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Lew Ranieri: Housing Recovery Is Years Away

Posted by Larry Doyle on April 29, 2010 3:34 PM |

Despite all reports to the contrary, markets in general and housing in particular are ultimately a function of supply and demand. On that note, why isn’t the housing market poised to truly do better anytime soon? The overhang of housing supply due to ongoing strategic mortgage defaults is increasing. These strategic mortgage defaults are much more a factor in the prime-Jumbo market segment than the conforming or sub-prime mortgage market.

Bloomberg addresses this topic in writing, ‘Strategic’ Mortgage Defaults Jump to 12% of Total:

A total of 9.47 percent of all home mortgages were delinquent at the start of this year, with an additional 4.58 percent in the foreclosure process, according to seasonally adjusted Mortgage Bankers Association data.

Housing won’t recover for three to five years as mounting foreclosures hold down prices, mortgage-bond pioneer Lewis Ranieri said yesterday in a panel discussion at the Milken Institute Global Conference in Beverly Hills, California.

“There’s another big leg down,” he said. “You can’t have much of a rally when you’ve got this big overhang.”

Attempts to support housing via principal reduction may be helpful to selected homeowners, but while it may be a short term salve it is a long term disaster. Why? The overhang will merely be drawn out rather than stopped, and mortgage credit for future generations will be more expensive. The current administration may view it as another in its ongoing means to redistribute income, but it has nothing to do with capitalism.


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