The Collected Works of Author and Blogger Larry Roberts

Archive for June, 2016

When construction or renovation costs exceed the resale value, a house literally is worth less than zero. In Coastal California, the sticks-and-bricks construction cost is only a small portion of a house's resale price. The rest is residual land value. In Coastal California it's common to see small houses in beach towns demolished and replaced with a large mansion. In the rest of the country, residual land values are usually too low to justify such activity. With far fewer restrictions on land use in most of the US, land values are much lower. The construction cost of a new house is generally about 80% of the final resale value of a home, leaving 20% for the cost of a finished…[READ MORE]

 The US taxpayer is directly responsible for any losses on loans to low-quality borrowers since 2008. Lenders prefer to loan money to people with ample reserves, strong income, and a proven track record of repaying debts. Borrowers that lack any of those components default at higher rates, so lenders charge them higher interest rates to compensate for the increased costs and potential losses. Competition between lenders prompts them to reach out to fringe borrowers that may be lacking in certain desirable characteristics, but lenders rarely reach too far for too long because shaky borrowers are the first to default in an economic downturn. However in the mid 1990s lenders embarked on a long-term foray into loaning money to high-risk borrowers:…[READ MORE]

Sometimes people make large sacrifices to obtain a home of their dreams; however, sometimes they aren't willing to sacrifice at all. Whenever people buy a home, they make tradeoffs. Do they want to live near the beach in a small condo, or do they want a McMansion and a lengthy commute? In a larger sense, most people also chose whether they want more house or more disposable income. In California, most people feel compelled to sacrifice disposable income to obtain better housing because the alternative is often quite Spartan. The chronic shortage of housing inventory inflates California house prices to very high levels and forces most people to settle for far less than what they would enjoy anywhere else. Contrary…[READ MORE]

By offering private mortgages with only 1% down, Quicken Loans encourages speculators to gamble with other people's money. If most people were to go to Las Vegas and gamble with $1,000 of their own money, they would be cautious; if they lost, they would feel the pain of that loss, and the fear of the consequences would prevent them from taking crazy risks. But instead imagine how their behavior would change if someone else gave them $990, and they only had to put up $10. Ostensibly the $990 would be a loan, but if the gambling borrower is unable to repay, they would simply walk away and default on the loan. Further, those without the capacity to repay would know…[READ MORE]

San Bernardino County housing market report: June 2016 Historically, properties in this market sell at a 25.7% discount. Today's discount is 36.0%. This market is 10.3% undervalued. Median home price is $286,300 with a rental parity value of $451,000. This market's discount is $164,700. Monthly payment affordability has been improving over the last 3 month(s). Momentum suggests improving affordability. Resale prices on a $/SF basis increased from $188/SF to $190/SF. Resale prices have been rising for 4 month(s). Over the last 12 months, resale prices rose 8.9% indicating a longer term upward price trend. Median rental rates increased $27 last month from $1,921 to $1,948. The current capitalization rate (rent/price) is 6.5%. Rents have been rising for 12 month(s). Price…[READ MORE]

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