Bernanke Cites Housing in Economic Outlook Speech

The construction sector is unlikely to assume its usual role in leading the economy out of recession, despite evidence of pent-up housing demand.

In a speech on the economic outlook of the U.S. economy, Federal Reserve Chairman Ben Bernanke highlighted challenges in the housing sector as one reason why economic growth is weak:

“In contrast, virtually all segments of the construction industry remain troubled. In the residential sector, low home prices and mortgage rates imply that housing is quite affordable by historical standards; yet, with underwriting standards for home mortgages having tightened considerably, many potential homebuyers are unable to qualify for loans. Uncertainties about job prospects and the future course of house prices have also deterred potential buyers. Given these constraints on the demand for housing, and with a large inventory of vacant and foreclosed properties overhanging the market, construction of new single-family homes has remained at very low levels, and house prices have continued to fall. The housing sector typically plays an important role in economic recoveries; the depressed state of housing in the United States is a big reason that the current recovery is less vigorous than we would like.”

With credit channels tightening for homebuyers and blocked for many small businesses, the construction sector is unlikely to assume its usual role in leading the economy out of recession, despite evidence of pent-up housing demand.”

Bernanke also confirmed that the Fed will continue its accommodative monetary policy stance:

“The U.S. economy is recovering from both the worst financial crisis and the most severe housing bust since the Great Depression, and it faces additional headwinds ranging from the effects of the Japanese disaster to global pressures in commodity markets. In this context, monetary policy cannot be a panacea. Still, the Federal Reserve’s actions in recent years have doubtless helped stabilize the financial system, ease credit and financial conditions, guard against deflation, and promote economic recovery. All of this has been accomplished, I should note, at no net cost to the federal budget or to the U.S. taxpayer.”

– Courtesy of NAHB