Richard Green is a professor in the Sol Price School of Public Policy and the Marshall School of Business at the University of Southern California. This blog will feature commentary on the current state of housing, commercial real estate, mortgage finance, and urban development around the world. It may also at times have ruminations about graduate business education.
Thursday, October 21, 2010
The Fannie-Freddie Problem is not as severe as the headlines would suggest
Page 10 of the FHFA report, gives forward expected losses under three scenarios. The third is really awful--it assumes a further reduction in house prices by 1/4, which would be a lot. But under the other two scenarios, the net cost to taxpayers (draws less dividends owed to Treasury) would be $6 to 19 billion. This is real money, but hardly cataclysmic. It does suggest that the vast majority of the losses are already behind us.
you need to be able to know when to buy and sell. If you do not know when to say that enough is enough for that share, then you should not be trading at all.
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Mortgage Rates
The tough part of the whole thing is that the banks can't drop all the foreclosed homes on the market at once and decimate prices. We are still roughly 3 years away from working through all the distressed inventory at the pace we are going simply because the banks are acting like the DeBeers of the distressed housing market.
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