Lose Your House and Make Money

pending home salesConsidering that the government is estimated to have made an 8.5% return on investment from the recent bailouts issued in 2009, things are looking quite "peachy" for the economy, as we started off in the green on Monday yet again. At least, so it seems. The Dow is inching even closer to that 11000 mark, which I would assume we reach by tomorrow or Wednesday, at which a pretty strong run could follow. If you have read some of my other posts, you understand my beliefs in this market running correlating more with the loose money supply, more so than the actual economy and consumer back on their two feet. Whatever it may be, there seems to be nothing able to stop this market, so why get off the train right?

Buying aggressively into this rally at this point, is a bit much for my blood, so I will stick with what I currently have. Shorting the yen, longing the dollar, and a few strategic longs in retailers in which I believe will crush earnings pretty well this corner. However, the real estate market continues to stay at a big question mark. Today, the HAFA (Home Affordable Foreclosure Alternative) plan takes place and it will be very interesting to see how many people buy into it.

HAFA is much like the "Making Home Affordable Program" (government loan mod program), however, applies to the millions out there who don't qualify for these loan mods. Well now, they will have a chance to earn some hard earn government money by simply choosing to short sell their house or perform a deed-in-lieu foreclosure. Just the past week, the incentive was doubled to $3000 to be given to home owners who sell to help with "relocation costs" (which I'm sure every penny will go). Up until now, banks have been sitting on defaulted properties, hoping to not completely tank the real estate market. However, as we begin to gear up for the spring/summer market (the most popular buying season), you can be sure that we are going to see a very big jump in short sales and foreclosures. I mean you could probably get most of these people to move for a free TV, let alone $3000.

I keep reiterating the importance of home values in relationship to the overall economy. For most, a home is a consumer's largest investment. A continual downturn in home prices can greatly affect consumer confidence, resulting in further contraction of consumer spending. If indeed these foreclosures start to pile up and the banks open up their flood gates, we can say good bye to any signs of an upturn in the residential real estate market. Happy Trading.


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