Sunday, January 29, 2012

Dr. Housing Bubble — Get ready for the next stage of the bailouts

The Federal Reserve recently came out with an unprecedented analysis directed to the Committee on Financial Services regarding various methods to improving the housing market.  The paper is striking because it magnifies how little was learned from this banking and housing debacle.  One of the big recommendations centers on creating a “REO to rental” program by facilitating bulk sales to large investors.  Ironically the Federal Reserve by bailing out select banks has allowed home values to remain inflated thus causing this backup in inventory to emerge in the first place.  Setting that obvious point aside, let us examine the merits of an REO to rental program.
Read it at Dr. Housing Bubble
REO-to-rentals another Fed subsidy for big investors and select banks. Federal Reserve looking to engineer yet another bailout for key banking allies. Fed acknowledges 12,000,000 homes with negative equity.
by Dr. Housing Bubble


Matt Franko said...


One thing I watch is new construction prices, for the sq. ft of the house construction itself (lot costs being somewhat subjective). If houses cost for instance $100 psf to build, then that is what what an existing house should sell for, cet par. 2,000 sq ft house should sell for over $200,000 at that construction cost.

Building materials have come down quite a bit from the highs in 2008. And hence so have house prices.

I look at this as the energy costs taken out as a result of Nat Gas collapsing to a recent $3.

So lumber is down, drywall, concrete is only down marginally. Gas is used in manufacturing process for building materials.

The house prices will go down again imo when petroleum finally collapses, tho this looks quite a bit off yet.

There are still a lot of embedded costs in house construction due to the high petro prices. Diesel this weekend was $4.09 at my local station (ouch!).

So there are still a lot of this high diesel costs in the energy to build the house. Harvesting the lumber, transporting the lumber, delivering the lumber, extracting gypsum, delivering the drywall, extracting the cement and aggregates, delivering the concrete, getting contractors to the job site, etc...

Then the diesel is in the coal extraction and transportation to generate electricity, this goes on and on.

So for me, unless there is a forced liquidation, house prices may hold pending an eventual petroleum price collapse.

Non-Saudi production has to increase to the point where they lose control this may take several Mbpd prod increase outside of OPEC/Saudi from this point but US production is increasing and some non-OPEC.

It's a wait and see. This Federal liquidation of existing inventory though just looks like another typical giant gift to certain insiders probably in hedge funds and private equity...


Matt Franko said...

But I would add that if they (hedgies and PE firms) pay these prices here, even if they rent them out for a while , if petro collapses and the insiders are still carrying them, they will get wiped out just like they got wiped out shorting USTs this past year...