 US ECONOMY & HOUSING MARKET GO HAND IN HANDMonday, November 7, 2011 - Article by: Nancy Releford -
A fresh emphasis on healing the housing sector by officials at the Federal Reserve, in the Obama administration and in state capitals reflects the view that a healthier real estate market would go a long way in strengthening the economy. Fed Chairman Ben Bernanke said on Wednesday that the U.S. central bank was considering buying more mortgage debt to jolt the broader economy onto a more robust growth path. "The housing sector is a very important sector," he said at a news conference after a two-day policy meeting. "Problems in that sector are a big reason why our economy's not recovering more quickly." Economists say the Fed could do well to target the housing sector. For one, it is at the center of the economy's ills; for another, homebuying can be a catalyst for a wide range of consumer purchases from refrigerators to lawn furniture. While many other sectors of the economy have found their feet, housing continues to lag abysmally, held back by high rates of foreclosure and homes that have dropped dramatically in value. Around 7.5 million U.S. households are either in foreclosure or delinquent on their mortgage, and 11 million homeowners owe more than their homes are worth. The Obama administration and a leading housing regulator announced plans last week to widen a program aimed at helping so-called underwater borrowers refinance. At the same time, state attorneys general are pressing for a settlement with top banks over alleged foreclosure abuses that could require the lenders to commit about $15 billion to reduce principal for struggling homeowners and modify loans. "Clearly, the housing sector is an obvious candidate for policy intervention," Goldman Sachs economist Andrew Tilton wrote in a recent note to clients. WAKE UP CALL Fed Governor Daniel Tarullo caught some in financial markets off guard by recommending in a speech on October 20 that the central bank expand its purchases of mortgage-backed securities, reopening a debate many had thought closed. His ideas drew quick support from two of the most influential Fed officials -- Vice Chair Janet Yellen and New York Fed President William Dudley -- and has resonated with others. But why housing, and why now? At just more than 2 percent of U.S. gross domestic product -- down from 6 percent during the housing boom -- residential investment isn't that big a component of the $15 trillion U.S. economy. However, Tilton and others believe housing "punches above its weight" and generates enough momentum to be critical to strong growth. "Housing might be special," Tilton concluded. |
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