The Collected Works of Author and Blogger Larry Roberts

Archive for October, 2016


The specter of rising mortgage interest rates or an end to the flow of foreign investment concerns speculators in US real estate. Many investors in real estate worry that the current recovery may be coming to an end. Economic expansions usually don't last as long as this one, so many people worry that we are due for another slowdown. The anxiety level among real estate investors is particularly high because so many of them were crushed during the last recession, and they would prefer to avoid that damage. When pressed for reasons behind their anxiety, many can't point to anything specific. The economy is growing, but not so fast as to suggest overheating, and few indicators suggest a recession is imminent.…[READ MORE]


Real estate investment trusts profit from cheap debt, and their value depends on low discount rates. Rising interest rates hurt them both ways. House prices depend on debt. Of the four factors that determine house prices, three of them directly relate to financing terms. If mortgage interest rates go up, housing becomes more expensive even if prices don't change. Wages must grow significantly to make up the difference in even a small increase in mortgage rates. The prevailing view among economists is that the housing market would respond positively regardless of what happens with mortgage rates because house prices in the past have correlated poorly with mortgage rates. For example, during the 1970s, interest rates rose significantly, which should have…[READ MORE]

The down payment barrier inhibits home sales, but reduces the risk to the US taxpayer. California endures a housing affordability problem. And it’s not merely that house prices are high. Families with high wages could finance mortgages large enough to buy more expensive properties, but they face another roadblock: the down payment barrier. This problem is illustrated below. In Orange County, the conforming loan limit on GSE loans and the FHA loan limit is $625,500. For purposes of this illustration, I used the 3.5% down required on FHA loans because the 3% down program at the GSEs isn’t widely used due to the high cost of private mortgage insurance.   An FHA borrower in Orange County can buy a home…[READ MORE]

The "months of supply" indicator has little or no predictive power and often gives a false impression of the strength or weakness of the real estate market. Realtors invented the "months of supply" to measure market absorption, providing a reading of how fast homes sell relative to the supply of inventory available. For example, if sellers list 50 homes for sale and if 10 of them sell, it would take 5 months to sell the remainder if no additional inventory came to market. The "months of supply" ostensibly reveals the aggressiveness of buyers relative to sellers. In theory, a market with a low months-of-supply exhibits greater buyer demand than one with a higher months-of-supply. As an indicator, it's supposed to…[READ MORE]

The working class in California struggles with high rent until they give up and move out of state, leaving behind the landed gentry. California housing policies devastate the lower middle class. Anyone who lives in California copes with higher housing costs than nearly everywhere else in the United States. This problem is a boon to landowners and high wage earners, but it’s a bust for lower- and middle-class wage earners who often put 50% of their income toward housing. Renters who must spend so much of their paycheck on rent fail to save for a down payment, which becomes a vicious circle that sentences most of the working class to indentured servitude to the landed gentry until these workers succumb to…[READ MORE]

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