The Collected Works of Author and Blogger Larry Roberts

Archive for October, 2016

While probably late to the party, new large investors in single-family rentals embrace solid reasons for investing in this business model. Wall Street bought thousands of foreclosures during the housing bust. The capital from these investors absorbed the excess of foreclosures from the millions of borrowers who quit paying their toxic mortgages. Many observers believed this business model would fail. While apartment complexes enjoy economies of scale on maintenance and operating costs, dispersed single-family homes suffer from higher maintenance and management costs. Many early players in the REO-to-rental game exited the business due the problems critics warned about, but these smaller players were gobbled up by larger players with more efficient operations and lower capital costs. The industry matured over the…[READ MORE]

Homeowners cash-out their home equity to supplement their incomes reminiscent of the bad behavior that spiraled out of control during the housing mania. Lenders offer homeowners nearly free money, so unsurprisingly, borrowers take the money. During the housing mania, bankers offered this money without regard to the borrower's ability to repay, an open invitation to steal that many took advantage of. Mortgage equity withdrawal dried up during the bust, partly because borrowers lacked equity, but partly because lenders refused to support the personal Ponzi schemes of so many people. As conditions improve, lenders underwrite these loans again, but so far, they employ conservative underwriting standards and limit the cash-out to a reasonable loan-to-value ratio. Over time, lenders naturally become more aggressive…[READ MORE]

realtors consistently and falsely blame low inventory for weak sales. The truth is that prices are getting too high for many buyers to afford. realtors follow an unwritten rule: never say prices are too high. Occasionally, they may say something about affordability, but realtors generally reserve that euphemism for their complaints about financing. In a realtor's world, prices are never too high because high prices can always be overcome with "innovative" financing. Since realtors never admit prices are too high, when prices really are too high, they must find some other plausible reason why sales slow down or prices fall. Right now, with an expanding economy finally pulling out of the Great Recession of 2008, we have low unemployment, more high-paying…[READ MORE]

The four unique features are (1) low mortgage interest rates, (2) low MLS inventory, (3) low owner-occupant demand, and (4) high but affordable house prices. Prior to the housing bubble, the normal state of affairs for the housing market was slowly but steadily rising prices that matched the growth in rents and incomes. From the early 1980s through the early 2000s, house prices rose a bit faster than incomes due to steadily falling interest rates, but generally the rate of appreciation was gentle and predictable. A normal housing market exhibited a balance between supply and demand. Millions of individual homeowners possessed the equity to sell when they pleased, and banks owned very few properties. Prior to the bust, lenders exerted very…[READ MORE]

Homebuilders produce the proper number of homes to match measurable demand. Homebuilders only build houses if they can sell them. If homebuilders produce too many, they accumulate standing inventory, which they have to discount or incentivize in order to sell. If the problem persists, they lose money on the sales, and unless they want to go out of business, they stop building more homes. Homebuilders always produce the proper amount of houses to meet demand at any point in time. However, demand derives from dollars. People's desires or needs for housing doesn't always equate to demand. Unless the people who want a home can produce the money necessary to obtain it, their desire creates no measurable demand. During the housing…[READ MORE]

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