How To Get Home

Our new Fed Chief and our old Fed Chief were both making headlines today. I use the term “old” in reference to his status as the former Fed Chairman and not based on the fact that Mr. Greenspan turned 81 today - congratulations. Before his birthday party, the former central banker told Bloomberg news agency that there was a “one-third probability” of a U.S. recession this year. This view is not shared by the current Fed Chief Ben Bernanke, who feels that the economy is in much better shape.

Mr. Bernanke did urge Congress today to increase regulation of both Fannie Mae and Freddie Mac. With so much chatter lately about the collapse of the sub-prime lending market, Mr. Bernanke supports efforts to limit the massive portfolios (combined estimate $1.56 trillion) of the two government-sponsored enterprises (GSE). Fannie Mae is the largest buyer of home mortgages and Freddie Mac is #2. The purpose of both Fannie and Freddie is to provide liquidity, stability, and affordability to the housing market.

The Fed Chief wants more regulation and supervision to ensure Fannie and Freddie do not pose a risk to the financial system and at the same time wants to direct them “toward activities that provide important social benefits.” See Bernanke’s full comments and see how he feels the GSEs can contribute to affordable housing in the U.S.

Speaking of affordable housing, it looks like the homebuilders are recognizing the need for reasonably priced homes. KB Homes for example is “quickly retooling product on our new openings to go to smaller product.” “It used to be the bigger the better. That has changed,” said Morningstar housing analyst Eric Landry.

Building smaller and cheaper “is on the table for all of (the builders),” Landry said. It will be a refreshing change for the home buying public to have more affordable products to pick from.