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.
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