The Fed-engineered Housing Bubble and Crash

Home Sales Dive, Prices Near 9-year Low

March 21, 2011

Reuters - Sales of previously owned U.S. homes plunged in February and prices hit their lowest level in nearly nine years, implying a housing market recovery was still a long way off.

The National Association of Realtors said on Monday sales fell 9.6 percent month over month to an annual rate of 4.88 million units, snapping three straight months of gains. The percentage decline was the largest since July.

Economists polled by Reuters had expected February sales to fall 4.0 percent to a 5.15 million-unit pace from the previously reported 5.36 million unit rate in January. January's pace was revised up slightly to 5.40 million.

"This is a frustrating number. The U.S. residential real estate market doesn't seem to want to turn around despite better affordability," said David Carter, chief investment officer at Lenox Advisors in New York.

Financial markets largely ignored the data. U.S. stocks were up sharply in early trade, partly on news of a bid by AT&T for Deutsche Telekom AG's T-Mobile USA and growing hopes Japan would get its nuclear crisis under control.

U.S. debt prices extended losses as the U.S. Treasury said it would begin selling off $142 billion in mortgage-backed securities it had acquired to help tame the financial crisis, while the dollar rose against the yen on intervention worries.

The Realtors' group said the median home price dropped 5.2 percent in February from a year earlier to $156,100, the lowest since April 2002, a sign of the relentless downward pressure on prices from a market flooded with foreclosure sales.

"If the price declines persist, even with the job market recovery, that could hamper recovery in the housing market," said NAR chief economist Lawrence Yun.

A glut of homes on the market and the flood of foreclosure properties are holding back a recovery in the housing sector, whose collapse helped to tip the U.S. economy into its worst recession since the 1930s.

Foreclosures and short sales, which typically occur below market value, accounted for 39 percent of transactions in February, up from 37 percent the prior month, the trade group said. All-cash purchases made up a record 33 percent of transactions in February.

Sales fell across the board, with multifamily dwellings declining 10 percent and single-family home units dropping 9.6 percent. Compared with February last year, overall sales were down 2.8 percent.

At February's sales pace, the supply of existing homes on the market rose to 8.6 months' worth from 7.5 in January. A supply of between six and seven months is generally considered ideal, with higher readings pointing to lower house prices.

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U.S. Treasury to Sell $142 Billion Worth of Toxic Assets

March 21, 2011

AFP – The US Treasury Department said on Monday it would begin to sell-off toxic assets worth an estimated $142 billion, in an effort to close another chapter of the financial crisis.

"We will exit this investment at a gradual and orderly pace to maximize the recovery of taxpayer dollars and help protect the process of repair of the housing finance market," said Treasury official Mary Miller.

The department said it would offload up to $10 billion in mortgage-backed securities (MBS) -- assets which bundle together large numbers of often distressed mortgages -- each month.

The products, secured by state-backed mortgage giants Fannie Mae and Freddie Mac, were bought as part of the 2008-2009 financial sector bailout.

Their value plummeted after the housing bubble popped, prompting fears that a spat of asset write-downs could drag down individual banks and further plunge the financial system into panic.

The Treasury said the market for asset-backed derivatives is now much more robust, three years after the depths of the crisis.

"The market for agency-guaranteed MBS has notably improved since the time Treasury purchased these securities in 2008 and 2009," it said in a statement.

The Treasury hopes to net $15-20 billion profit from the sale, depending on market conditions.

The Treasury has also recently offloaded equity stakes in Citigroup, General Motors, Ally Financial and AIG it took to help them survive the crisis.

US insurer American International Group recently offered to buy back $15.7 billion in mortgage-backed securities from the Federal Reserve as part of its efforts to emerge from a government bailout.

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