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US Government Policies Open Window of Opportunity for Investors

Five years after the housing bubble topped out, we are still living with the unintended consequences of public policy decisions. When the accommodating and pro-homeownership policies of the Bush administration led to an housing market implosion from poor credit standards, the knee jerk reaction from the slighted public was to demand for better regulation. Our government was eager to comply to keep the masses happy and we ended up with credit standards that were tighter than they were a decade ago.

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Oddly enough, while policy makers “knew” the solution to the housing bubble was tighter credit, they don’t seem to know what to do to stimulate the housing market again. Instead, both the Bush and Obama administration promoted stimulus incentive packages that ended up being as effective as pushing on a string. Unfortunately, no matter how eager home buyers responded to the stimulus, they just couldn’t get financing to actually buy. Willingness alone does not make a ready buyer.

Meanwhile, this lack of credit has caused prices to drift lower and led cash-flush investors to jump in. The cash returns from just rents alone have been magnificent compared to the near zero returns on the cash and money markets. Even savvier and risk tolerant investors have taken to rehab properties for much higher returns.

While this has earned them the unfair moniker of “vulture investors”, they are really performing a necessary market function of helping the market to clear off unwanted properties and improving them to become marketable again. It’s a risky strategy that they’re being compensated fairly for. Otherwise, the country would be saddled with millions of abandoned homes, a level of blight that’s hard to even imagine.

So, while the current administration has kept credit standards tight in an effort to rationalize the housing debt market, it’s really a great time for qualified investors to make a few bucks and help stabilize the market at the same time.

Michael Cheng