The Banking and Strategy Initiative

Chillin' out till it needs to be funded

Revitalising Housing | Laying a global foundation

Home in the USA

Over and above the $180 billion paid out to AIg to bail out its portfolio of illiquid low priced securities, AIG is still on the verge of the collapse as after the sale of Metlife and Prudential, it still has an outstanding $80 bn to pay off. Add to that the Federal government in the US also paid out $125 billion to Freddie Mac and Fannie Mae, the two mort insurers holding more than $5 trillion of the $10 Trillion national housing debt. The companies have been behind all the mortgages since August 2008 and hold more than half of all home loans. Reforming Freddie Mac and Fannie Mae is next to impossible and new reforms will invariably end all the subsidised lending and foreclosures. Still, precious little has been achieved in rewiting house loans close to foreclosure, most of the stimulus cash lying unused. 130,000 modifications have been competed in 18 months.

Barney of course, wants to start winding down the two institutions as financially that model is unviable and is giving precious little guarantee to homeowners, government running the institution directly. The regulator FHFA is unnecessary and their(FNM and FRE) function of supporting mortgages not good charter for a private lending firm/bank. Thanks to Wash Post for some insightful reference material..

Houses are available at a substantial discount today, fueling property speculation, while at least 7 state governments stare at fiscal failure. Houses are available for as low as $135000 from $440000 earlier

In Europe

Home prices have started rising back in the UK from its ten year low in April 2009. Scandinavian states have also reported a recovery along with UK in the range of 10%-12%. However markets in Spain, Greece followed the crisis into a steep fall along with central and eastern europe, down between 30-50% in 2009

The Continental Europe bulwarks Germany and France have also reported falling real estate prices, drops limited to around 5%. Mortgage prices though will start rising as governments follow US, Asia, India and China in raising rates after a fragile recovery. France and Germany still report large fiscal burdens and may not be able to support better housing conditions in 2010

India and China

China is contemplating a property bubble while lower consumption is forcing it to make fiscal concessions for consumers, resulting in continued spending on property malls, offices and leftover in residential housing. Home prices have been rising continuously in China for the past one year and the January boom show at least one third of the lending surge going to property developers and consumers buying into housing.

India in the mean time, stands on the edge, ready to go back to established processes in real estate financing and selling while the government singles out the sector, deservingly, as a bastion of corruption and prone to market failure..While Real Estate demand has recovered, key towns bore the brunt of the correction in prices and will come back in pricing terms like Bangalore, while low budget housing has hit a few snags in both India and China for the mismatch between costs and returns.


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