Bernanke Does Not Have Housing’s Number

Econintersect:  Friday (10 February 2012) Federal reserve Board Chairman Ben Bernanke spoke to the National Association of Home Builders in Orlando, FL.  He correctly addressed the key drag that the housing bust has had on the economy, not just for the lost construction jobs and business for home builders, but on the economic hardship visited upon millions of families who have seen life savings evaporate with falling home values and loss of their homes to foreclosure.  He said the economy will not be completely turned around until the housing market starts to recover.

Bernanke said that a Fed study indicates that the inventory of foreclosed homes is expected to grow by about 1 million per year for the next several years. (The Wall Street Journal)  This may seem an unlikely number, but a GEI Analysis article published today shows just where such a number comes from.

Here are some Bernanke quotes from Fox News:

“Recent declines in housing wealth may be reducing consumer spending between $200 billion and $375 billion per year. That reduction corresponds to lower living standards for many Americans,” Bernanke said.

……..

“Low or negative equity creates additional problems for households,” Bernanke said. “It reduces financial flexibility: Homeowners who are underwater on their mortgages cannot tap home equity to pay for emergency health expenses or their children’s college educations.

………

“I do think that conditions are still too tight for the health of the financial system, the construction industry and our economy,” Bernanke said. “As regulators, we have been very clear to the banks … that we want them to take a balanced approach. We want them to make prudent loans and we don’t want them to turn away creditworthy borrowers.”

………

“We will be paying close attention to what is happening and hoping that our economy is developing enough steam so that it will be able to continue to recover even if there are some bumps along the road,” Bernanke said.

Bernanke seems to have a good mastery of the data but he was unable to offer any solutions to the problem.  One might say that the chairman has all the numbers on housing but unfortunately doesn’t have housing’s number.

Reuters has published the full transcript of the speech.

Sources:

https://econintersect.com/wordpress/?p=18898 (John Lounsbury, GEI Analysis, 12 February 2012)

Bernanke:  No Silver Bullet for Housing Woes (Robbie Whelan, The Wall Street Journal, 10 February 2012)

Bernanke:  Weak housing has hurt consumer spending (Fox News, from Associated Press, 10 February 2012)

Text of Bernanke’s speech to home builders (Reuters, 10 February 2012)