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Mon Jan 14, 2013, 06:14 PM


Why the Housing Recovery is Nearly Homeowner-Less

By Darwin Bond Graham

The financial crisis of 2008 was terrible for homeowners saddled with heavy mortgage payments, especially the millions of low-income, first-time buyers who were tempted to buy in with deceptive loans during the height of the housing bubble. About 4 million foreclosures have been completed since the financial crisis of 2008, according to CoreLogic, a data provider to the real estate industry. Since 2006, when subprime loans first began to default in large numbers, there have been 9.4 million foreclosures initiated, according to the Federal Reserve Bank of New York (US Fed). To a select group of hedge fund and investment bankers the financial crisis that pivoted on these foreclosures was the opportunity of a lifetime. They made billions from the crash by wagering against the stability of the US housing market.

Now some of the same elite investors are tacking backward and betting on a recovery of the housing market. It's a strange recovery though, propelled not so much by families seeking their own piece of the American dream, but instead by the US Fed's monetary policies. Low-interest rates fostered by the Fed are causing big-money investors to purchase foreclosed single-family homes in blocks of hundreds, even thousands. Expected gains in home prices are also leading hedge funds and investment bank traders to gamble on housing derivatives.

Like the so-called jobless recovery, characterized by rising business earnings in the midst of high unemployment, the nascent housing recovery is not propelled by a rise in homeownership rates, employment and incomes. Instead, foreclosure rates remain high, as does do unemployment figures, and there's a big backlog of bank-owned properties that has yet to hit the market. Meanwhile, many former home owners have been relegated to the status of renters. If home prices are truly embarked on a sustained rise, the big gains in any new equity created will likely accrue to a smaller number of owners, many of them corporate investor-landlords, and to a few elite financial speculators positioned to make complex derivatives bets on housing bonds. That's how it's playing out so far.

2007's "Big Short"

To understand the current dynamics in the housing market, it helps to go back in time just before the crash. The collapse of the US housing market was the catalyst of the global financial crisis of 2008, and the root source of the last five years of economic stagnation. It was skyrocketing real estate prices that facilitated the inflation of the largest debt bubble in history, allowing Americans to take out unsustainable consumer loans so long as the equity in their homes grew. The bubble burst because real wages continued to decline, total consumer debts continued to grow, and many of Wall Street's derivative innovations turned out to be cynical products designed merely to package up unsustainable obligations and offload them onto some other sucker's books. The rest is history. Millions were foreclosed on, and the economy hemorrhaged jobs.



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Reply Why the Housing Recovery is Nearly Homeowner-Less (Original post)
Purveyor Jan 2013 OP
enlightenment Jan 2013 #1

Response to Purveyor (Original post)

Mon Jan 14, 2013, 06:47 PM

1. And these investors are driving potential home owners out

of the market. They can afford to offer well over the asking price and do. So home 'values' are increasing while homes sit empty and willing buyers who don't have unlimited cash are squeezed out.

A friend recently decided to move to my city. She wanted to buy a small townhouse. Despite a good financial position and a willingness to compromise, she made 17 offers before she managed to get something that she didn't really want but was willing to settle for - each offer she made was topped by an investor group, not one went to an person or family that wanted a home in which to live.

There's something very wrong with this process.

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