Treasury Secretary Hank Paulson in a speech today speculates a correction in dropping home prices is only months away. Paulson believes the worst will be behind us “in months rather than years”.

Home Inventories

Secretary Paulson laid his reasons why he thinks housing price drops will be over soon. He states home inventories of 10 months for existing homes and 11 months for new homes will be liquidating quicker in the future due to slower home building and stabilizing existing home sales figures.

Paulson mentions 1 in 3 homes on the market today is a foreclosure or short sale property extending the housing slump. Government action in the implementing the HopeNow program is keeping 200,000 potential foreclosure homes a month off the auction block helping the market.

Available Mortgage Financing

Helping the housing sector in great part will come from a loose mortgage credit market. Paulson takes credit for assisting here with expanding FHA loan programs and support of the GSEs with new legislation.

He mentions his reluctant role in bailing out the GSEs citing the importance of stabilizing the overall market and keep mortgage financing loose as “playing the hand he was dealt”. As far as the unprecedented powers he has to extend the GSEs capital, he has “no plans to access the backstops”.

Paulson states the a new covered bond market could help with mortgage liquidity calling it a “promising path to a new source of mortgage financing” and this could help speed the housing recovery.

New Regulators Will Help

Paulson also states the current crisis demonstrates the need for greater regulation into a “modern financial regulatory structure”.

He outlines a regulatory structure designed by objective with the three objectives being,

1. regulation to insure financial market stability,
2. regulation of assets that carry a Federal guarantee,
3. regulation to protect consumers and investors

Paulson was short on details in this speech just how to bring this about but is assured that more quickly than ever before the Treasury, the SEC, HUD, and The Fed will work together to achieve this new regulatory capability.

Treasury Secretary Paulson is a lot more optimistic than I.

Good Luck!

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