Housing, with some help from Wall Street, got us into the Great Recession, and it is housing that has made the recovery from that recession so slow and painful, Federal Reserve Chairman Ben Bernanke said today.
"The state of the housing sector has been a key impediment to a faster recovery," Bernanke said in a speech at the National Association of Homebuilders International Builders' Show in Orlando, Florida on Friday.
"In the typical economic recovery, a resurgent housing sector helps fuel reemployment and rising incomes," he added. "But as you know all too well, that scenario has not played out this time."
Bernanke cited economic studies that suggest the collapse in home prices might be shrinking consumer spending, the largest engine of U.S. economic growth, by between $200 billion and $375 billion a year.
Underwater homeowners are also unable to move to find better, higher-paying work or borrow against home equity to help with emergency expenses, Bernanke observed. So begins the vicious cycle in which clusters of foreclosed homes lower property values throughout entire communities and hurt property tax revenues, which lead to cutbacks in municipal services that push house prices still lower.
Economists have seen evidence lately that the housing market might finally have hit a bottom after a collapse and slump that has lasted more than six years. But home prices and new-home construction are still in a deep pit despite record-low mortgage rates that have made housing theoretically more affordable than ever.
The Fed helped push those interest rates to rock-bottom lows in part to support the housing market. But their efforts have mostly been met with frustration.
Bernanke suggested the still-weak housing market might be making it hard for low rates to do much good. Banks, suffering from losses on bad mortgages are afraid of taking still more losses so tighten lending standards, making borrowing more difficult even at low rates.
"The Federal Reserve, in its supervisory capacity, continues to encourage lenders to find ways to maintain prudent lending standards while serving creditworthy borrowers," Bernanke said. "But the slow recovery of the housing market and the economy" and other factors are keeping lenders cautious.
He also acknowledged that the recovery in housing will continue to be painfully slow, estimating that one million foreclosed homes owned by banks could hit the market each year "for the next few years," keeping downward pressure on prices.
One possible solution, he acknowledged, would be to turn some of these foreclosed properties into rental properties, to help meet rising rental demand. But he also acknowledged there was no silver bullet for housing.
Without it, the recovery could stay slow and painful for a while longer.
How to vote
Vote-by-mail ballot request deadline: Varies by state
For the Nov 3 election: States are making it easier for citizens to vote absentee by mail this year due to the coronavirus. Each state has its own rules for mail-in absentee voting. Visit your state election office website to find out if you can vote by mail.Get more information
In-person early voting dates: Varies by state
Sometimes circumstances make it hard or impossible for you to vote on Election Day. But your state may let you vote during a designated early voting period. You don't need an excuse to vote early. Visit your state election office website to find out whether they offer early voting.My Election Office
General Election: Nov 3, 2020
Polling hours on Election Day: Varies by state/localityMy Polling Place