The Collected Works of Author and Blogger Larry Roberts

Archive for September, 2016

The next housing bust will preserve prices at the expense of home sales volume. Real estate only goes up, right? The idea that real estate only goes up was the erroneous belief shared by every participant in the housing mania. Everyone who believed in this fallacy threw caution to the wind and paid any price to buy a home. Why not? If house prices really couldn't go down, then value really doesn't matter. The housing bust rather dramatically proved that real estate can, in fact, go down. From 2007 to 2012 to varying degrees house prices declined quickly and painfully everywhere in the United States. Why did house prices go down? House prices were elevated 60% to 100% above fundamental value…[READ MORE]

Would you like to rent a home for a year or more to decide if you really wanted it? You can. Many companies will allow potential customers to try their products for some period of time before the customer buys it. If the customer doesn't like the product, the customer may return the product and pay nothing. If the customer does like the product, then they buy it. Surprisingly enough, people can do this with residential homes as well. After the housing bust, institutional money flowed into residential real estate for the first time. These companies bought REOs and rented them out, often to those who lost their homes in foreclosure but wanted to stay in the neighborhood. These renters were…[READ MORE]

Rental parity analysis provides a benchmark of value that enables buyers and sellers to anticipate changes in the market. People who invest in stocks often use the price-to-earnings ratio among others to estimate value. People who trade stocks use a variety of technical indicators to both screen stocks to trade and to improve their timing. Both techniques of fundamental and technical analysis are widely accepted and used by securities investors. Real estate is a different story. Real estate investors utilize capitalization rates, cash-on-cash returns, and internal rates of return to evaluate individual properties, but these measures are far less applicable to assessments of entire markets. To evaluate an entire market of properties, economists employ various ratios including price-to-rent, price-to-income, payment-to-income,…[READ MORE]

Since its inception, the CFPB has been under attack by the financial industry. The huge Wells Fargo fraud ensures it's survival. The financial elites in the United States hate the Consumer Financial Protection Bureau (CFPB) because the CFPB opposes those who want to rape and pillage the American people. The would-be criminals operating our too-big-too-fail institutions spend millions lobbying Congress and buying politicians like Jeb Hensarling to spout nonsense about the problems caused by the CFPB. After the financial elites destroyed the economy and nearly brought down our entire financial system with reckless risk taking and foolish lending, legislators were forced to act for the greater good; thus we have Dodd-Frank and the CFPB. Why the Consumer Financial Protection Bureau is…[READ MORE]

Hedge funds act as the garbage scows of the housing bust, cleaning up bad loans and distressed properties using a variety of tactics. Prior to the housing bust, mom and pop investors and professional property rehabbers acquired most distressed residential properties. However, since the housing bust was so large, the volume of these properties far exceeded the capacity of small investors to absorb the inventory. This lack of capacity diminished demand and caused home prices in many markets to fall to such low levels that institutional money came to the rescue. Institutional investors created the REO-to-rental business model and funded it with billions of dollars. The large institutional investors accomplished what the moms and pops ordinarily do: they bought properties,…[READ MORE]

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