Housing Market Hasnít Made A True Recovery, According To Wealth Management CEO
Although newspapers are touting a housing market recovery, a closer look at the numbers reveals the news is nothing to shout about, according to Dennis Tubbergen, CEO of USA Wealth Management Inc.
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 Ďend holderí 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 bankís 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 Reserveís website reports the central bank purchased $624 billion worth of mortgage backed securities so far in 2009.
What does this mean? The Federal Reserve isnít just playing a role in the housing market Ė it HAS BECOME the housing market. It appears the government is spending more money than itís taking in.
Where does the Fed get the money to do this? The Federal Reserve holds a portfolio of US Treasuries, or government IOUís. 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 ďRecoveryĒ premature.
To learn more about Tubbergenís views on the market, read www.dennistubbergen.com.
USA Wealth Management, LLC, is a federally registered investment advisory company. The opinions expressed herein are those of the writer and not necessarily that of the above noted company. This update may contain forward-looking statements, including, but not limited to, statements as to future events that involve various risks and uncertainties. Forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause actual events or results to differ materially from those that were forecasted. Information obtained from third party resources is believed to be reliable but the accuracy cannot be guaranteed.
This information is educational in nature and, therefore, is not intended to constitute investment advice and should not be interpreted as a recommendation to purchase, sell or hold a particular security. Prior to making any investment decision, the services of an appropriate professional should be sought as investment related recommendations are dependent upon the personal situation of each individual investor. Investing in market related securities involves a risk of principal loss.
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