"'There is a tsunami of money coming into the market, billions of dollars to buy distressed single-family homes,' said Jeff Lerman, a San Rafael real estate lawyer, speaking about the national landscape. 'The window of opportunity is rapidly closing (as prices rise). Over the next 18 months, profit margins in single-family opportunistic buying will be compressed quite a bit.'
"A Chronicle analysis of sales data compiled by San Diego research firm DataQuick showed that absentee buyers, who once bought about 10 percent of homes sold in the nine Bay Area counties, account for about a quarter of all purchases this year, more than doubling their share. Absentee buyers are defined as those who have property tax bills sent to a different address than the house they just bought....
"'Right now the dominating force driving the rental market in California is foreclosed-upon former homeowners transitioning to renters,' Burke said. 'That demographic is an important market segment for us.'" ("Investors rushing into real estate deals," SF Gate)
Repeat: "A tsunami of money coming into the market." How's that for a summary of Fed policy?
Of course the article focuses on the Bay Area, but the same thing is going on in the hotter markets across the country, particularly Los Vegas, Phoenix, and Miami. Investors are snatching up every cheap, low-end home they can get their greasy mitts on. The flurry of activity has pushed prices higher, which has had a positive effect on consumer sentiment, (People are feeling better about housing than they have in years.) but can it last? Housing expert Mark Hanson doesn't think so. Here's a clip from a recent post at The Big Picture:
"For years I have proclaimed that 'no housing recovery will ever occur -- or no dead-cat-bounce will reach 'escape velocity' or become 'durable' -- unless the repeat buyer is leading the way. This is because investors and first-timers are thin, volatile cohorts who have been known over history to leave the market literally, overnight....
"The problem is that the mortgaged homeowner has always been the primary demand cohort. It's not investors, first-timers or those who own their homes free and clear. Rather, the mortgage-levered homeowner who tends to move every 6 to 8 years who provides most of the historic underlying support for macro housing.
"This is a problem. Put simply, there are more houses today then there were five years ago but a full HALF of the primary demand cohort -- repeat buyers -- died due to negative equity..... and able buyers have been cut in half.
"Bottom line, WHERE IS THE 'DURABLE,' INCREMENTAL DEMAND GOING TO COME FROM(?)" ("Shadow" & "Ghost" Inventory/Negative & "Effective" Negative Equity" The Real Challenges for US Housing," Mark Hanson, The Big Picture)
Hanson makes a good point. Traditionally, repeat "move up" buyers have driven the market, but that's not happening now, because so many people are underwater and can't afford to move. So, yes, housing prices can go higher for a while (due to the frenzy of real estate speculation), but the higher they go, the less profit investors will make, which will lead to a drop-off in sales and greater price erosion. That will put the market back where it started.
So, what's going to play-out? How's Fed chairman Bernanke going to push prices higher so his banking buddies can crank out more junk mortgages and rake in more dough?
That's easy. Bernanke's going to do what he always does; create another bubble. All he's got to do is convince regulators to ease lending standards so that more unqualified, high risk, subprime loan applicants can get a mortgage. In fact, the Great Bernanke PR Bubble Campaign has already begun in earnest. Just take a look at this article at Bloomberg:
"Federal Reserve Chairman Ben S. Bernanke said the Fed will take action to speed growth and a rebound in a housing market facing obstacles ranging from too-tight lending rules to racial discrimination. ...
"Bernanke said while tighter credit standards after a collapse in the subprime mortgage market were appropriate, 'it seems likely at this point that the pendulum has swung too far the other way, and that overly tight lending standards may now be preventing creditworthy borrowers from buying homes, thereby slowing the revival in housing and impeding the economic recovery.'...
"Bernanke said housing-finance authorities have taken steps to 'remove barriers to the flow of mortgage credit' and referred to efforts by the Federal Housing Finance Agency and by Fannie Mae and Freddie Mac to clarify rules surrounding mortgages that go into default.
"These steps, the 58-year-old Fed chief said, should 'increase the willingness of lenders to make new loans.'" ("Bernanke Says Fed Will Do What It Can to Support Housing," Bloomberg)- Advertisement -
So lending standards are "too tight"?!?
Uhm, not exactly, Ben.
And did you catch that part about how "the Fed will take action (on) racial discrimination"? That just tells you that African Americans are going to be in the crosshairs again like they were during the subprime fiasco. Take a look at this in Bloomberg: