Bernanke: Tight Credit Impeding Housing, Economic Recovery

Federal Reserve chairman tells builders he sees no end in sight to housing crisis.


On the heels of the government's $25 billion dollar foreclosure-abuse settlement, Federal Reserve Chairman Ben Bernanke headed down to the foreclosure-ridden state of Florida Friday to speak to a group particularly impacted by the housing market meltdown and foreclosure crisis.

At a board meeting of the National Association of Home Builders in Orlando, Bernanke wasn't too optimistic about the future of the housing market, even given the recent flurry of government proposals designed to help struggling homeowners.

[Read: Geithner: Refinancing Help On the Way.]

"He basically said flat out that there's just no end in sight to the problems in the housing market—more foreclosures and vacancies, housing oversupply, and a dysfunctional mortgage market," says Scott Ryles, CEO of Home Value Protection, a California-based insurance provider. "There's no dynamic that would say that this six-year nightmare we're in is going to change anytime soon. We're not going to wake up."

The harsh realities of too-tight credit conditions have squeezed both prospective homebuyers and builders, Bernanke said, sucking the lifeblood out of the construction and housing industries. "Why has the recovery in housing been so slow? One important factor is restraints on mortgage credit," Bernanke said, adding that total outstanding mortgage credit has shrunk by about 13 percent since its peak in 2007.

[Read: Why the Foreclosure Settlement Could Mean More Pain for Homeowners.]

"That's really the top issue among our members," say David Crowe, chief economist at the NAHB. "[Builders'] potential customers can't get mortgages to buy a home and the builders can't get credit to build homes in anticipation of that demand."

But Bernanke was more or less preaching to the choir when he said the lagging housing and construction sector continues to weigh down a broader national economic recovery. "He received a big [round of] applause when he said housing was the key to the recovery," Crowe says. "The audience really appreciated that."

Still, he underscored the limitations of the Fed's powers when it comes to rebooting the housing market. Both domestic and international threats loom for the U.S. economy and housing market, not least continuing debt problems in Europe and partisan bickering in Washington.

"Because the troubled housing market depresses construction activity and employment, we need to continue to develop and implement policies that will help the housing sector get back on its feet," the Fed chairman said. "No single solution will be sufficient. But sustained efforts to address the many interlocking factors holding back the housing market will pay dividends in the long run."

Twitter: @mmhandley

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