May 23, 2005

More Systemic Faults in Housing Industry

Elizabeth sent me a story about appraisers being under pressure to inflate home prices. Anyone who's been involved in buying or selling a house in the last few years should not be surprised to hear this news. But the article does point out one of the systemic problems in the house financing industry which could contribute to a collapse: the secondary market for mortgages and how it's run. Banks make a loan, and then sell the mortgage in the secondary market, usually to Fannie Mae or Freddie Mac. The banks just want the mortgage to go through so they can collect their fee on the transaction and move on. This leads to the banks putting pressure on appraisers (in addition to the pressure they feel from real estate brokers) to have the house appraisal come in at the selling price.

But what happens when that pressure works, and actually causes appraised values to go too high? What happens when a pin pricks the bubble?

Posted by Tom Nugent at May 23, 2005 10:53 AM
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The housing market has shown a lot of signs of the dot-com bubble.

Now it's got one more: launch parties for things that are years away from product:

http://www.nytimes.com/2005/05/23/national/23condo.html

MIAMI, May 22 - In the last month alone, you could salsa with dancers
in fringed hot pants at Aqua, hear a drag queen D.J. at Cynergi or
watch stunt men ricochet off a trampoline at Soleil.

Nightclubs? No. Carnival acts? Not quite.

These were launch parties for condominium projects, one of the
stranger forms of nightlife in a city obsessed with real
estate. Alcohol and music were abundant, but so were sales agents and
brochures with statements like, "It is the impeccable aesthetic of
textures and calming shades - limestone and blue marble - that further
distinguish these voluminous spaces."

Deep-pocketed developers, forced to be ever more creative in the
pursuit of buyers for condos still years from being built, pay for
these lavish affairs - another take on the "froth" in the housing
market that Alan Greenspan, the Federal Reserve chairman, described
last week.

-snip-

Posted by: Dan at May 24, 2005 02:06 PM
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