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Author Archive: Irvine Renter

Valuation of Lots and Raw Land The valuation of land used for residential housing is mysterious and often misunderstood. [1] The valuation of lots and raw land requires a detailed knowledge of construction and marketing costs as well as a good estimate of the sales price of the final product: a residential housing unit. In short, the value of a lot is the total revenue (sales price of the home) minus the costs of production and the necessary profit. Land value is a residual calculation. Irvine, California, has been almost entirely developed by a single land owner, The Irvine Company, as a large, master-planned community. The development has been wildly successful. The median income of buyers on The Ranch is 30%…[READ MORE]

Investment Value The United States Department of Labor Bureau of Labor Statistics measures the Rent of primary residence (rent) and Owners' equivalent rent of primary residence (rental equivalence). They make this distinction because a house has both a consumptive purpose and an investment purpose. The consumptive value is measured by rent or rental equivalence. There is legitimate financial reason to pay more than the rental equivalence price. The normal rate of house appreciation–not the unsustainable kind witnessed during the Great Housing Bubble–can provide a return on investment. The source of this added value is the leverage of mortgage financing and the hedge against inflation obtained through a fixed-rate mortgage. The investment premium, which is about 10%, is less than most people think. The rental…[READ MORE]

What they are saying about The Great Housing Bubble "The author, Larry Roberts, is best known for his daily posts as IrvineRenter on the Irvine Housing Blog. Long before Lehman crashed, Fannie Mae was taken over, and even before home prices were dropping nationally, he was one of the few voices presenting real information on the housing bubble. The author's background is in new housing development in Southern California. It was a good start to understanding how things worked. Supplemented by knowledge from countless posters at the housing blog, he has been able to show why home prices couldn't stay elevated. Price to income ratios, price to rent ratios, and other factors detailed in the book showed how far out…[READ MORE]

What they are saying about The Great Housing Bubble "…the author has a background in real estate that's far removed from the sales process, he's able to step back and provide the sort of unemotional, macro-economic overview that seems quite atypical for a guide to investing in real estate. …Filled with 64 exhibits, 146 footnotes and a nine-page bibliography of source material, "The Great Housing Bubble" is probably not a casual read during a day at the pool or the beach. But for real estate professionals wanting to educate themselves or their clients on how to successfully build wealth through the buying and selling of real property, this author has a lot to teach." Patrick S. Duffy – Principal with…[READ MORE]

What they are saying about The Great Housing Bubble "The author does an excellent job in showing how various commercial and investment banks sought to create a speculative market for home loans by the process of securitization. The main tool was collateralized debt obligations (CDO'S).The idea is purely speculative since real estate is a nonliquid durable asset. The bundling and selling of trillions of dollars worth of the subprime backed bonds that were not only highly risky, but of uncertain value, created the bubble that deflated just as every other banker financed, speculative bubble has deflated in world history. The author does a good job in demonstrating that low interest rates were not the cause of the problem. The main…[READ MORE]

What they are saying about The Great Housing Bubble "The Great Housing Bubble is a fantastic resource for anyone looking to understand why home prices fell. The writing has exceptional depth and detail, and it is presented in an engaging and easy-to-understand manner. It is destined to be the standard by which other books on the subject will be measured. It is the first book written after prices peaked, and it is the first in the genre to detail the psychological factors that are arguably more important for understanding the housing bubble. There have been a number of books written while prices were rising that used measures of price relative to historic norms and sounded the alarm of an impending…[READ MORE]

What they are saying about The Great Housing Bubble "A very well-written and thoughtful analysis of what went wrong in the housing world and how we can avoid this problem in the future.  Lawrence Roberts has a great understanding of the subject and does an excellent job communicating his ideas to the reader.” Jim Randel – Best-selling author, Confessions of a Real Estate Entrepreneur What is a Bubble? A financial bubble is a temporary situation where asset prices become elevated beyond any realistic fundamental valuations because the general public believes current pricing is justified by probable future price increases. If this belief is widespread enough to cause significant numbers of people to purchase the asset at inflated prices, then prices will…[READ MORE]

What they are saying about The Great Housing Bubble "…The cover is perhaps the clearest representation of what Roberts' book really is: a clearly-communicated, often satirical, and at some points very stern, no-nonsense account of why home prices soared, fomenting the nation's housing bubble, leaving couples across the nation struggling to stay afloat on their mortgages. …In a market already flooded with books on the housing crisis, The Great Housing Bubble scores points by focusing on explanation and less on inundating a reader with the sort of heavy-handed quantitative analysis that only a few economists can love. While some figures are necessary, the book's message is never bogged down. Instead, Roberts presents multiple facets of the real estate market by…[READ MORE]

The last line of defense for the housing bulls is the fallacy of pent-up demand. Belief in this fallacy relies on people's inability to distinguish between desire and demand. Most people want a house. About 65% of Orange County residents own their homes, but probably 95% of residents wish they did. The desire for housing always exceeds the supply because there is always some segment of the market who is unable to obtain home ownership due to the cost of housing and a lack of available credit. True demand is the amount of money those with the desire for housing can raise to put toward the purchase of real estate. If those with the desire for real estate do not…[READ MORE]

Several people have asked about the accuracy of my post Predictions for the Irvine Housing Market. I have the DataQuick numbers through April of 2008, so we can take a look. First, when I first made the chart below, I did not have accurate numbers. The base number I used of $687,000 was incorrect. Using the three-month moving average of prices, the real number was $723,750. With this new, more accurate number, we can compare the projected drop with the real figures.   Well, it is even worse than I imagined. When I first suggested that Irvine's median home price might decline 12% in a single year, it was a bold prediction. Prices had never dropped that much in Irvine…[READ MORE]

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