When Will The Housing Market Recover?
Although a government report showed that housing sales grew by 3.1% in July, Housing and Urban Development Secretary Steve Preston says that a housing recovery is unlikely until 2009 at the earliest. Sales may have grown but so has inventory as banks have had to take over an increasing number of foreclosed properties.
A slowdown in home sales and a drop in prices has contributed to record foreclosures as borrowers struggle to meet their monthly mortgage payments. Preston said a foreclosure- prevention law Congress passed last month also will be important in aiding mortgage-finance companies Fannie Mae and Freddie Mac, which are supporting most new mortgages.
The fate of Fannie Mae and Freddie Mac is still looming over the entire mortgage market. Their stock has been hammered in recent weeks as equity holders grow increasingly worried that their entire stakes could get wiped out if the rescue plan becomes necessary.
There is still investor demand for their debt as Freddie Mac sold $2 billion in short term debt earlier today. However it’s becoming increasingly expensive to raise capital as investors are requiring higher spreads over Treasury Securities of similar maturity.
The government wants to avoid a bailout of the two Government Sponsored Entities(GSE) if at all possible, but most experts feel mortgage markets would be helped more if the two companies were recapitalized with taxpayer dollars. The two GSE’s account for nearly half of the $6 trillion mortgage market and with a housing recovery a long way off, their fortunes aren’t expected to improve anytime soon.
Even if prospective buyers wanted to purchase a home it’s difficult to find the financing, even if they have good credit scores. The credit situation has grown steadily worse as mortgage rates keep climbing, which isn’t conducive to any sort of recovery.
