Monday, April 18, 2011

Can't Sell Your House? Can't Get a Mortgage?

Hedge fund manager John Paulson offered a clear explanation in an interview with the French-language financial newspaper, Les Echos, on April 11.

"To me, the major risk for the U.S. recovery is stagnating housing market. According to the latest figures, house prices are slightly down. Lack of funding limits the scope for private home purchases in the United States. Currently, banks have handcuffs. They can not do anything against borrowers if they default on their loans. The private sector is frozen because of regulatory uncertainty on foreclosures. Banks do not want to grant mortgages because their rights are [not] guaranteed. Today, housing starts are at their lowest level for fifty years! That is why we have a recovery with slow job creation. We are at a lower level than 300,000 new homes a year against a peak of 2 million in 2007 (which had helped create 8 million jobs). Without restarting the housing sector and a minimum of 1 to 1.2 million homes built annually, it's hard to have a real strong recovery. . . . When I made this prediction [last year that property prices would rebound in 2011 by 8% to 10%, that] was before the reform Dodd-Frank 2010 [passed]. Since then, banks have virtually halted lending for home financing because of the lack of clarification on the rules. This will be difficult to have a rebound in property prices this year". 

See my earlier post: Dodd-Frank: Regulation Only a Government Could Love

No comments:

Post a Comment