Tags: Bove | Housing | Fall | Subsidies

Bove: Housing Will Fall 15 Percent as Subsidies End

Wednesday, 24 Mar 2010 09:09 AM

The housing market will drop another 10 percent to 15 percent once the federal subsidies end, said Dick Bove, a Rochdale Securities analyst.

During the past 12 months, the housing market has been boosted in part by the Federal Reserve purchasing mortgage-backed securities, which in turn has allowed mortgage rates low to remain low.

The Fed has said it will stop purchasing the mortgage-backed securities at the end of March.

Bove said the short term outlook is difficult to predict since it is unclear what mortgage rates would be without the government subsidies, Yahoo Finance Tech Ticker reported.

He said the market currently is “unrealistic.”

As the government withdraws its support, the market will have to lean toward the private sector, he said. The “true” prices of houses are also unknown because of the programs backed by the federal government, he said.

“We have no idea what basically what is happening in this market,” Bove said.

Bove pointed out that one out of every seven homes in the United States is empty.

Housing prices in a free market, without subsidies, are likely to fall 10 percent to 15 percent, a scenario which Bove said would not be “unusual.”

He believes that Fannie Mae and Freddie Mac, the government-sponsored mortgage companies, need to be eliminated.

Anthony Sanders, a real-estate finance professor at George Mason University in Fairfax, Va., believes Fannie and Freddie should become private, the Wall Street Journal reported. “They've allowed this monster to kind of burn out of control,'' he said.

Moving too quickly could result in disastrous results, said Sarah Rosen Wartell, a Clinton administration housing official who now works at the Center for American Progress, a liberal think tank.

“The calls for quick action aren't serious — they are potentially destabilizing posturing and bluster that could have dangerous consequences for the economy,” she said.

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