Housing Recovery? Dean Baker Says No.

Are we in the early phase of a housing recovery, as the administration and press are saying? Dean Baker called the housing bubble when he published published “The Run-up in Home Prices: Is It Real or Is It Another Bubble?” in 2002. In the attached article and video he predicts that the end of government support programs will reduce the number of buyers for the balance of 2010. This is an interesting and telling interview with CNN News. You can view the video at this link: http://tinyurl.com/23k9bdm

Mr Baker argues that government programs that have come to an end have propped up the market and are unlikely be extended, resulting in fewer buyers. The First Time Buyers Tax Credit ended in November and was extended to the end of April. The Treasury Department purchased $1.25 Trillion of mortgage backed securities keeping mortgage rates artificially low. Mr. Baker predicts niether program will be continued and that mortgage rates will rise to 5.50 – 6.00% by the end of this year. Additionally, FHA to some extent has replaced the subprime mortgage market; but is being forced to curtail some of its lending due to falling below its minimum capital requirements. He ultimately argues that the government propping up housing prices does not make sense.

While this may not bode well for current homeowners, and somewhat not for buy and hold landlords, it reinforces my previous predictions of a continued supply of Short Sales and REO’s as fewer buyers keep housing values down. It also reinforces the requirement to “buy it right” in order to attract from a somewhat smaller pool of buyers.

Ted Akers is the Managing Member of Investor Funding Alternatives which funds investor purchases for back-to-back transactions at www.InvestorFundingSite.com