Fed Chair Bernanke: No "Silver Bullet" for Housing Woes
Strong housing markets have historically helped propel economic recoveries, but housing has not played that role in the current recovery, said Federal Reserve Chairman Ben Bernanke during a February 10 speech.
In remarks before the National Association of Homebuilders, Bernanke discussed some of the factors restraining the U.S. housing market and suggested some approaches to help manage the supply of vacant homes for sale. Recent estimates put the supply of vacant properties on the market at 1.75 million houses, significantly higher than the 1.25 million vacant homes that were the norm a decade ago, he noted.
Housing demand in decline
Bernanke also highlighted the way in which tight mortgage credit conditions are affecting monetary policy, in part by dampening the effect of the Fed's actions to push down longer-term rates. As a result, these steps "have had less effect on the housing sector and overall economic activity than they otherwise would have had."
Policy plays a role
However, REO-to-rental programs are not a silver bullet, the chairman warned, pointing to several challenges they present. For instance, rental investors have had trouble obtaining financing in some cases. Also, not all vacant properties are suitable for rentals—some are in poor condition, while others are not located close enough to other rentals to be managed easily, Bernanke explained.
Land banks may be a better option in some cases, especially for properties that have low value or are in poor condition. That approach comes with challenges. For one, many existing land banks are ill equipped to deal with the current supply of low-value properties.
"No single solution will be sufficient," Bernanke concluded, but these and other neighborhood stabilization efforts could help bring housing supply and demand into better alignment.
February 27, 2012