Before I begin, allow me to reiterate that I’m fully aware this is a real estate blog and that many of the thousands of readers who visit these pages every day never, ever think about the stock market or the broader economy and its impact on your real estate investment profits.
But some events deserve special attention, and one of those happened today. Fannie Mae, the largest mortgage company in the United States, announced a loss in the second quarter of this year that was nearly three times larger than expected.
It’s a very common experience to hear about companies reporting their profits and losses each quarter. So why is this announcement different or more significant than most?
It’s all in the way the stock market reacts to it. Recall that earlier this week, I said that if the stock market was able to ignore a bad announcement from Fannie Mae, that is a solid sign that “smart money” (meaning mega money managers) think the worst is over for the credit crisis, and that the bad news has already been factored in to the stock market.
So what’s happening in the stock market? As of this moment at 10:38 AM, the Dow Jones Industrial Average is up by about 180 points, or 1.5%. That’s a pretty huge response. But the important thing to remember is that just about 3 weeks ago, this same stock market fell apart hard at the news of the potential impending collapse of Fannie Mae and Freddie Mac. So if the stock market closes today with anything other than a big sell-off, that’s a very positive sign.
Now that there is some hard data out about exactly what’s happening, there seems to be a collective acceptance that’s calmed the stock market.
By extension, the significance of the muted reaction to massive losses at Fannie Mae is that there’s one more bit of evidence that some people “in the know” think that the housing market downturn has run out of steam. And when one factors in the emergence of several Distressed Debt Funds, there is significant evidence of Wall Street’s expectations for a slowing (and possible reversal) of the real estate market doldrums.
Now that you know how Fannie & Freddie’s earnings results currently correlate to the perceived condition of the real estate market, I advise you to go out and find some good investment property to purchase. It won’t be long and you’ll be very glad you did so!
Thank you for reading FreeRealEstateTraining.com!
Teaser Video - Bryan Ellis on Fannie Mae’s Earnings Disappointment
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An investor friend with 14 rental houses is complaining (for about the last six months) that the credit crisis is still here. He is having trouble refinancing his 14 houses, even though he is an eye doctor with very good income and credit. I suggested trying a commercial lender and get a blanket mortgage on his properties with partial releases so he can sell them individually.
Another complaint is that home buyers with very good credit are getting declined after waiting three months for a loan commitment. Home sales are failing mostly because of the lack of financing.
As far as what Wall Street is thinking, who knows? Russia just invaded Georgia, thousands are dead and Georgia has a vital oil pipeline that western countries (like the USA) need. Wall Street never blinked once and rose about 300 points on that day.
Maybe it’s just another dead cat bounce?
Sure, that’s possible. Why would one be inclined to come to that conclusion? — Bryan Ellis
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