understated,” said James Frischling, president of NewOak Capital. The combination of stingy lenders and weak borrowers “doesn’t bode well for the housing market,” he said, but he is optimistic that lenders will loosen their standards and enable the market to grow again.
“With so many banks looking to put money to work, this may yet prove to be a buyers’ market — with some patience,” he said.
But Pater Tenebrarum, a hedge fund analyst, said the seeming recovery in the real estate market in 2012 and 2013 was nothing but an “echo bubble” fueled by the Fed’s lenient policies and the government guarantee on more than 90 percent of mortgages made since the recession through Fannie Mae, Freddie Mac and the Federal Housing Administration.
The Federal Reserve has been purchasing Fannie’s and Freddie’s mortgage bonds for several years to drive down mortgage rates. A year ago, rates on 30year loans reached a record low near 3 percent.
In the Fed’s move to gradually reduce and end those purchases starting in December drove rates to over 4 percent and precipitated the market slump.
“There is no reason to believe that the echo bubble is any more stable than its predecessor,” especially given the government’s overwhelming role in fostering the latest recovery, Mr. Tenebrarum said, contending that housing’s brief recovery may turn out to have been entirely “illusory.”
“It is probably best not to pin too much hope on the echo bubble,” he said. “Wall Street firms buying up homes in [bankowned foreclosure]-to-rental schemes don’t represent organic demand, and in fact only serve to price out potential firsttime buyers.”