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 The decision is in: the real estate market is officially on the mend.
Housing market rebound firming up
Sustained housing rebound under way
Three ways to play the Great Real Estate Rebound

  Wow. Kind of makes you want to go out and buy a house right now, don't it?
Well, before you rush out and take on a couple hundred thousands of dollars in debt, you might want to consider a few things.

 First of all, you need to put the "improved numbers" into perspective. Consider home building, single family home sales, and new home prices.




  While it isn't getting any worse, it's still not a pretty picture.

But then housing is supposedly not a short-term investment (except when it was a short-term investment just a few years back). You are in for the long-haul, right?
   That means younger, future buyers are key.
Well, maybe not the 48% of young homeowners that are underwater.

The state of finance

   The biggest, and least acknowledged, factor in real estate today is the condition of the GSE's - Fannie Mae and Freddie Mac.
   You might remember them for the $188 Billion taxpayer bailout that followed their collapse in 2008 (and only ended a few quarters ago).
   You might also be familiar that they were an important part of owning millions of foreclosed homes. Well, that legacy continues today.

 Only half of the previously foreclosed homes owned by Fannie Mae are either on the market or being prepared for sale. The remaining properties are currently locked away in some step of the foreclosure system.
    Many market participants long claimed the government – including Fannie, Freddie Mac and the Department of Housing and Urban Development – are deliberately holding these homes off the market in order to get more for them when home prices recover.
 That hundreds of thousands of shadow inventory homes still working its way to the market.
   Why is that important? Because Congress has finally gotten serious about winding down the GSE's.
 In a move that virtually ends any hope that Freddie Mac and Fannie Mae will return to viability, the Department of the Treasury and the Federal Housing Finance Agency (FHFA) have revised the Preferred Stock Purchase Agreement (PSPA) between Treasury and the two government sponsored enterprises (GSEs).   The new agreement will strip the GSEs of any profit from their operations and will accelerate the rate at which they are reducing their owned loan portfolios.
 During the 2008-2010 period, the GSE's and FHA were the only mortgage providers out there. The major banks had almost completely withdrawn from the market.
   (And speaking of FHA, 1 out of 6 FHA loans are delinquent. Which means another multi-billion dollar taxpayer bailout is in our future.)
   Going forward, government subsidies for the housing market will be shrunk (but not eliminated). This is putting pressure on the GSE's to unload inventory in the quickest way. This has led them into the arms of hedge funds and private equity firms.
     Fannie and Freddie are now piloting programs for bulk sales of foreclosed home. Historically, they’ve sold them individually or in geographically dispersed packages, but since February, Fannie has been experimenting with selling homes in large volumes in Phoenix, Atlanta, Chicago, Florida, Los Angeles and Las Vegas. There are also reports of investors making significant buys in Florida. Bank of America is also experimenting with bulk sales. It’s likely that once the Fannie and Freddie programs are up and running, the servicers will copy their template with private label loans.
    There are several grounds for concern. One is that there is no model for large-scale, absentee landlords of single family homes. In the past, institutional investment in residential rental has been in multifamily properties, often apartment buildings. And these almost without exception had property management in place at the time of acquisition or was in dense urban areas where it was easy to find experienced management firms. And even in locales where those services are available, PE firms have too often proven to be bad landlords by design.
 Yves Smith calls it, a “rentcropper society.”
   But that isn't the biggest effect windows down the GSE's will have.
Their biggest presence has always been in the secondary-mortgage market. Without them clearing mortgages, it is likely that getting a mortgage will be much more difficult for the less-than-wealthy.

  Personally, I support closing down the GSE's. The housing bubble couldn't have happened without them. But we also have to be realistic about the future of housing. Over the next decade hundreds of thousands of homes will be dumped on the market by the GSE's, while Baby Boomers will be wanting to sell their homes to pay for their retirements, while mortgages will be harder to obtain for young couples.
   That is simply the way it is.

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Comment Preferences

  •  Housing prices are 1 of my 2 big fears this cycle (4+ / 0-)
    Recommended by:
    LucyandByron, gjohnsit, jayden, worldlotus

    U3/U6 is my other big fear.  

