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Housing's Recovery Stalled Amid Foreclosure Overhang, Kass Says: Tom Keene

Recovery for the housing market is being restrained by the overhang of foreclosed properties, said Douglas Kass, who manages equity funds at Seabreeze Partners and was formerly a housing analyst at Kidder Peabody & Co.

“Housing is haunted by a large shadow inventory and certainly low interest rates have done little to improve that situation,” Kass said in an interview today on “Bloomberg Surveillance” with Tom Keene.

With low interest rates and falling housing prices, the ingredients for a recovery would be in place under normal circumstances, Kass said. “It’s different this time in housing,” he said.

“Affordability, as we know, is at a multidecade high,” Kass said. “The benefits of home ownership vis-à-vis renting a home are at a 14- or 15-year high. Interest rates are at generational lows. The production of new homes over the last two-and-a-half years are at record lows.”

The speculative excesses of the housing bubble continue to weigh on the market, which is exacerbated by the inability of lenders to clear their books when homeowners fall into arrears, Kass said.

“We’re stuck with this indigestion and deleveraging in the housing cycle and this foreclosure moratorium is going to serve to reduce the availability of mortgage credit over the next six months,” Kass said.

With the recovery stalled, Kass said he expects the economy to remain in a “contained recession,” with the efforts of policy makers to stimulate growth becoming less effective. “I’m growing more negative,” he said.

Betting on declining stock prices may be more attractive than pursuing price appreciation, Kass said. “I’m risk-averse right now and looking for opportunities to short,” or wager on falling shares, he said.

To contact the reporters on this story: Daniel Kruger in New York at; Tom Keene in New York at

To contact the editor responsible for this story: Dave Liedtka at

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