“Credit Expert”: Rising Rates Are Bad For Housing

Written by: Jack Boylan

Wow, how can I become a “credit expert”?! It seems that the bar must be pretty low for entry into that profession. Rising rates are bad for housing huh? Who would have thought such a thing — thank goodness for the “experts“! It is difficult to keep track of all of the supposed bubbles being formed at the moment, but if there is one area particularly susceptible to the Quantitative Easing (QE) Fed programs it is definitely the housing market. (Hey, see that … it is easy being a “credit expert!).

And the housing recovery has consisted of a very strange stew of events and players. The Fed and its QE programs gets to take a good chunk of the credit (blame?) of course, but there is also the seemingly unlikely rise of Fannie Mae and institutional home buyers. While Fannie seemed certain to face the chopping block just a couple of years ago, it is now muscling into home mortgages by cutting out the “originators” or middlemen:

The company has ramped up its purchases of home loans from lenders for cash, in the process cutting out originators from the more profitable business of creating and selling bonds backed by the debt. About 31 percent of the $305 billion in new Fannie Mae-guaranteed securities in the first four months of this year were tied to so-called cash window purchases, almost triple the share in early 2011, according to data compiled by Bloomberg and JPMorgan Chase & Co. (JPM) analysts’ estimates.

It’s so unimaginable, that I must admit that I have difficulty believing it. What can they possibly be thinking? If this housing recovery turns out to be another bubble will Fannie have their fingers in the cookie jar again?

Another tidbit that is often neglected by the media when discussing the recovery in housing is that it is corporations that are buying like crazy and not actual people that would, you know, live in the purchased house. In fact their influence can be so outsized as to defy belief:

Interestingly the metro area that welcomed the most institutional activity in 2012 was Miami, Fla., with firms funding 30% of all sales. Single-family home prices for the Miami metro area rose about 11% in 2012 (including distressed homes), according to CoreLogic.

That’s right a whopping 30% of all sales are going to people that have no intention of ever setting foot in the house. And that is not even counting the local “house flippers” that, if reality TV is any indication, are still going strong. No, this is a whole new level and I am pretty sure the names of the players are not going to reassure you. In fact they may infuriate you. Big Wall Street names such as JP Morgan, Blackrock and even Warren Buffet have stampeded into housing so as to rent them out to people they recently kicked out on foreclosure proceedings. Nice, huh? Meanwhile, back to our insightful “credit expert”… here’s another pearl of wisdom:

Tchir thinks we could see a real slowdown exacerbated if and when the Federal Reserve begins to taper its bond-buying program, which would remove support for housing.

Why yes, Mr. Credit Expert, I believe you may be onto something there. Additionally, if I may jump into “credit expert” territory, the possible dumping of housing by the corporations at the slightest hint of losses combined with Fannie’s dubious machinations may “remove” even more “support for housing”. What a mess.

 


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“Credit Expert”: Rising Rates Are Bad For...

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