    Some men see things as they are and ask why. I dream of things that never were and ask why not?

    by RFK Lives on Thu Aug 23, 2012 at 03:15:53 PM PDT

    •  Housing bubbles (9+ / 0-)

      The housing bubbles in Canada, England, China, and Australia have not burst yet. The ones in Spain and France haven't fully burst.
         What's interesting is to see a headline like this, about how immigrants are going to save housing prices in Canada. It's the exact same thing we heard about American housing prices in 2005.

        Global banks still have plenty to worry about.

      ¡Cállate o despertarás la izquierda! - protest sign in Spain

      by gjohnsit on Thu Aug 23, 2012 at 03:26:32 PM PDT

      [ Parent ]

      •  Canada is a Significantly Immigrant Society (3+ / 0-)
        Recommended by:
        cassandracarolina, jayden, worldlotus

        and it's got a very small population with tons of space outside cities, so there is some potential.

        They could flip it to a housing boom in a second if they'd relax immigration hurdles from Americans. If only a tiny fraction of liberals and working classes worried about Republican rule decided to move north, that'd constitute a lot of growth in their housing demand.

        Wouldn't help their unemployment though.

        We are called to speak for the weak, for the voiceless, for victims of our nation and for those it calls enemy.... --ML King "Beyond Vietnam"

        by Gooserock on Thu Aug 23, 2012 at 04:04:41 PM PDT

        [ Parent ]

      •  Greenspan's Lawrence Welk economic model (1+ / 0-)
        Recommended by:

        (keep the bubble machine going) still appears to have worldwide appeal.  Meanwhile, Keynesianism is deemed to have "failed" b/c a Stim that was too small and too heavily tilted towards tax cuts didn't rescue us from the collapse of Greenspanism.   We've seriously regressed as a society in terms of economic understanding.

        Some men see things as they are and ask why. I dream of things that never were and ask why not?

        by RFK Lives on Thu Aug 23, 2012 at 04:28:42 PM PDT

        [ Parent ]

  •  Man buys 650 houses at one go (9+ / 0-)

    I think this is is essence why there are more sales, the vultures are buying and renting out the houses, because they've gotten low enough to make a nice rental income.

  •  great insight here (2+ / 0-)
    Recommended by:
    gjohnsit, Sandino

    I am quite sure now that often, very often, in matters concerning religion and politics a man's reasoning powers are not above the monkey's. - Mark Twain

    by route66 on Thu Aug 23, 2012 at 03:37:46 PM PDT

  •  If the GSE's didn't exist, they would have (0+ / 0-)

    to be invented. Or we could just give up on the whole concept of housing affordability.

    (In my opinion, the housing bubble was fed more by cheap development and construction lending, and, on the take out financing side, things like Lehmans ALS, and the pay option products pushed by the likes of WAMU.)

    There can be no protection locally if we're content to ignore the fact that there are no controls globally.

    by oldpotsmuggler on Thu Aug 23, 2012 at 03:48:19 PM PDT

    •  The FHA is needed (3+ / 0-)
      Recommended by:
      Gooserock, cassandracarolina, Jim P

      but I'm not convinced that the GSE's are.
         Consider that Freddie Mac didn't exist until the late 60's.

      The housing bubble proved that there are only so many people that should be home owners, and we are slightly above that range right now.

         It's no crime to not own a home. The real American Dream is about being free, not one having a mortgage.

      ¡Cállate o despertarás la izquierda! - protest sign in Spain

      by gjohnsit on Thu Aug 23, 2012 at 03:57:46 PM PDT

      [ Parent ]

      •  It's About Upward Mobility and There's Less of (2+ / 0-)
        Recommended by:
        Jim P, jayden

        that in America than in any other developed country.

        There's freedom in a lot of developed countries with better prospects and much better protections.

