I was told I was a fool, a cowardly fool who didn't have the balls to cash in on the can't-miss investment opportunity of a lifetime. I recognized an impending disaster. In 2010, when house prices were depressed, nobody wanted to own real estate. The government offered huge tax breaks to anyone willing to buy a home, and because prices were still on a downward trajectory, few people were willing to buy. I recognized a great opportunity.…[READ MORE]

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