Dr. Housing Bubble 08/21/08

[Crewleader]

Emerging Economic Trends: Housing Swaps, Frugality, and Selling Homes in Lower Priced Areas.

The selling pressure on Fannie Mae and Freddie Mac has been heavy this week after a Barron’s article published on the weekend made the case that both government sponsored entities would require a full fledged bailout. This was made clear even prior to the Housing and Economic Recovery Act of 2008 being signed into law. The challenge now becomes if they do go out and sell more stock that current shares will be diluted to a point where the shares become worthless. Both Fannie Mae and Freddie Mac are testing multi-decade lows.

Sometimes people forget what these two companies stand for. Part of their mission is of creating liquidity on the secondary mortgage market. Yet with a struggling housing market these large institutions have to contend with a faltering portfolio that is seeing more and more losses. Now it is very likely that current shareholders would be wiped out in the event of a bailout. The question becomes why would foreign investors purchase bonds or preferred shares in the company if the likelihood of failure is around the corner. Certainly they will be made whole but not at premium rates. The well is drying up quickly.

There are a few emerging trends in the housing market. It is rather clear that housing still remains in a precarious situation. We are nearing the end of the summer selling season and the boost that was expected unfortunately did not materialize. Record inventory is still on the market and questionable mortgages such as pay option ARMs still loom on the balance sheets of many lenders. One of the trends that is emerging is people engaging in housing swaps. That is, people exchanging homes normally without a broker or agent. In many cases, it is a barter trade. Another trend is towards frugality. Now some would argue that this isn’t a trend more than the economic situation forcing the hand of many to face the grim reality. Yet there should be little doubt that prudence is making a comeback. Also, we will examine the hidden housing numbers embedded in the Southern California housing market. Are we really approaching some sort of market bottom?

http://www.doctorhousingbubble.com/emerging-economic-trends-housing-swaps-frugality-and-selling-homes-in-lower-priced-areas/