        We are called to speak for the weak, for the voiceless, for victims of our nation and for those it calls enemy.... --ML King "Beyond Vietnam"

        by Gooserock on Thu Aug 23, 2012 at 04:10:07 PM PDT

        [ Parent ]

      •  If you want to get rid of something, and do (3+ / 0-)
        Recommended by:
        wu ming, WheninRome, worldlotus

        something meaningful, outlaw "bubbles". Literally!

        Look, I think that I understand where you're coming from, and my response is, believe it or not, "if it ain't broke, don't fix it". And where I'm coming from is that I worked in the mortgage industry trenches continuously from 1993 until into 2009. FHA, VA, RDA, Fannie, and Freddie, for most of that time, all had well defined roles and the system was structured to prevent exactly what finally occured. But then, a few years into the Bush term, the big banks finally got the running room that they had been fighting for since the last time that they tanked the world into economic calamity, and they broke all speed records in getting us back there this time.

        In this area, the answer is not to deregulate, it's to stop pretending that "the free market" can work.

        There can be no protection locally if we're content to ignore the fact that there are no controls globally.

        by oldpotsmuggler on Thu Aug 23, 2012 at 06:28:28 PM PDT

        [ Parent ]

  •  Except in CLE (0+ / 0-)

    The radical Republican party is the party of oppression, fear, loathing and above all more money and power for the people who robbed us.

    by a2nite on Thu Aug 23, 2012 at 04:03:55 PM PDT

  •  How it looks on the front line (3+ / 0-)
    Recommended by:
    gjohnsit, jayden, ranger995

    It appears that the market is finding its floor, in both residential and commercial RE.    That can be a good time to buy.  Pathetically enough, we see mortgage lenders/originators desperate enough for new trade that they're engaging in the same go-go, rush-rush, "What's due diligence" approach that got us into the mess before.

    But you're absolutely correct in raising the question of whither the secondary mortgage market.  If there's one area likely to expose rotted beams underneath the floor, that's where it will be.  The next six to twelve months will tell that tale.

    Ever get the feeling you've been cheated?

    by ActivistGuy on Thu Aug 23, 2012 at 04:18:47 PM PDT

  •  A true rise? Or... (2+ / 0-)
    Recommended by:
    gjohnsit, worldlotus

    ...a classic "dead cat bounce" where, once again, people desperate to see an improvement mistake the current levels as "time to buy"?

    I strongly suspect the latter considering the massive shadow inventory. Until that unwinds, it could be 1 to 2 decades before a true recovery. Ask Japan what that's like. :P

  •  Can we all just stop pretending... (2+ / 0-)
    Recommended by:
    gjohnsit, ranger995

    ...that there will ever be anything even remotely resembling a financial recovery in this country? Why are we still clinging to loser lottery tickets? The party's over for the USA. It's gone. Misery, lies, fraud, murder wars, and an ever-declining quality of life for everyone not already too rich to live. Really, the carrots are rotten and the stick now has nails.

  •  asdf (1+ / 0-)
    Recommended by:

    Our city has lost so much value. Zillow puts home sale averages from 2002-2005 at $140,000, whereas now the average is $60,000. I read in the news about a guy who purchased nearly 400 foreclosed homes here for $12,000 each.

    Weathering Michigan's recessions since the '70s.

    by jennifree2bme on Thu Aug 23, 2012 at 11:26:36 PM PDT

  •  IMHO (0+ / 0-)

    the GSE's were not the problem in the housing  bubble -- it was the credit default swap game that ruined things.  When the increased risk of making subprime loans was actually on the banks shoulders, they were a little more conservative.  Once the CDSwaps came in, they were actually hoping for failure.  If  the banksters had actually lost any money, maybe they would care, but all they did was make the whole thing so complex that no one but the Federal  Government could possibly fix it -- ie. too big to fail -- so we socialized their losses and put it back on the American people.  

    In my area of Los Angeles, unemployment is down below 5 percent and our housing is booming.  Less than 2 months inventory with multiple offers and bidding wars.  I think there IS a housing rebound going on.

    The GOP -- Hating Women, Gays and People of Color since 1854

    by Former Chicagoan Now Angeleno on Thu Aug 23, 2012 at 11:51:30 PM PDT

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