The Collected Works of Author and Blogger Larry Roberts

Archive for 2017

Is free money from home ownership the new American Dream? The American Dream used to symbolize the rewards from hard work and sacrifice. During the housing mania, it became associated with conspicuous consumption, sloth, immediate gratification, and entitlement. The American Dream? Many people want to immigrate to the United States so they too can have a chance at obtaining the American Dream. Can you imagine the stories that recent immigrants must have relayed to those in the “old country” when the housing boom was going on? How do you explain to someone who comes from a stable (or practically non-existent) housing finance system that doesn’t “innovate” what went on in America in 2004, 2005, and 2006? Immigrant: “In America, they will…[READ MORE]

The next housing bust will see small price drops and large volume declines Since lenders will can-kick during future times of economic weakness, houses may not be affordable, bringing sales volumes down, but prices probably won’t decline much. In 2004-2006, the pundits said that appreciation would moderate and resume its “normal” 5%+ yearly rates in the future. Gary Watts even assured us that “Fifteen percent is pretty much in the bag for Orange County in 2006,” he says. “It’s impossible for prices to go down this year.” It’s difficult to imagine a statement that was more wrong. But Gary Watts wasn’t alone in his delusions. Most people who bought property in 2004-2006 assumed house prices were going to rise 10%+…[READ MORE]

How does housing benefit when the federal reserve prints money? When the federal reserve prints money to buy mortgage-backed securities, it lowers mortgage rates and allows potential buyers to borrow more money and push house prices higher. The federal reserve sets policy in meetings of the Federal Open Market Committee (FOMC), a group of bankers. The FOMC sets target interest rates and directs its traders to either buy or sell securities to meet interest rate targets. When the federal reserve buys Treasuries, the price goes up, and interest rates go down. When the federal reserve sells Treasuries, the price goes down, and interest rates go up. Prior to the financial meltdown in 2008, the federal reserve only bought short-term Treasuries,…[READ MORE]

Existing home sales are still below normal Back in 2013, I predicted that existing home sales would remain low for the foreseeable future. That prediction proved to be correct. By 2013 it was clear that the banks were avoiding or delaying foreclosure or short sale until prices rose high enough for them to avoid losing money on the sale. They had no choice. When the banks were exposed to $1 trillion in unsecured mortgage debt, they simply couldn’t take the losses. Clearly, no matter what else happened in the market, lenders kicked the can with loan modifications and suspend homes in cloud inventory for as long as necessary. As I noted back in 2013, since problems in the market can’t be…[READ MORE]

Will investor sales limit future home price appreciation? At some point, the investors who bought distressed properties from 2009 through 2014 will want to liquidate their holdings. Will those sales provide additional overhead supply that will slow home price appreciation? In a normal and healthy real estate market, owner occupants dominate sales. These owners accumulate equity through paying down a mortgage and home price appreciation, and they execute move-up trades seven to ten years after they buy their starter homes. Unfortunately, that isn’t the market we had from 2006 through 2014. For several years owner occupant sales were stuck in a holding pattern at 1990s levels. Orange County home resale volumes were very weak by historic norms, and the only increase…[READ MORE]

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