Housing Recovery Key to Stronger Economy, Says Fed Governor Duke
The U.S. economy will continue its gradual recovery in 2012 despite several persistent headwinds, said Federal Reserve Governor Elizabeth Duke during a January 6 speech.
Speaking at a banking conference in Richmond, Virginia, she shared her outlook for the U.S. economy in 2012 and discussed several options for speeding the recovery in the housing and mortgage markets, which is important to the overall economic recovery.
Despite some recent signs of improvement, stubbornly high levels of unemployment will continue to drag on the economy, Duke said. Recent gains include the 200,000 jobs the economy added in November, along with a decline in the unemployment rate to 8.5 percent, the lowest level in two and a half years. However, other data point to a more gradual decline in unemployment along a somewhat "choppy" path, she added.
"Glimmers of hope" in trade, consumer spending
Other headwinds include budget pressures at the federal, state, and local levels. However, there are some "glimmers of hope," Duke noted, including strong performance in the trade sector and a pickup in consumer spending. Easing credit conditions for households and businesses are another cause for optimism. While the recent thawing in credit markets has not included mortgage credit, it does suggest that "when households do regain confidence in the recovery and are ready to begin spending on consumer goods again, the credit markets will not be as much of a constraint as they were during the recession," she explained. Businesses—benefiting from strong cash positions and historically low levels of corporate debt—will also be well poised to increase spending once confidence returns, she noted.
Housing action could speed recovery
Weakness in the housing market has also been a barrier to a more robust recovery. That ongoing weakness stands in contrast to previous recoveries, which were led by housing, Duke noted. She discussed several actions aimed at the housing market that could also boost the economy, "moving us closer to full employment sooner and improving the lives of many Americans." Those actions include
- increasing the availability of credit to homeowners and investors
- modifying existing mortgages of struggling homeowners to prevent foreclosures
- shortening the time and lessening the cost of foreclosures by encouraging alternatives such as short sales and deed-in-lieu of foreclosure and
- broadening the options for disposing of real estate–owned properties, converting them to more efficient uses such as rentals and community development purposes.
No "miracle cure" exists for the ailing housing and mortgage markets, Duke noted, but policies such as these "have the potential to significantly influence the speed and strength of our economic recovery."
January 18, 2012