Bernanke Cites Housing in Economic Outlook Speech

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.

As we have noted before, 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.

Although it is moving in the right direction, the economy is still producing at levels well below its potential; consequently, accommodative monetary policies are still needed. Until we see a sustained period of stronger job creation, we cannot consider the recovery to be truly established. At the same time, the longer-run health of the economy requires that the Federal Reserve be vigilant in preserving its hard-won credibility for maintaining price stability. As I have explained, most FOMC participants currently see the recent increase in inflation as transitory and expect inflation to remain subdued in the medium term. Should that forecast prove wrong, however, and particularly if signs were to emerge that inflation was becoming more broadly based or that longer-term inflation expectations were becoming less well anchored, the Committee would respond as necessary. Under all circumstances, our policy actions will be guided by the objectives of supporting the recovery in output and employment while helping ensure that inflation, over time, is at levels consistent with the Federal Reserve’s mandate.

10 Responses to Bernanke Cites Housing in Economic Outlook Speech

  1. Ted Miroe says:

    I keep talking about fixing the housing market/construction and the economy will return…so far no one cares to listen…LOL!

    • liz Agnello says:

      I completely agree, Ted. “Fix” housing – which means” fixing” the banks as well -and we substantially fix the economy.
      Where does NAR get the stat that for every 2 homes sold one job is created? There are 16,000 parts/pieces in a home. I bet there are more than 2 people who touch them.

      • Robert Dietz says:

        Liz — NAHB estimates that the construction of a single-family home creates, on average, enough work for “three full-time” equivalent positions. So while the construction of an average home may require 20 subcontractors and scores of individuals, one home creates enough work hours to keep three people employed full-time for a year. The paper documenting the NAHB analyis is here if you are interested ( The NAR number is likely their estimate linked to a sale of some hybrid of an existing and a newly-constructed home.

  2. The biggest obstycle holding back housing at all levels is the enormus backlog of foreclosures and short sales across the entire country. Unless something is done to eliminate this situation, housing has no prayer of showing a recovery. A program has to be developed to get these properties out of the way of new construction and allow this so called pent up demand to spill over into new construction. Maybe convert these defaulted mortgages into 50 year mortgages with 5 year fixed rates and adjustable yearly based on market conditions. No money down however, you must qualify in good standing based on the antisapated adjustable rate 5 years later. At least these homes would come of the inventory lists quicker and be less competition for new construction.

    My thoughts might not be the best and they actually may be crazy but the point is this is what has to be taken care first before anything changes the blight of new construction, too much so called shadow inventory. Frank Alexander

  3. KM Owen says:

    Unlike past recessions, the major reason “home sales” will not lead the country out of this recession is Private Financing and Owner Financing have been killed by the SAFE ACT and its subsiquent “rules”. If you personally don’t register with the Feds, pass their test (which is based on resale of loans to HUD and the ‘soon to be created’ substitute for Fannie Mae/Freddie Mac)and/or sell to your immediate family member, a Private Mortgagor or Owner Finance for residential property is out of the question.

  4. liz Agnello says:

    What is the Safe Act? I just accepted a contract on sale on my home in Florida and did all the financing?
    I have to register with the Feds to do this?
    pls send response to my email at

  5. Jim Contractor says:

    Somebody who has no business being in charge of anything more complex than a yo-yo is making speeches again. I’ve been in business for over 30 years, I’ve seen it good, I’ve seen it bad. Folks, we’re still in the middle of this world spanning mess, we’ve still got a long way to go. We haven’t even reached bottom yet, this is the mid-crisis hiccup.

    I do not want the government to protect me. I want them to protect my constitutional rights, nothing more. In this country, unlike any other I am allowed to succeed beyond anybodies wildest dreams. I should also be allowed to fail beyond any expectation. (I currently am failing, but I’m not friends with the speech-maker, so I didn’t get a bailout)

  6. John Price says:

    Let banks lend. They want to, but regulators will not let them. Regulators seem to control Congress, not the other way around as it should be.

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