A new report offered by Keefe, Bruyette & Woods points to major government policy decisions that are working against the U.S. homeowner and argues that the administration’s path will lead to the continual decline of homeownership in America. The government’s insistence on strict banking reform is causing banks to push the costs (and restrictions) to borrowers, which is making it difficult for people to enter the market. Some disagree, however, and Warren Buffett, a staunch supporter of the administration, argues that the housing market will recover even if buyers have to “double up” (share purchasing costs) because the alternative will be less appealing. For more on this continue reading the following article from TheStreet.
Home ownership is likely to continue falling in the U.S., as the government continues to withdraw its support for mortgage lending, argues a report Monday from Keefe, Bruyette & Woods.
The report points to four recent examples of policy shifts by the government showing declining support for home ownership. These include an increasingly aggressive stance by government-sponsored enterprises Fannie Mae and Freddie Mac in asking banks to repurchase bad loans they sold to the GSEs and a phasing out of savings and loans. The analysts also point to tougher capital requirements that effectively make it more expensive for banks to underwrite mortgages, as well as a stated desire by both the Obama Administration and Republicans to eventually wind down the GSEs.
"While government lending programs are supporting the current mortgage market, those programs are under increasing pressure to scale back and are acting to limit mortgage credit availability," the report states. It notes that U.S. mortgage originations are roughly where they were in 1998, though with the government nowplaying a much bigger role in propping up the market.
The view of KBW’s analysts stands in contrast to that of Berkshire Hathaway Chairman Warren Buffett, who in his annual letter to shareholders admitted he was "dead wrong" a year ago when he predicted a housing rebound, but said housing will eventually recover.
"People may postpone hitching up during uncertain times, but eventually hormones take over. And while ‘doubling-up’ may be the initial reaction of some during a recession, living with in-laws can quickly lose its allure," Buffett wrote. Indeed, Berkshire has lately made efforts to increase its exposure to the U.S. housing market by bidding on ResCap, the nation’s fifth largest mortgage servicer.
This article was republished with permission from TheStreet.