Monday, June 20, 2011

Fed Chief Says Depressed Housing Slowing Economic Recovery

Someone in Washington seems to have noticed the connection between housing and the disappointing performance of the U.S. economy.
In a recent speech, Federal Reserve Chairman Ben Bernanke noted that “the depressed state of housing in the United States is a big reason that the current recovery is less vigorous than we would like.”
These remarks were made as the economy stumbled into another “soft patch,” unable to maintain the momentum that appeared to be building at the end of 2010. Economic activity has been weaker than expected this year, with housing, at best, “bouncing along the bottom.”
One of the bright spots since the beginning of the year, the labor market lost momentum in May, with a big falloff in job growth and the unemployment rate edging up.
Surprisingly, residential construction added jobs in May, stemming from an increase in home improvement and maintenance, sectors that also supported an increase in residential construction spending despite further declines in single-family and multifamily construction spending.
Falling house prices — a major factor behind weak housing demand and housing production over the past 12 months — remained a problem in the first quarter of 2011, with Case-Shiller house price indexes sinking to new lows; 12 of the 20 cities in the Composite 20 index fell to their lowest levels yet in the current housing cycle.
Housing and the economy face more hurdles in the months ahead with the second round of quantitative easing set to end at the end of June and lower GSE (Fannie Mae and Freddie Mac) and FHA loan limits scheduled for the start of October. Both are likely to further depress the housing market by increasing the cost of mortgage financing and putting additional downward pressure on house prices.

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