In a recent blog post on www.dennistubbergen.com, Tubbergen explains why reports of a housing market recovery are being viewed by many with skepticism.
Tubbergen cites a recent article written in September by Chris Martenson, a writer and commenter on economic matters.
Martenson explains that when a prospective homeowner wants to purchase a home, he or she typically needs to get that loan from a mortgage lender. That lender, after loaning the new homeowner the needed funds, typically sells the mortgage to another institution who sells it to yet another. This process continues until at some point there is an ‘end holder’ of the mortgage.
The lending bank rarely holds the mortgage. Instead, the modern banking model is far more profitable making loans and selling them, freeing capital to make additional loans instead of holding them as part of the bank’s portfolio.
According to Martenson, year to date through August of 2009, 3.2 million existing homes were sold at an average sale price of $217,000, and 263,000 new homes were sold at an average price of $264,000. Assuming all of these properties were purchased with a 20% down payment, there was new mortgage volume through the first 8 months of the year of about $611,066,000,000, or $611 billion.
The Federal Reserve’s website reports the central bank purchased $624 billion worth of mortgage backed securities so far in 2009.
What does this mean? The Federal Reserve isn’t just playing a role in the housing market – it HAS BECOME the housing market. It appears the government is spending more money than it’s taking in.
Where does the Fed get the money to do this? The Federal Reserve holds a portfolio of US Treasuries, or government IOU’s. So basically the US Government, or rather the US Taxpayer, is behind the housing market recovery, Tubbergen explains.
Which makes any rejoicing about the Housing Market “Recovery”
To learn more about Tubbergen’s views on the market, read www.dennistubbergen.com.
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