The Collected Works of Author and Blogger Larry Roberts

Archive for May, 2016

Both rental rates and the cost of ownership rise faster than incomes in Los Angeles County due to an improving economy and a lack of housing supply. California inflated three housing bubbles over the last 40 years, and perhaps a fourth one inflates now. The collapse of each of the previous housing bubbles coincided with economic recessions, so many analysts incorrectly point to these recessions as the cause of the price collapse. The truth is that each of the previous bubbles inflated because lenders abandoned debt-to-income standards (1970s), experimented with toxic financing and relaxed DTI standards (1990), or completely lost their minds with "innovative" loan products (2000s). The coincidental recessions may have contributed to the problem, but they weren't the…[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. Common sense dictates that spending less money on necessities boosts discretionary spending. When gas prices are low, the average commuter has more money left over to spend on everything else. The same is true for housing payments: the less a homeowner spends paying mortgage debt, the more money that homeowner has available to save, invest, or spend on goods and services in the economy. If low debt service payments are good, why are politicians, lenders, realtors and homeowners obsessed with driving up house prices as high as possible? Doesn't it take more debt and…[READ MORE]

Entry-level housing in California carries a very high cost, and there is little hope this will improve any time soon. In fact, the problem will likely get worse before people get fed up and do something about it. When house prices move up rapidly and significantly as they have in California on numerous occasions, even the highest wage earners can't afford a significant portion of the housing stock with what they can borrow and what they save from their large incomes. Prices get so elevated because previous owners sell their homes and use the equity that accumulated through the appreciation windfall to bid up prices on more desirable properties. As a consequence even the highest wage earners can't start out…[READ MORE]

Riverside County Housing Market Report: May 2016 Historically, properties in this market sell at a 18.5% discount. Today's discount is 27.4%. This market is 8.9% undervalued. Median home price is $314,800 with a rental parity value of $438,600. This market's discount is $123,800. Monthly payment affordability has been improving over the last 3 month(s). Momentum suggests improving affordability. Resale prices on a $/SF basis increased from $178/SF to $178/SF. Resale prices have been rising for 6 month(s). Over the last 12 months, resale prices rose 6.4% indicating a longer term upward price trend. Median rental rates increased $26 last month from $1,845 to $1,872. The current capitalization rate (rent/price) is 5.7%. Rents have been rising for 12 month(s). Price momentum…[READ MORE]

Our current system of taxing gains on owner-occupied housing discourages long-term ownership of a family home, and it encourages frequent moves, which destabilizes families and neighborhoods. When investors sell an asset for a profit, most of the time they pay capital gains taxes. Outside of a retirement account, there is only one exception: the waiver of capital gains taxes on the sale of a primary residence within certain parameters. If an investor purchases a house and sells it within two years of the date of purchase, the transaction is considered a "flip" and the investor pays taxes on the gains as ordinary income. IMO, this is a good tax because the professionals who work in rehabilitation are businessmen, and flipping…[READ MORE]

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