The Collected Works of Author and Blogger Larry Roberts

Archive for 2016

By greatly reducing the tax advantage of mortgage debt, many high-wage renters may choose to remain renters rather than assume large debts to buy a house. However, by reducing taxes on lower-income Americans, Trump's tax plan should stimulate demand for entry-level housing. Over the years, I wrote several posts critical of the home mortgage interest deduction because it's an expensive tax subsidy that only serves to inflate house prices in areas dominated by high wage earners. While several options exist for modifying, replacing, or eliminating the subsidy, only one of these options is politically feasible -- and it's the one Trump proposed. As it stands today, only a small segment of high wage earners claim this deduction. In theory, this subsidy…[READ MORE]

The housing cycle probably hasn't reached a turning point because the far-flung suburbs haven't recovered yet. The old real estate adage says "you drive until you qualify." Potential homebuyers substitute to far-flung suburbs (exurbs) because high house prices push them away from more desirable markets closer to employment centers. Basically, if people drive far enough, they will find a house they can afford. This phenomenon causes many California homeowners to endure brutal commutes. The cost-push substitution effect explains why recoveries start in the most desirable neighborhoods closest to employment centers and radiate outward to the exurbs. In past recoveries, the most distant commuter markets fully recovered and even participated in the subsequent bull run (bubble cycle). One notable difference between this…[READ MORE]

The short-term reaction to Trump's victory was a massive selloff in bonds causing interest rates to soar. Will this be the start of an alarming new trend for mortgage rates? The financial media ascribes gyrations in the financial markets to current news events, mostly with no correlation at all. However, occasionally, developments in world affairs really cause the financial markets to react, and the election of Donald Trump prompted bondholders to sell in a panic, resulting in an interest rate spike. The stage was set for rising interest rates years ago when the Federal Reserve announced the beginning of a cycle of tightening monetary policy. Just the announcement caused mortgage interest rates to rise from 3.5% to 4.5% in about…[READ MORE]

Nobody knows what Donald Trump will do, but it's unlikely he will do anything that hurts real estate. Reporters across America reluctantly trashed their canned reports on how Hillary Clinton's presidency would impact the world. Since Donald Trump's victory was such a surprise, few thought much about how he would impact real estate, the economy, or anything else for that matter. Part of the blame is also on Donald Trump. During the campaign, he was long on rhetoric and short on detail. He didn't need intellectuals to embrace him, so he didn't pander to them with position papers or carefully crafted policies, leaving us all with a huge void of information on what he will actually do as president. Realistically,…[READ MORE]

The Chinese inflated a real estate bubble more than ten times larger than the United States. Bursting this bubble could destabilize the world economy. What would happen if the Chinese housing bubble burst? Obviously, a real estate crash would devastate China, but since the Chinese economy is somewhat isolated and export driven, would a Chinese real estate crash plunge the world into recession? Maybe. Coastal California real estate would suffer from a crash in China. Not only would a Chinese crash remove a hefty component of local demand, it could turn Chinese buyers into desperate sellers. While US lenders can keep distressed properties financed with US debt from the market indefinitely, but they don't control the entire market. If desperate Chinese…[READ MORE]

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