The Collected Works of Author and Blogger Larry Roberts

Archive for March, 2016

With the fear of being priced out gone, would-be home buyers see high prices as a deterrent, not as an incentive to recklessly jump into the market. Prior to the housing bust, house prices on a national level had not fallen in over 80 years. Even in California where house prices had fallen on two previous occasions, the bottom of each trough was not as affordable as previous eras. When prices never go down or only decline a small amount for a brief period, people feel a sense of urgency to buy before prices rise even higher. This is a particular problem in California where house prices have risen faster than incomes for the better part of forty years. Buy…[READ MORE]

The GSEs will implement a targeted program of principal reduction to provide false hope and stave off further strategic defaults. The demand for free money is infinite. The demand for anything free is high, but since money can buy almost anything, the demand for free money knows no bounds. The lure of free money is very enticing. One of the most effective free-money advertising programs of all time emerged during the housing bubble. Lenders offered to give homeowners money and reduce their monthly payments to boot. Not just was this money free, lenders were actually paying borrowers to take it. Of course, if something seems too good to be true, it probably won't work out as hoped. The free money…[READ MORE]

Saving the banks required reflating the housing bubble, trapping a generation in their starter homes and slowing sales in the housing market. The reason fewer homeowners than usual list their homes for sale is due primarily to loss mitigation policies at lending institutions. Many homeowners face circumstances in their personal lives that would ordinarily compel them to sell, but due to the excessive amount of mortgage debt they carry relative to the value of their homes, these homeowners fail to list their homes for sale. Some homeowners don't list because they are underwater and can't sell for enough to pay off their loans. Some homeowners don't list because they are barely above water and if they were to sell, they…[READ MORE]

With memories of the housing bust fading, lenders embrace loan products proven to destabilize housing markets and cause foreclosures and lender losses. One of the main factors preventing further home price inflation is the lack of down payment savings among the buyer pool. With super low mortgage rates, even the meager incomes emerging from the Great Recession can finance amounts in excess of the conforming loan limits, which also inhibit higher home prices. Pressure will mount to raise the conforming loan limit, and pressure will also mount to find ways to accommodate potential homebuyers with less than 20% down. During the housing bubble, lenders gave out second mortgages to anyone who didn’t have a 20% down payment. A common product…[READ MORE]

Thanks to the housing bust, suburban renters now enjoy a much better selection of houses and neighborhoods to suit their family's needs. People often complain the media focuses too much on doom and gloom. Despite this perception, the financial media is almost entirely focused on providing good news when they have it and feel-good emotional spin when they don't. When it comes to their investments, people seek out confirming evidence that they made the right choices, so the emotional biases of investors becomes the reporting biases of the financial media. The housing bust was not good news for homeowners and real estate speculators. Despite the non-stop terrible news and data during the bust the financial media always found a way…[READ MORE]

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