Recent Moves Finally Address Housing

It's been right to be more than the average bear for months now. But if you believe that housing played some role in the downturn, then you have to believe that the latest moves are very meaningful for that trashed market.

We have had two major problems in housing: affordability and the ease and cost of mortgage money. We got news yesterday that ameliorated both difficulties, and we cannot sniff at them as much as it has paid to sniff at everything else that has been done.

First, the government's buy of GSE paper revives a moribund market and ends a lot of federal indecision. If you recall when the government confiscated the Fannie (FNM - commentary - Cramer's Take) and Freddie (FRE - commentary - Cramer's Take) preferreds and therefore made FNM paper more dangerous, the government at the same time said that it would make mortgage rates come down, presumably by buying a ton of Fannie/Freddie paper. Instead it made a half-hearted effort by buying about $25 billion in paper and then disappeared!

That's over. You can tell that by the surge in Annaly (NLY - commentary - Cramer's Take) and the other mortgage REITs. The success in lowering mortgage these buys had in the GSE paper -- something that could have been months ago and something that the Fed simply scoffed at when it was suggested in the spring -- tells you that the more that is bought, the lower rates can go.

Any decline of the magnitude we saw yesterday means that we are finally able to take advantage of the startling decline in yield of the 30-year. Soon mortgages will become so low that you will want to buy something.

And you'll be able to do that. The affordability of homes after these crashes has erased much of the late-stage gains in homes, and in some cases has repealed the entire increase from 2000. So pricing declines and lowered rates are a turbo concept for this market.

"But," people say, "the down payment is still too high." The down payments, though, are simply back to the rates of about eight years ago, when housing was being bought at a much higher clip than it is now. It is true that there is "no rush" because houses keep going down in value. However, if we can keep inventories from building, which we can provided the homebuilders don't get bailouts -- in fact, it is crucial that many of them go under -- then lower rates and lower prices even with higher down payments could return the market to normalcy or even tighten it rather rapidly.

If you then have a situation like Citigroup (C - commentary - Cramer's Take) where the toxic assets are cordoned, mortgage rates go down, the yield curve makes mortgage lending profitable and FNM buys make it easy to send the loans to FNM/FRE, then you are going to see a change in psychology that will be meaningful, as it is a root-and-branch attack on the real issue of house price depreciation.

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