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Monday, February 04, 2013

Housing Recovery? No, Just Another Fed Bubble

Some investors think there's a housing recovery going on now. But, they are wrong.

In truth, it's just another FED BUBBLE like the last frothy affair in the early 'Naughties.

David Stockman says:

He tells The Daily Ticker, "I would say we have a housing bubble...again."

Stockman argues a combination of artificially low interest rates and speculation are to blame, not unlike the last boom and bust cycle in real estate. "We don't have a real organic sustainable recovery because in a world of medicated money by the central bank, things aren't what they appear to be," Stockman argues.

And according to Stockman, it's this medicated, cheap money being put to work by investors that's driving the apparent healing in some of the hardest hit real estate markets in the country. "It's happening in the most speculative sub-prime markets, where massive amounts of 'fast money' is rolling in to buy, to rent, on a speculative basis for a quick trade," he contends. "And as soon as they conclude prices have moved enough, they'll be gone as fast as they came."

By 'fast money', Stockman is referring to professional investors like hedge funds and private equity firms. To his point, global investment firm Blackstone (BX) has spent more that $2.5 billion on 16,000 homes to manage as rentals, according to Bloomberg. It's now the country's largest investor in single-family homes to manage as rentals, with properties in nine markets. And Blackstone is joined by others like Colony Capital LLC and Two Harbors Investment Corp. (SBY) in trying to turn this market into a new institutional asset class, Bloomberg reports.

Stockman argues the problem in housing is the two forces needed for a recovery, first-time buyers and trade-up buyers, are missing. With the combination of 7.9% unemployment and staggering student loan debt, he doesn't see a young generation of new home buyers coming into the market. And with baby boomers heading for retirement with less than adequate savings, he thinks they'll be trading down with their homes, not up.

Remember, all bubbles go sour. Don't get sucked in or you may find all your money is trapped. Just like the last bubble.