Counterpunch's Mike Whitney wrote one of the most succinct, cynical, and comprehensive analysis about the key drivers in today's the housing market in an article titled, "There's Still A Foreclosure Crisis." This is a must-read for anyone who works in the industry and doesn't want to be caught flat-footed when the market eventually turns south.
Whitney's article is not for housing cheerleaders or people who believe in unicorns or those who want to believe supply and demand is working it's magic.
- Whitney cites AOL Real Estate Blog and Core Logic data that shows up to 90% of foreclosures are being held out of the market.
- The foreclosed properties are being packaged and bundled into rental property securities, winding up in the hands of Wall Street investors like private equity funds, REITs, or pension funds with a goal of holding for the next 3-4 years. The idea is that a concerted, or possibly collusive, suppression of housing supply by the Too Big To Fail banks and suppression of mortgage rates by the Federal Reserve will put significant upward pressure on home prices, which will give these investors a 20-30% profit when they liquidate their position in 3-4 years.
- Accounting shenanigans from FASB, which played a key role in helping the banks gloss over their insolvency back in 2009, are being loosened even more to allow banks more leniency in valuing their dodgy assets, therefore giving a false appearance of solvency and strength.
Whitney lays everything out there for the reader to understand what is happening in the market. Supply and demand curves and free market ideology have been thrown out the window by the biggest propagandists of free markets, the TBTF banks and The Fed. The housing market of today is a massive experiment in bailout economics that is using homes and investor funds to help the banks earn their way out of the mess they created.
It wouldn't be surprising if in 3-4 years, after prices have increased 20-30%, and mortgage rates start holding above 4.50%, an REO investor fund will be the first to run for the exits and dump their portfolio of homes onto retail buyers (John Q. Public), which will lead to even more panic selling by the other REO investor groups looking to take their gains and get out, which, will wipe out all the gains made from 2012-2015.
History has a funny way of repeating itself. It should be interesting to see how this thing plays out.
Make sure to read Mike Whitney's great article in this link here.