The Death of Housing-Yet Again

After 2008 everyone was sure that the powers to be had learned their lesson. There would be tighter underwriting standards. There would be more accurate property evaluations. The crazy leverage of the past would be just that, a thing of the past. The one aspect, however, that was not addressed was interest rates.

Allen Greenspan was vilified for artificially controlling interest rates at a never before heard of 1%. The Maestro, post Fed, continued to rationalize the low rates as being needed for the revitalization of the economy as a whole. The dot com crash, he implied, had taken its toll.

What a difference a new Fed Head makes. One man’s vilification is another man’s praise (or women’s). Ben Bernanke not only kept the rates at 1% but took them even lower and his successor, Janet Yellen, has maintained them to this point.

After the initial collapse of pricing, housing came back with a vengeance. The past several months seem to point to a new direction. A slight bump in the road. A bump so significant, however, that it has the big boys (TBTF) worried. Worried to the point of going back to earlier days.

Thus the underwriting standards are once again going down a slippery slope. Ninja has returned. Evaluations are being done on a model basis, not market. Leverage is accelerating. The undiscussed fact is that it has not been mom and pop participating. Mortgage originations are at an all time low. So who and why were the buyers driving prices and paying all cash?

Wall Street, of course. The almost free money being given to them by the Fed was too hard to resist.

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Mom and pop learned their lesson and were not biting on the loose standards, the frothy evaluations or the increasing leverage. It was Wall Street but only so long as rates stayed at a given level.

Bank of England Governor, Mark Carney, announced that “The Central Bank may need to raise rates before the market currently expects”. It is just a matter of time before Janet announces the same thing. They (Central Bankers) follow each other like lemmings.

When rates rise Wall Street will be gone, in fact, the exodus has already started. Mom and pop are already gone so who is left to buy houses with rising rates. Anyone?

Wait a minute, I know who, all those students who just got their student loans forgiven. SURE!

Housing funeral calling hours will be from 2-4.

No flowers please.