24/7 Wall St.

The housing market and housing starts are still facing deep and intractable problems. Mortgage rates may be low, but bank standards for home loans are higher. No financial firm wants to be stuck owning more houses that have been foreclosed upon. Developers won’t build what they cannot sell.

Homes are also less likely to sell in the future as unemployment rises toward 10%. If joblessness goes into the double digits and stays there for several quarters, a recovery of the housing market will be nearly impossible.

The only group that seems to have confidence in a recovery in housing prices is vulture investors who are taking advantage of home values that have dropped 50% to 60% in some markets. According to The Wall Street Journal, the vultures often go house-to-house looking for the best prospects. The paper writes that “some are spending their days looking for deals in far-flung suburbs and staking out courthouse auctions.”

The recovery of the housing market may work the same way that the recovery of the stock market did. When the major indices made bottoms or near-bottoms in March some intrepid investors were willing to take what appeared to be a huge risk by wading into volatile equities that could have fallen much further. As the markets turned, many of these early buyers made two, three, and four times their money especially by gambling on stocks in financial companies.

Cash that has been sitting in institutional investing accounts may view the stock market as too expensive after its extraordinary run-up. Commodities prices are also relatively high with crude trading near $60. That leaves a set of assets that has reset down more than almost any other–homes in places like Nevada, California, and Florida. Ironically, the investors who buy these homes may never live in them. There are only in the game to make money.

Douglas A. McIntyre