Bernake Talks to Home Builders: Weak Housing Impeding Recovery. Translation to DC: It’s Still About the Lending, Stupid

Just to show you how crucial housing and home building remains to the nation’s economic recovery, Fed Chairman Ben Bernake rubbed shoulders (and used hand gestures) with Bob the Builders last week in Orlando. His talk was the hottest ticket in town at the 2012 National Association of Home Builders International Builders Show in Orlando. Dallas photographer Suzanne Felber for Lisa Stewart Photography played reporter for me and, hopefully, got a little sunshine! Here’s how Bernake “soothed” the builders: the Fed, he basically said, is analyzing housing 24/7.

“The Federal Reserve has a keen interest in the state of housing and has been actively engaged in analyzing the housing and mortgage markets,” says Bernake. “Issues related to the housing market and housing finance are important factors in the Federal Reserve’s various roles in formulating monetary policy, regulating banks, and protecting consumers of financial services.”

No kidding: in Dallas, close to one-quarter of the builders have been wiped out by the housing crisis. Here’s Suzanne’s report:

With an estimated 1 ¾ million homes unoccupied and for sale in the U.S., the U.S. housing market continues to be a drag on the economy despote record low interest rates. In the last few years roughly 2 million homes have entered foreclosure, and many of these have come on the market, tamping down the need for new building. These homes are often neglected and need repairs, hurting the value of the surrounding homes and community. The Federal Reserve estimates that ¼ of these vacant homes were owned by creditors in the second quarter of 2011. They also estimated that bank owned properties (real estate owned or REO) sold as short sales, and non-auction sales are now accounting for 30 percent of home sales across the U.S.

Bernanke stated that one of the reasons the recovery in housing has been so slow is due to restraints on mortgage credit. In past recoveries, mortgage credit had begun to grow four years after the business cycle peak, but that hasn’t happened this time. One group that has been affected even more than others is first-time homebuyers.

In contrast to this, rental markets seem to be strengthening and are at some of the lowest vacancy rentals of the last 8 years. With home prices falling and rents rising, he stated that property owners renting out these foreclosed homes might make sense. The REO-to-rental program was shared as a way to maintain property values and minimize the amount of time a house sits vacant.

Bernacke said that as of early November 2011, about 60 metropolitan areas each had at least 250 REO properties for sale by government- sponsored enterprises (GSEs) and the FHA – a scale that could be large enough to realize efficiency gains. Atlanta has the largest number of REO properties for sale by these institutions, with about 5,000 units. The next largest inventories are in the metropolitan areas of Chicago; Detroit; Phoenix; Riverside, California and Las Vegas, each which have between 2,000 and 3,000 units.

Note: Dallas is NOT on that list!

Land banks were also discussed as an option to help with these foreclosed homes. These are governmental agencies that have the ability to buy and sell real estate. As promising as these sound as a solution, only a few states have passed legislation to establish land banks, and most lack the resources to keep up with the demand.

In summary, Bernanke stated that “the economic recovery has been disappointing in part because U.S. housing markets remain out of balance. Many local markets have an overhand of empty and foreclosed homes, and many potentially creditworthy homebuyers cannot obtain mortgages. The weak housing market also impairs homeowners’ financial health and diminishes the quality and stability of neighborhoods and communities. For these reasons, and because the troubled housing market depresses construction activity and employment, we need to continue to develop and implement policies that will help the housing sector get back on its feet. No single solution will be sufficient. But sustained efforts to address the many interlocking factors holding back the housing market will pay dividends in the long run”.

Just a LEETLE longer!

His speech comes days after five large US banks that were accused of abusive mortgage practices agreed to pay $25 billion in a settlement that the government expects to help roughly one million borrowers. The deal covers three years and requires the banks to cut mortgage debt amounts as well as extend payments of $2,000 to borrowers who lost their homes in foreclosure.

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