Why Housing Will Bear the Burden of the Credit Recovery

In real estate investing, we all know the old adage is location, location, location. And, as an extension, the three most important factors we’re looking to for signs of stabilization in the credit market are housing, housing, housing. Over the past 12 months we have seen national home prices plummet 15.5%, existing home sales decline 15.8% and housing starts fall 26.9%. In every stage of this precipitous decline mortgage collateral has been marked to market, thus passing losses on to investors as the cycle of collateral impairment has continued unabated. In our view, only stabilization of the housing market can interrupt this cycle and begin the process of stabilizing the credit markets.

The most critical element in the health of the housing market is the availability of credit in the form of mortgages from the banking world. The single largest providers of this credit are Freddie Mac and Fannie Mae as they purchase and guarantee trillions of dollars in mortgages from US banks. In buying and guaranteeing mortgages from banks, these institutions free up capital which allows banks to extend more mortgage credit to home buyers. An interruption to this chain of credit extension could be devastating to the economy. For this reason, the recent federal credit fortification to Freddie and Fannie provides a critical backstop to the troubled housing/mortgage market.

Given the massive infrastructure support Freddie and Fannie provide to the housing market, we thought it would be timely to conduct a closer examination of the roles these agencies play in supporting the housing market and provide an analysis of the recent measures to support these agencies.

Best Regards,

Ben Campbell
President & CEO