Housing Doom Housing Bubble Blog

Check this out from M’s junk e-mail.  You can buy this home for $1.02 million- or lease it for $2,800/month:

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Apparently the Bush administration decided to start out the New Year dishing out political double-talk on day one- no use putting it off I guess.  This from a chat with reporters on Air Force One yesterday:

More steps by Congress and the Bush administration are likely needed to stabilize the imploding U.S. housing market, a senior White House official said on Tuesday, as more signs of distress appear.

Ed Gillespie, counselor to Bush, pointed to efforts by the U.S. Congress to overhaul the Federal Housing Administration program developed in 1934 amid the Great Depression and designed to make home ownership more affordable. Members of the House of Representatives and Senate have been trying to work out a compromise plan.

"There’s more to be done we think on the housing front to address the concerns people have about the housing markets, including FHA reform and other reforms that the president has called for," Gillespie told reporters aboard Air Force One as Bush returned from a weeklong holiday at his Texas ranch.

So just what does the Bush administration have in mind?

One idea that has been under consideration by the administration and Congress is allowing mortgage finance companies Fannie Mae and Freddie Mac to buy loans above the current ceiling of $417,000, mortgages known as jumbo loans, he said.

Gillespie, who is apparently not familiar with the "Duck Test" continues:

Gillespie also made it clear the administration would not bail out investors who made risky investments.

"You have to tread a fine line here of helping those who found themselves in a difficult situation and maybe didn’t realize at the time the situation into which they were headed, and on the other hand removing any sense of moral hazard from the marketplace for those who are engaged in speculation," he said.

Let’s consider the Fannie and Freddie proposal for a moment.

Why would the government want Fannie and Freddie to buy loans in the $417K+ range?  They would have them buy them because these loans are no longer popular with investors.  Why aren’t they popular with investors?  Because home prices are falling, a relatively small number of households can actually afford homes in this range, and that makes them risky investments.  Does Uncle Sam want to have Fannie and Freddie buying them because it makes sound financial sense for these institutions?  Of course not- but with few buyers and little financing in the $417K range, the upper end of the market will be hit hard, then compress housing prices below it.  What is the point of buying these mortgages then?  TO BAILOUT INVESTORS WHO MADE RISKY INVESTMENTS BY CONTINUING TO FINANCE RISKY INVESTMENTS.

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