Should home buyers beware from another housing bubble?

The Federal Reserve bailed out Bear Stearns on March 14,2008 nine years ago. What has the Fed learned from that mistake? Not enough, perhaps.

Today, the Fed is again ignoring the GSEs and their potential contribution to future instability. According to Freddie’s 2016 annual report, “Expanding access to affordable mortgage credit will continue to be a top priority in 2017.” Fannie/Freddie have redefined “Sub prime” to a credit rating of below 620; previously, these firms and banking regulators had used 660 as the dividing line that defined a sub-prime borrower. Now by using the lower number, they may be buying even weaker mortgages than before the financial crisis.

Are we actually in another housing bubble just nine years later?

Many economists are saying, bubble talk is starting to raise its ugly head. Some analysts are saying, home prices are showing signs of being overvalued. But, is it really hard to spot a real estate bubble? Some economists with vast experience are saying, in their opinion, we are in a real estate bubble without a doubt. Anyone who has some experience in real estate cycles, can recognize a bubble before it bursts.

There is one critical difference between today’s situation and that of 2008: There is very little private capital that would be at risk if there’s another sub-prime mortgage bust. Before the crisis, there was some market discipline, however imperfect it was, because potential buyers of mortgages would look at their quality carefully. Now only Fannie and Freddie are examining the quality of the mortgages. And it is taxpayers who would carry the burden of bailing out Fannie and Freddie, since their obligations are guaranteed by the US government.

About 10,000,000 families lost their homes in the 2007–2008 crash. Many of these homes were bought by hedge funds. The hedge funds companies didn’t really resell the thousands of houses they bought, but rather hung onto them and rented them instead.

People are desperate to have housing, It’s the one thing they absolutely need. But instead ,hedge funds companies bought those foreclosed houses for all cash and now they rent them out to those people, between 40%-50% higher than in 2008. These hedge funds companies make a large return renting those houses out. They can make 10, 15% on their investment. That’s much more money than they can make in the bond market and it’s much more secure money than they can make in the stock market, because stock prices may go down and corporate sales may go down as the economy shrinks. Rents now are rising and many can not afford to pay those high rent prices. They’re 40% to 50% of income in places like New York City, San Francisco, the high rent areas of the country.

The big danger, of course, is the next recession, which Stack views as inevitable. At some point we’re going to have another economic downturn, another economic recession. When we see that downturn, we are going to see housing prices come down quite hard over a period of 12- to 24 months. That doesn’t foresee a recession until at least 2018.
I’m not talking about people in poverty here — individuals and families who simply cannot save because they barely earn enough to cover basic needs; I’m talking about middle-class families — people who earn plenty — who piss it all away.

By HOMEiZ Blog Team

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