Housing Market Analysis

Paper Summary:

This paper examines the dramatic shift in the U.S. housing market. The writer contends and explains why one's home is no longer viewed as an asset but rather an investment, which can be milked regularly for cash by way of second mortgages and home equity loans. The ease in the availability of money and its comparative cheapness has led to a inflation in real estate prices. This paper examines how the face of home ownership has changed and become a case of renting from lenders as opposed to direct and full fledged ownership. This well-researched paper details the process of home financing, which is handled by the Federal Home Loan Bank System, created by the government in 1932. This paper details the events the pushed the government to create both the Fannie Mae and Freddie Mac organizations. This paper explores the manner in which these two leading organizations, in the field of secondary residential mortgage markets, package and sell loans to home owners, much the same way as stocks and bonds are traded on Wall Street. The writer delves into the governmental policies devised to increase home ownership, most of which include using Fannie Mae and Freddie Mac.

From the Paper:

"The weakness comes from the feeling that contingent mortgage obligations are second only to treasury bonds and at the same time are not totally supported by the US government. When the interest rates change, as it happened in 1990s with a dot com share which went beyond all reason, the markets suddenly rose and fell. Then the Federal government team had to cut interest rates very sharply back to get the market thinking logically again. Yet the drop in interest rates makes the investors feel that they have lost money, and at that time they had concentrated on homes and real estate. The government has not been able to control the imagination of the people, and the next dream has been on its way. This is reflected in the statement of Chairman Greenspan to Congress in the last two years to control Fannie Mae and Freddie Mac better."

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