The Collected Works of Author and Blogger Larry Roberts

Archive for October, 2015

When mortgage rates are low but rising, equity growth comes through amortization rather than appreciation. Equity is the cash value stored in a owner's house. Many people assume equity is the difference between what a house is worth and what they owe on it, but this overstates the reality by 8% or more of the estimated value because if a homeowner needed to convert the house to cash, they would need to sell it, discounting the property from their perceived value and incurring fees and costs in the process. People who purchase real estate use the phrase “building equity” to describe the overall increase in equity over time. However, it is important to look at the factors which either create…[READ MORE]

Historically, properties in this market sell at a 9.5% discount. Today's discount is 12.8%. This market is 3.3% undervalued. Median home price is $510,000 with a rental parity value of $590,000. This market's discount is $80,000. Monthly payment affordability has been worsening over the last 5 month(s). Momentum suggests worsening affordability. Resale prices on a $/SF basis increased from $400/SF to $402/SF. Resale prices have been rising for 2 month(s). Over the last 12 months, resale prices rose 4.3% indicating a longer term upward price trend. Median rental rates increased $19 last month from $2,590 to $2,609. The current capitalization rate (rent/price) is 4.9%. Rents have been rising for 12 month(s). Price momentum signals rising rents over the next three…[READ MORE]

The hopes for a recovery in the homeownership rate fade as people forming new households choose to rent instead. For over 100 years, government administration policy favored homeownership. Politicians believe homeowners are more invested in local communities, so they are less likely to commit crimes or participate in the occasional riot. However, I believe politicians are more motivated to encourage homeownership because houses provide a retirement savings account that lessens the demand for public services by senior citizens. Homeownership was characterized as the best investment a middle-class family could make, and home ownership has become synonymous with the American Dream. During the early 00s, subprime lending provided poor and minority borrowers greater access to the free money from home price…[READ MORE]

Unrestricted mortgage equity withdrawal provides incentive for buyers to bid up house prices to create equity they can borrow and spend. Bubble thinking is rampant, and the primary reason for its persistence is that people want the free spending money houses provide. The huge financial reward each bubble participant received as they went to the housing ATM gave a spender’s high like no other. The real estate lottery When you reflect on it, mortgage equity withdrawal is similar to state run lotteries that sell hope to the poor at a major cost. If you are a worker who doesn’t save money, you have no chance to acquire wealth. Lotteries give those who have no other opportunity for wealth a chance —…[READ MORE]

Is it better to be widely known as a permabear or permabull? Or is it better to change with the times and gain credibility through being right? Pundits who issue forecasts want to be right, and they want to be acknowledged as being right. In the world of punditry, credibility is everything, and the best forecasters really are right more often than they are wrong -- or at least they convince people that's true. The ability to shamelessly revise history is the mark of a truly successful forecaster fraudster. Paul Krugman and Peter Schiff If you read either Paul Krugman or Peter Schiff, both write from the opposite ends of the political and economic spectrum. They often make predictions diametrically…[READ MORE]

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