Bloomberg reports that the size of the U.S. home-mortgage market is $11 trillion. That market needs $1 trillion in new investment to stop the decline in home equity prices according to analysts at Friedman, Billings, Ramsey & Co.
“There is an imbalance between housing debt and the capital base and the quick way to return to equilibrium is for asset prices to adjust downward,” the Arlington, Virginia-based analysts led by Paul J. Miller Jr. wrote in a report today.
Mortgage-asset prices are tumbling partly because investors are borrowing less, as banks rein in both how much they lend and how much they borrow for their own investments, the analysts wrote. Carlyle Capital Corp., Carlyle Group’s mortgage-bond fund, is among investors saying bond-secured lending is tightening.
As the amount of leverage, or borrowed money, used to boost investment returns decreases, the yields and extra yields over borrowing costs on mortgage assets need to increase to allow buyers to earn the 15 percent returns they typically target, the analysts wrote. Higher yields and spreads also reduce the amount of assets their investments must soak up to achieve the returns.