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By Sonya Morris, CFA | 10-23-2009 04:14 PM

Stanek: Housing Reaching a Bottom

Baird's Mary Ellen Stanek on the mortgage market's recovery and how the federal government's buying activity has pushed some areas to richer valuations.

Sonya Morris: Moving on to mortgages, it seems like the view of the U.S. housing market is mixed. We've got some managers telling us that we're starting to see a bottom here, other managers are still pessimistic, think there's chances of further defaults. What's your view on the mortgage market?

Mary Ellen Stanek: Sure. When you look at the fundamentals of the U.S. consumer, certainly it's challenging. High unemployment levels, leveraged personal balance sheets. At the same time, the biggest asset typically on individuals' balance sheets is their home. That value has come down and eroded. Certainly in their retirement accounts, their stock holdings, and their portfolio values came down in the last year, particularly in a pretty extreme way in 2008, early 2009.

So when you look at those fundamentals, you can get very negative about what the outlook is for the consumer, particularly the residential mortgage-backed market.

We step away and we look at a couple of other things. We go, all right, that market has suffered a great deal already, values are down a lot, now from here sequentially how do we see it improving? And not every market we believe is in a bottoming process, but most are starting to form a bottom.

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