A couple of days ago there was a WSJ article about 52 employees of private investment firm Colony Capital LLC working in Georgia on a single day bidding on foreclosed homes. They bought and paid about $9M cash for 133 homes to be renovated and put into the rental market. Now we know what those homes are really worth. And we can be sure they would have been worth even less in the future if left to continue to sit empty and deteriorating. And the folks who once suffered from owning such properties can now rent them (instead of renting money to buy them), completely renovated, and live comfortably in them without all that dreamy home ownership burden.
Today there is a WSJ article about the Fed’s new stimulus program and its hopes that the “biggest impact will be in the mortgage market.” According to the article, the Fed is concerned that “Millions have been unable to refinance because they owe more than their homes are worth or they have tarnished credit.”
Isn’t that how we got in trouble to start with, an artificially inflated housing market supported by “sub-prime” unjustified loans with cash payouts to unqualified borrowers in less than desirable neighborhoods and developments in the name of politics, equality, and the Great American Dream of Home Ownership? It was nice to have all that free money floating around and the illusion of prosperity stimulating purchases of carpet and paint and appliances and building materials, not to mention cars and gas for commuting, but all such dreams come to an end. And the only way to get fully awake is through a major reset to reasonable values as illustrated in the Colony Capital story.
There is one positive note in the WSJ article about the stimulus. Apparently the plan includes swapping more short term government debt for long term government debt. When inflation kicks in and interest rates begin their inevitable climb, the folks who worry about our national debt and budgets will be very glad to have some lower interest rates locked in for the long run.
On the down side, the artificial stimulation seems to be creating a bit of a stock market bubble, very exciting to short term traders willing to be long or short and thriving on volatility, but eventually disastrous or at least traumatic to conservative long term investors expecting some kind of rational behavior in the markets.
And, in the short term, sort of a bad news - good news item for President Obama's supporters, the stimulus and resulting market uptick are almost certain to help the wealthiest among us even while improving President Obama’s re-election prospects, even if they don’t help those who got suckered into sub-prime loans. Those folks would be much better served by letting real estate prices reset to market value as quickly as possible.