Mac Slavo January 31st, 2015
Want to own your own home, but stuck, temporarily, renting until you can? You aren’t alone. Wolf Richter outlined a pretty eery scenario. The 2008 financial Armageddon was in larger part a result of the housing bubble bursting. Thanks to the subprime mortgage scandal millions of homeowners were put in homes they couldn’t afford, making the awful game of musical chairs an inevitable and tragic charade.
Maestro to the musical chairs was Goldman Sachs, who unbeknownst to the public, was selling toxic securities for risky mortgages, while secretly betting on the collapse of the housing market. According to McClatchy:
In 2006 and 2007, Goldman Sachs Group peddled more than $40 billion in securities backed by at least 200,000 risky home mortgages, but never told the buyers it was secretly betting that a sharp drop in U.S. housing prices would send the value of those securities plummeting.
Everyone was swept up in the chaos. Goldman Sachs and the other banks got bailed out. The public absorbed the costs, and the Federal Reserve set out on the biggest intervention since World War II.
Now, wolfstreet is pointing out the effects for today’s housing market:
The housing market has been healed by the Fed’s bold actions, we’re told incessantly…. Prices have soared over the last three years, and in some cities, like San Francisco, they have soared far beyond the prior crazy bubble peak. So we admit grudgingly that the Fed’s six-year money-printing and interest-rate-repression campaign, designed to inflate every asset price in sight even to absurdity, has worked.
However, an essential element in a healthy housing market – people who actually live in homes they own – has been dissipating. The homeownership rate peaked in 2004 at 69.2%. It was during the prior housing bubble. Speculative buying drove up prices beyond the reach of many potential buyers.