The Collected Works of Author and Blogger Larry Roberts

Archive for January, 2017

Can unrealistic beliefs about appreciation cause a housing bubble? It takes more than a manic desire to inflate a bubble. The ability to deliver capital to the market is also an essential element. Many people who believe in the wisdom of the markets subscribe to the efficient markets theory. It postulates that market participants have equal access to good information and they make rational judgments based on the available data. The theory appeals to vanity as everyone likes to believe they demonstrate above-average financial acumen and make rational decisions. Unfortunately, that isn’t the world we live in. People often fall victim to groupthink, pick and chose what data to believe and what to ignore, and seek the perceived safety of the…[READ MORE]

The final frontier for land speculators: the moon We running out of land! Buy now or be priced out forever! We’re even running out of land on the moon! Most participants in financial manias share a common belief in the scarcity some precious resource. The notion that we’re “running out of land” sparked several financial manias. California has land booms and busts at various times in its history. Florida had a huge land boom and bust in the 1920s. Given the millions of acres of undeveloped land in California and Florida, particularly 100 years ago, the rationality of these booms and busts is rather suspect. But once people start to believe the shortage is real, the frenzy mentality takes over, and rationality…[READ MORE]

How renters should prepare for homeownership. Rent a property using 23% or less of your gross income and save 8%. This prepares you for a 31% debt-to-income payment and provides a quality of rental you could later buy. I never embraced the innovations in real estate finance that inflated the housing bubble. I never considered any financing other than a fixed-rate amortizing mortgage, so I was already priced out by 2003. The world of mortgage innovation left me behind. By 2006 preparing for home ownership only required finding a house and signing a few loan documents. It’s a lot more difficult today. Now the old rules are back. Buyers today have to save for a down payment and make sure…[READ MORE]

Home sales likely to fall in 2017 High house prices and rising mortgage rates will hurt affordability and offset any gains from wage growth and an improving economy. Have you looked for a home to buy lately? They’re expensive, and although 4% mortgage rates enable buyers to finance those prices, mortgage rates only make houses affordable at levels below 4.5%. Over the last four years, all lenders revamped their loss mitigation procedures to can-kick loans if borrowers default until house prices exceed the balance of the loan. No matter what else happens in the market, unless the banks are forced to change their policies by the government regulators or the federal reserve (a very unlikely event), lenders will continue to kick the…[READ MORE]

Bold California housing market predictions for 2017 The housing market will flourish or flounder depending on mortgage interest rates. For each of the last three years, I made a series of bold predictions for the upcoming year. You can judge for yourself how I did: Bold California housing market predictions for 2014 Bold California housing market predictions for 2015 Bold California housing market predictions for 2016 2016 Review My thoughts about 2017 are the same as they were last year, so let’s start be reviewing those observations. My updated observations are in [brackets]. It’s all about interest rates Whatever is going to happen in the housing market in 2016 [and 2017] depends entirely on the course of mortgage rates. Why?…[READ MORE]

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